Preparation of Project Report Preparation of Project Report for Bank Finance – for Bank Finance – Role of a Chartered Role of a Chartered

Accountants Accountants

Presented byPresented byUmesh C. PandeyUmesh C. Pandey

PartnerPartnerB. M. Chatrath & Co.B. M. Chatrath & Co.

INTRODUCTIONINTRODUCTION

The project report is an essential The project report is an essential building block for completion of a building block for completion of a project. project.

The project report must be prepared The project report must be prepared carefully and with sufficient details to carefully and with sufficient details to ensure approval, appraisal and finally ensure approval, appraisal and finally funding from the financial institution.funding from the financial institution.

The project report must be The project report must be accompanied by executive summary.accompanied by executive summary.

POINTS TO BE KEPT IN MIND POINTS TO BE KEPT IN MIND WHILE PREPARING PROJECT WHILE PREPARING PROJECT

REPORTREPORT What is Project Report?What is Project Report? How to prepare a Project Report?How to prepare a Project Report? What are all points to be covered in the What are all points to be covered in the

Project Report?Project Report? Whether any consultant or auditor has to Whether any consultant or auditor has to

be contracted to prepare the Project be contracted to prepare the Project Report?Report?

How to express to the Bank Manager about How to express to the Bank Manager about the proposed project for which you require the proposed project for which you require financial assistance?financial assistance?

POINTS TO BE COVERED IN THE POINTS TO BE COVERED IN THE PROJECT REPORTPROJECT REPORT

Techno Feasibility ReportTechno Feasibility Report IntroductionIntroduction Executive SummaryExecutive Summary Complete details of all aspect of Complete details of all aspect of

projectproject ConclusionConclusion

TECHNO FEASIBILITY REPORTTECHNO FEASIBILITY REPORT

It is a summary of complete It is a summary of complete project, that provide information project, that provide information about the project in a glance.about the project in a glance.

It should cover all the major and It should cover all the major and vital information of the project.vital information of the project.

It should’nt cover more than 2 It should’nt cover more than 2 pages. pages.

INTRODUCTIONINTRODUCTION

The part of project constitutes of:The part of project constitutes of: PreamblePreamble Brief background of companyBrief background of company Background of entrepreneursBackground of entrepreneurs Location details of the projectLocation details of the project

EXECUTIVE SUMMARYEXECUTIVE SUMMARY

Executive summary is a important and Executive summary is a important and necessary part of a project report. It necessary part of a project report. It includes all the details which will includes all the details which will become part of a detailed project become part of a detailed project report but in summary form. It covers:report but in summary form. It covers: LocationLocation Proposed capacityProposed capacity Product mixProduct mix Technological arrangementTechnological arrangement Layout of Factory / plantLayout of Factory / plant

EXECUTIVE SUMMARY…EXECUTIVE SUMMARY…

Raw material requirement, storage Raw material requirement, storage and handlingand handling

Present and Future demand of end Present and Future demand of end productproduct

Plant and MachineryPlant and Machinery Pollution Control equipmentsPollution Control equipments Power and water supplyPower and water supply Capital CostingCapital Costing Other subsidiary requirements and Other subsidiary requirements and

ancillary facilitiesancillary facilities

ENTERPRENUER DETAILSENTERPRENUER DETAILS

QualificationQualification

Work experience in detailWork experience in detail

PRODUCT MIXPRODUCT MIX

Complete details ofComplete details of

End productEnd product Proposed productionProposed production

are to be given. are to be given.

TECHNOLOGICAL TECHNOLOGICAL CONSIDERATIONSCONSIDERATIONS

Technology used in domestic and Technology used in domestic and international market to produce international market to produce the end productthe end product

Merits and demerits of various Merits and demerits of various technology usedtechnology used

Technology proposed to be used in Technology proposed to be used in our project and reason for the our project and reason for the samesame

Details of complete process cycle Details of complete process cycle with process chartwith process chart

SITE DESCRIPTIONSITE DESCRIPTION

Site DetailsSite Details LocationLocation Metrological datasMetrological datas Connectivity through road, train, air Connectivity through road, train, air

etc.etc. Proximity of raw material sources and Proximity of raw material sources and

other vital facilitiesother vital facilities Reason to chosen the site.Reason to chosen the site.

