Based on norms followed by the bank as given in the table below, find out maximum finance to be offered by bankto

ramya an
Ramya and Co.

Monthly sales 100

Cost of Raw material
per month 80
Cost of production per 90

Stocking Margin
Item WC required Amt Permissible Limit
period (%)
Raw Material 1m 20
Work in process 2w 33
Finished Goods 2w 20
Receivable 1m 40
Expenses 1m 100
Total
Advance Payment 15
received
Credit on purchase 10
Working Capital
Required

Liquid surplus in BS at the end of last year

Net Deficit
Permissible limit from Bank
Balance required as additional capital
to be offered by bankto ramya and co. as working capital limit.
The Simplified Turnover Method is normally used by banks in order to
assess the working capital requirement of business enterprises. Working
Capital Loan finance may include cash credits or overdraft accounts
maintained with banks, the bills purchases / discounted. The operating
cycle refers to the total time required to convert non-cash assets such as
raw materials, receivables etc. into cash assets.

This method was originally suggested by the P.J. Nayak Committee for
the Small Scale Industries in India in need of working capital from banks
unit is calculated
for limits upto Rs.at5 25%
Crore.of annual projected turnover. Out of the said
Working Capital requirement, 5% requirement to be met by the borrower
from his own sources and balance 20% to be financed by lending bank.
•Under this method the operative cycle is taken fixed at 3 months.
Example
Swati Enterprrises ius a manufacturing unit. It has projected annual sales
of Rs1200 lacs for the financial year 2019-20. Itsnet working capital is
Rs80 lacs. This unit has approached your bank for woking capital finance
facility of Rs280 lacs. What is theworking capital limit your bank can
grant as per turnover method?

Accepted sales for 2019-20 1200 Lacs

Sales p.m. 100 Lacs
Operative Cycle 3 Months
WC requirement 100X3 300 Lacs
Permissible Finance @80% 300X80% 240 Lacs
Promoters’ Margin @20% 300X20% 60 Lacs

However, if projected Net Working Capital of the borrower is more than

Rs. 60 lakh, bank finance will be reduced accordingly. For example if
projected NWC is Rs.80 lakh, Bank finance will be (Rs.300 lakh – Rs.80
Lakh) = Rs. 220 lakh.
 Previous Year Current Year

A Total CA
B Other CL
C Working Capital Gap (A - B)
D Net Working Capital (Actual /
Projected)
E Assessed Bank Finance (ABF)
(C - D)
NWC / TCA (%)
Bank Finance / TCA (%)
S. Creditor / TCA (%)
Other CL / TCA (%)
Inventory to Net Sales (days)
Receivable to Gross Sales (days)
S. Creditor / Purchases (days)
Next Year
Ayaansh & Co. has projected salesin Rs Lacs. Figures of their seasonal business from month 0 to 12 are as given below. 10% o
realised next month. 70% of previous month sale is payable as creditors of raw material purchased, wages are paid as 15% of c
payable as other expenses each month with Rs25 lacs payable extra in months 3,6,9 and 12. A cash balance of Rs10 lacs is requ
opening cash in month 1 is Rs10 lacs draw a cash budget. Based on cash budget determine the Maximum Permissible Bank Fin

Month 0 1 2 3 4 5 6 7
Sales 330 540 720 360 360 100 180 300
Cash Sales: 10%
of sales
Collections: 90%
of previous
month sale
Receipts
To Creditors: 70%
of previous
month sale
Wages: 15% of
sale
Others
Payments
Surplus/Deficit
Cash in Hand
Cash required/
available
Closing cash
Cumulative
Surplus/Deficit
re as given below. 10% of the sales are in cash and the balance
ages are paid as 15% of current month of sale. Rs50 lacs are
lance of Rs10 lacs is required to be maintained each month. If
um Permissible Bank Finance.

8 9 10 11 12
360 360 240 240 450