Lesson No. 27 – Cash Flow Cash Budget System

We will continue our discussion on Working Capital now let us understand CASH FLOW CASH BUDGET System.
RBI desired that this method of appraisal be applied to Business/ Industries with Funds based requirement of Rs.50 Crores and above, Cyclecal Industries/Agro based/Seasonal/Construction/IT/Film/Service Industries and such other Industries(Tea, Sugar, Food processing) where cash flow is the determining factor. Any other business can be also be brought under this method of appraisal if the borrower desires so.
The borrower has to submit the Usual financial statements ie Actuals for last 2 yes,Current year provisional and Next year projections. Along with this they have to submit the Cash Budget. It is to be submitted for one year in the given format and to be split into Shorter forecast say of ( Monthly or) Quarterly .The Cash Budget provides (i) The Peak level requirements (ii) The Level of Bank finance at various periods.

We will first look for Overall Position of CASH BUDGET
1. Opening Cash Balance Rs.......
(+) 2. Net Cash Gap Rs.....( - ) 3. W/C finance from Bank Rs.....
4. Closing Cash Balance. Rs.....
But to arrive at above the STEPS are

The Cash Budget is divided in 4 quarters. And each quarter is sub divided into Cash Flows from 4 angels as follows.

(I) BUSINESS Operations

(A.) Receipts. (B.) Payments
- Cash Sales. - Cash Purchases
- Collection from - Coll. from Trade Debtors. Creditors
-Others. - Other Mfg exp
- Bills Discounted/ - Admin & purchased from Bk Selling expen
- Others. - Intt on loans #
- Others
(# ST+ LT from banks, FI,Others)
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(a)
NET of A and B = Cash flow from Business Operations(-- ve.)
= GROSS GAP from Operations
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II. NON Business Operations

C. Receipt. D. Payments
- Divided/Interest. -Dividend/Intt. on Investment. on Investment
FROM. TO.
Comp./Bonds/Shares. Compan./
Others Others. - Sale of Invest. - Purchase of inv.
- Exch flu Profit. - Exch flu loss
- Others. - Others
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(b)
Net of (C) and (D) Cash Flow on account of Non Business Operations.
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III CAPITAL ACCOUNTS

E. Receipts. F.Payments
-Issue Debentures - Repayment of -Issue of CP borrowing - Borrowing* Principal amt.# - Capital Sub. -Margin money -Margin Mon.loan. loan. -Sale of FA. - Purchase of FA - Others. - Others
(*Long Term borrowing from Directors, Friends, Relatives, Associate, Public,Fin Institutions, Banks ; ‪#‎Repayment‬ of LTL taken)

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(c)
Net of (E) and (F). Cash flow from Capital Account
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(IV) SUNDRY OPERATIONS

G. Receipt. H. Payments
- Refund of Tax, - Pay of IT,ST,Duty Duty,Insurance - Other Taxes Claim. - Insurance - Others. - Penalties
- Others
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(d)
Net of (G) and (H) Cash Flow from Sunday Items
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SUMMARY

NET Cash Gap from Business Operations =
(a)ie Gross Gap from Operations
LESS
[(b+ c +d) ie Cash Surplus = Amount brought and/or To be brought from other sources]

Thus NET Cash Gap is decided for Each Quarter which will be the WC Limit for that Quarter.
THE MPBF/PBM or WC Limit will be = The HIGHEST of the GAP.
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Over all position of Cash Budget
1.Opening Cash. Rs.....
(+).2. Net Cash Gap. Rs....
(--).3.Wor. Cap Fin from Banks Rs...
(4).Closing Cash Balance. Rs...
----------------------++++------------------
A simple example for Dec Quarter
(a) Net Cash flow from Business operations = (-)122.60
(b) Net Cash flow from Non Business Operations = ( --) 4.50
(c) Net Cash Flow on Capital accounts= (+) 8.60
(d) Net Cash flow from Sundry items = (-)1.50

WC limit for December =
- 122.60 Less [-4.50+8.60+ (-) 1.50]
= - 122.60 - 2.60= Rs120 Crores

NET SUMMARY OF CASH BUDGET
1 Opening Cash bal. Rs. 4.60
+ 2 Net Cash Gap. Rs.120.00
- 3 WC finance fr BKS Rs.110.00
4 Closing Cash Bal. Rs. 5.40

With this we have discussed all the Three methods of Lending. In most of the cases 90 to 95 % Borrowers at Branch level will be covered by Turn over method.
****** I am closing the discussion,
With an Appeal to raise the Questions.******

Waman Gokhale
7350902500
Waman.gokhale@gmail.com