PLANT LAYOUTPLANT LAYOUT

The part of the project report will The part of the project report will include the complete layout, include the complete layout, structure and various facilities to structure and various facilities to cater with the production.cater with the production.

The part must cover the layout The part must cover the layout map.map.

RAW MATERIALRAW MATERIAL

Name and chemical configuration, if Name and chemical configuration, if anyany

Physical RequirementsPhysical Requirements Chemical RequirementsChemical Requirements Availability in the marketAvailability in the market

RECEIPT, STORAGE & RECEIPT, STORAGE & HANDLING OF RAW MATERIALHANDLING OF RAW MATERIAL

Handling systemHandling system Feed systemFeed system Storage arrangements Storage arrangements

At godownsAt godowns At plantAt plant

Transportation arrangments Transportation arrangments

APPLICATION OF END APPLICATION OF END PRODUCTPRODUCT

Whether will be used in own plantWhether will be used in own plant Target marketTarget market

DomesticDomestic ExportExport

Industry details, where it is usedIndustry details, where it is used

ENVIRONMENTAL ASPECTSENVIRONMENTAL ASPECTS

Whether all environmental Whether all environmental clearance certificates required for clearance certificates required for the specific industry has been taken the specific industry has been taken and details of the same.and details of the same.

Arrangements to avoid pollution Arrangements to avoid pollution from the government specified from the government specified limits.limits.

WATER, POWER AND WATER, POWER AND AUXILLARY SERVICESAUXILLARY SERVICES

RequirementRequirement

Arrangement through government or Arrangement through government or private sourcesprivate sources

Alternative arrangementsAlternative arrangements

QUALITY CONTROLQUALITY CONTROL

SamplingSampling

Laboratory setupLaboratory setup

SUPPLEMENTARY FACILITIESSUPPLEMENTARY FACILITIES

Repairs and Maintenance facilitiesRepairs and Maintenance facilities Ventilation and air conditioning Ventilation and air conditioning

systemsystem Instrumentation & telecommunication Instrumentation & telecommunication Automation and Computer ControlAutomation and Computer Control Safety and fire protection Safety and fire protection

arrangementarrangement Hydrant SystemHydrant System

MARKET ARRANGEMNTSMARKET ARRANGEMNTS

This part of project report covers This part of project report covers complete market analysis of your end complete market analysis of your end product.product. in present in present in futurein future

It also covers the marketing strategy It also covers the marketing strategy customer is going to adopt in future, customer is going to adopt in future, to sell its products. to sell its products.

POLLUTION CONTROLPOLLUTION CONTROL

Arrangements to avoidArrangements to avoid Air PollutionAir Pollution Water PollutionWater Pollution Noise PollutionNoise Pollution

Arrangements for effluent disposalArrangements for effluent disposal

MANPOWER PALNNINGMANPOWER PALNNING

Category wise break up needs to be Category wise break up needs to be given:given: Senior ManagementSenior Management Technical staffTechnical staff Marketing StaffMarketing Staff Maintenance StaffMaintenance Staff Production staffProduction staff Quality Control StaffQuality Control Staff

MANPOWER PALNNING…MANPOWER PALNNING…

Estimated requirementEstimated requirement

Cost InvolvedCost Involved

Training arrangementTraining arrangement

Employee welfare arrangementsEmployee welfare arrangements

CONSTRUCTION PLANNINGCONSTRUCTION PLANNING

Month wise target is to be given for Month wise target is to be given for Each construction phaseEach construction phase

Erection of plant and machineryErection of plant and machinery

Commencement of commercial Commencement of commercial productionproduction

CAPITAL COSTCAPITAL COSTEstimated cost is to be given for each Estimated cost is to be given for each capital expenditure planned up.capital expenditure planned up. LandLand

Cost of landCost of landCost of site developmentCost of site development

Building Building construction costconstruction costInternal designing costInternal designing cost

Plant and MachineryPlant and MachineryCost of purchaseCost of purchaseErection and Commissioning Erection and Commissioning

chargescharges

CAPITAL COST…CAPITAL COST…

Other costOther costFurniture and FixturesFurniture and FixturesOffice EquipmentsOffice EquipmentsVehicles and Mobile equipmentsVehicles and Mobile equipmentsTechnical Know howTechnical Know howPreoperative expenditurePreoperative expenditureInterest during constructionInterest during constructionMargin for contingencies, etc.Margin for contingencies, etc.

