MODERN APPRAISAL SYSTEM - Working Capital Management

All borrowers are expected to submit their financial figures i.e. profit and loss statement, balance sheet and fund flow statement. They fill a form which contains a detailed break up of the items that may be classified as current assets and those that should be classified as current liability. The bankers call for analysis of profit and loss account and balance sheet for two and three immediately completed financial years respectively, as also projections for the current year and assessment of the working capital limits which are to be sanctioned.

The banker scrutinizes these forms essentially to verify:

  1. viability of past operations.
  2. financial health of the company.
  3. classification has been done as per Central Bank guidelines.
  4. classification is consistent over the year.
  5. projected production/sales and balance sheet figures are reasonable in the light of past trends.
  6. borrower can bring in the required minimum net working capital.
  7. projected inventory and receivable holdings are reasonable in the light of past trends.
  8. the end use of the limits sanctioned or to be sanctioned from the funds flow statement.

If the above scrutiny is satisfactory, the banker sanctions the limit and monitors disbursals through the stock statements, quarterly operative limits etc. limit are normally sanctioned for a period of one year and are subject to annual renewal/review.


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Working Capital Management Topics