FINANCIAL ANALYSIS AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL
FINANCIAL ANALYSIS Dr. T.K. Jain. AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email_address] www.afterschool.tk www.afterschoool.tk
Management of currency, particularly foreign exchange risks, exchange rate fluctuations. There may be exchange rate fluctuations due to many reasons like country risk, interest rate fluctuations, political instability etc.
Classification of debtors on the pattern of their aging is called aging schedule. For example, some debtor may be making payment after 1 month, another may be making payment after 3 months, classifying them and studying them is called aging schedule.
There are rating agencies like ICRA,CARE, etc. which rate a company on the basis of its financial competence. These companies try to assess the financial position of the company and try to give it an appropriate rating for example A+++ will denote a very solid company.
My credit sales is 3.2 crore, what is my average debtors, if collection period is on the average90 days?
Sales * Average collection period / total number of days in a year.
= 3.2 * 90/360 = .8
or 8000000 Rs.
My interest rate is 15%. The factor charges 2% commission, but gives advance payment, should I go for factoring?
Factor is a person who takes responsibility for debt collection. Factor collects money from debtors and makes us payment. Here the factor is taking only 2% commission.
The commission paid is only 1.6 Lakh. We we take annualised cost, it will be 1.6*360/90, it will be 6.4 lakhs . But the interst on this money is very high. It will be 80*.15/100 = 12 lakhs, thus we should go for factoring.
The factor has following conditions: he will charge inerest of 20%, take 10% reserve and will take responsibility of bad debt also. We have 1% bad debt. Should we go for it?
Annual cost of factoring:
3.2 *.02 = 6.4 laksh
Interest = 3.2 *.2*3/12 = 16 lakhs
Reserve 8*.15 = 1.2 lakh
Total cost = 23.6 lakh.
Benefit: 3.2*.01 = 3.2 lakhs.
Interest benefit: 12 lakhs.
Thus we have 8 lakhs additional cost. So we have to reexamine it.
In the previous question, if I have 10 employees and total cost is 10 lakhs in the credit recovery department, should I go for it?
Yes, because I shall have benefit of (10-8) = 2 lakhs. Ans.
Inernal Rate of Return, it is calculated by taking cash inflows and cash outflows and based on their comparison, we try to find out at what rate the cash inlfows and cash outflows are equal (present values).
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