MEANS OF FINANCEMEANS OF FINANCE

Equity ContributionEquity Contribution Existing Existing ProposedProposed

Borrowed FundsBorrowed Funds ExistingExisting ProposedProposed

FINANCIAL APPRAISALFINANCIAL APPRAISAL

Need to provide 8 years’Need to provide 8 years’ Capacity UtilisationCapacity Utilisation Balance SheetBalance Sheet Profit and Loss AccountProfit and Loss Account Cash Flow StatementCash Flow Statement

Break Even Point (BEP that means Break Even Point (BEP that means no profit no loss)no profit no loss)

FINANCIAL APPRAISAL…FINANCIAL APPRAISAL…

Calculation of Internal Rate of Calculation of Internal Rate of Return (IRR) on the basis of Return (IRR) on the basis of projected profitabilityprojected profitability

Calculation of Debt Service Calculation of Debt Service Coverage Ratio (DSCR)Coverage Ratio (DSCR)

Details of assumptions made to Details of assumptions made to prepare projected financialsprepare projected financials

Sensitivity Analysis – It is done to Sensitivity Analysis – It is done to check the profitability if any check the profitability if any projected targets not achieved.projected targets not achieved.

LIST OF DOCUMENTS NEED TO LIST OF DOCUMENTS NEED TO BE SUBMITTED WITH PROJECT BE SUBMITTED WITH PROJECT

REPORTREPORT Prescribe application form in Duplicate Prescribe application form in Duplicate Project Report in Duplicate Project Report in Duplicate List of total movable and immovable Assets of the List of total movable and immovable Assets of the

promoters. promoters. Income Tax and Wealth Tax details of last three Income Tax and Wealth Tax details of last three

years, with copies of Assessment / Return if years, with copies of Assessment / Return if applicable. applicable.

Provisional Registration Certificate from the Provisional Registration Certificate from the concerned District Industries Centre. concerned District Industries Centre.

Memorandum of Articles of Association and Memorandum of Articles of Association and Certificate of in corporation (in case of Company). Certificate of in corporation (in case of Company).

Certified copy of Registration Certificate issued by Certified copy of Registration Certificate issued by the Registrar of firms ( if partnership concern) if the Registrar of firms ( if partnership concern) if forms 'A' and 'C'. forms 'A' and 'C'.

LIST OF DOCUMENTS NEED TO BE LIST OF DOCUMENTS NEED TO BE SUBMITTED WITH PROJECT SUBMITTED WITH PROJECT

REPORT…REPORT… Registration with the Tourism Department, and Registration with the Tourism Department, and

the licence for eating house in case of Hotel the licence for eating house in case of Hotel Industry. Industry.

Permission/licence from Competent Authority (in Permission/licence from Competent Authority (in case of Textile, Drugs, Foods etc.). case of Textile, Drugs, Foods etc.).

Certified copy of sale deed in respect of land. Certified copy of sale deed in respect of land. (The land should be in the name of sole proprietor (The land should be in the name of sole proprietor / partner / company whichever applicable/ partner / company whichever applicable

OR OR Rent agreement in case of rented premises. Rent agreement in case of rented premises. Three quotation in respect of each item of plant Three quotation in respect of each item of plant

and machinery and raw material, proposed to be and machinery and raw material, proposed to be purchased. purchased.

LIST OF DOCUMENTS NEED TO BE LIST OF DOCUMENTS NEED TO BE SUBMITTED WITH PROJECT SUBMITTED WITH PROJECT

REPORT…REPORT… Details of power requirement and tie-up with Details of power requirement and tie-up with

State Electricity Board. State Electricity Board. Copy of instructions to your Bankers to give full Copy of instructions to your Bankers to give full

information about the concern on request to State information about the concern on request to State Financial Corporation. Financial Corporation.

