1. CREDIT APPRAISAL

2. THE FORTUNE TELLER- CASE STUDY 1.Kharag & Co. Vs. Sahil Kapoor & Brothers- credit period case  Current ratio: 2.491.52  Liquid Ratio: 0.571.17  Payment Period:121days89days 2.Delhi Based Co.- Bankruptcy case- MDA 3.Take over Case

3. MULTIPLE DISCRIMINANT ANALYSIS (MDA) = 0.012 x (Net Working Capital/ Total Assets%) + 0.014 (Retained Earning/ Total Assets) + 0.033(EBIT/ Total Assets%) + 0.006 (Market Value of Total Equity/ Book value of Debt%)+ 0.999 (Sales/Total Assets) = 2.675 * Only for large companies whose shares are traded in stock exchanges

4. 0.012 x (15%) + 0.014 (31%) + 0.033(13%) + 0.006 (107%)+ 0.999 (0.9) = 2.5841 2.5841 < 2.675

5. Credit Appraisal Refers to the consideration of a fresh proposal for loan or an enhancement proposal for additional loan.

6. IMPORTANCE OF CREDIT APPRAISAL 1.To take Correct Credit Decision 2.To Decide the Quantum of Credit 3.To Ascertain the Ability to repay 4.To Find out liquidity, Profitability, Solvency of Concern 5.To judge the viability of project

7. Documents Necessary for Credit Appraisal 1.Balance Sheet 2.Income statement 3.Cost of Project in the case of new concern of for a concern going in for expansion 4.Means of financing the Project 5.Cost of Production and profitability statements 6.Cash flow statements covering the period of loan 7.Projected Balances Sheet at the end of each financial year during the period of loan 8.Feasibility report of the Project

8. PROCEDURE FOR CREDIT APPRAISAL EXAMINATION OF BUSINESS PLAN/PROPOSAL SCRUTINY OF CASH FLOW STATEMENT-  =Debt Service Coverage ratio= =net profit(after tax)+ Interest on longterm debt+ depreciation Installments of long term debt & deferred payments + Interest thereon STUDY OF FUND-FLOW STATEMENT APPLICATION OF RATIO TECHNIQUE INTER-FIRM COMPARISON ANALYSIS OF MANAGERIAL COMPETENCE

9. LIQUIDITY ratios Current Ratio Current Assets Current Liabilities Ideal ratio: 2:1 Acid Test Ratio Liquid Assets Liquid Liabilities Ideal ratio: 1:1

10. SOLVENCY RATIO Debt Equity ratio Outsiders’ funds Shareholders’ funds Ideal Ratio: 1:1 Equity Ratio Shareholders’ Funds Total Assets

11. Profitability Ratio Gross Profit Ratio Gross Profit * 100 Net Sales Net Profit Ratio Net Profit After Tax*100 Net Sales

12. Operating Profit Ratio Profit Before Dep. Interest &Tax Net sales Return on Networth Net Profit After Tax Capital Employed Net Profit to Fixed Assets Ratio PBIT Amount invested in fixed Assets

13. Activity Ratio Stock Turnover Ratio= Cost of goods Sold Average Inventory Debtors turnover Ratio Credit Sales Total Debtors

14. Average Payment Period Creditors *365 Purchases Fixed Assets Turnover Ratio Sales Fixed Assets