Permission from Water Pollution Control Board. Permission from Water Pollution Control Board. Approved Building plan from Competent Authority Approved Building plan from Competent Authority

with cost estimates with cost estimates

SOME IMPORTANT FORMULASSOME IMPORTANT FORMULAS

Working CapitalWorking Capital

= Current assets – Current Liabilities= Current assets – Current Liabilities

Current Assets are Accounts Receivables, Current Assets are Accounts Receivables, inventory and cash bank balancesinventory and cash bank balances

Current Liabilities are Account payablesCurrent Liabilities are Account payables

SOME IMPORTANT FORMULASSOME IMPORTANT FORMULAS

Internal Rate of Return (IRR)Internal Rate of Return (IRR)

It is an annualised rate of return that It is an annualised rate of return that can be earned on invested capital.can be earned on invested capital.

IRR is calculated on the basis of IRR is calculated on the basis of Discounted Cash Flow MethodDiscounted Cash Flow Method

SOME IMPORTANT FORMULASSOME IMPORTANT FORMULAS

Debt Service Coverage Ratio (DSCR)Debt Service Coverage Ratio (DSCR)

= (Profit before Tax + Interest)/ = (Profit before Tax + Interest)/ (Principal repayment + interest)(Principal repayment + interest)

As a standard it should be two.As a standard it should be two.

SOME IMPORTANT FORMULASSOME IMPORTANT FORMULAS

Debt Equity RatioDebt Equity Ratio

= Debt / Equity= Debt / Equity

As a standard it should be between 1 As a standard it should be between 1 to 2.to 2.

ROLE OF A CHARTERED ROLE OF A CHARTERED ACCOUNTANTACCOUNTANT

A Chartered Accountant is valuable A Chartered Accountant is valuable coordinator between entrepreneur and coordinator between entrepreneur and bank, in case of syndication of funds.bank, in case of syndication of funds.

Chartered Accountants are having sound Chartered Accountants are having sound knowledge about preparation of financials. knowledge about preparation of financials.

Bank needs actual, provisional and Bank needs actual, provisional and projected financials and also the basic projected financials and also the basic ratios to decide about funding, the same ratios to decide about funding, the same can be easily prepared with the help of a can be easily prepared with the help of a Chartered Accountant.Chartered Accountant.

ROLE OF A CHARTERED ROLE OF A CHARTERED ACCOUNTANT…ACCOUNTANT…

Chartered Accountants are capable to Chartered Accountants are capable to prepare feasibility report in case of prepare feasibility report in case of green -field project.green -field project.

Chartered Accountants by virtue of their Chartered Accountants by virtue of their rigorous experience and high amount of rigorous experience and high amount of patience can be able to preparepatience can be able to prepare Project ReportProject Report CMA (Credit Monitoring Analysis) dataCMA (Credit Monitoring Analysis) data Feasibility ReportFeasibility Report Credit Appraisal Memo (CAM)Credit Appraisal Memo (CAM)

ROLE OF A CHARTERED ROLE OF A CHARTERED ACCOUNTANT…ACCOUNTANT…

By virtue of their experience Chartered By virtue of their experience Chartered Accountant can easily convince to Accountant can easily convince to banker about feasibility of project as banker about feasibility of project as well as communicate the correct well as communicate the correct funding requirements, whether it is funding requirements, whether it is Term Loan (TL) , Cash Credit (CC), Bank Term Loan (TL) , Cash Credit (CC), Bank Guarantee (BG), letter of Credit (LC) or Guarantee (BG), letter of Credit (LC) or any other facility.any other facility.

TYPES OF FUNDING AVAILABLE TYPES OF FUNDING AVAILABLE IN THE MARKETIN THE MARKET

Trade FinanceTrade Finance Factoring – Debtors FundingFactoring – Debtors Funding Channel Finance – Creditors fundingChannel Finance – Creditors funding Export FinanceExport Finance Working Capital FinanceWorking Capital Finance