FINANCIAL APPRAISAL OF THE PROJECT FINANCED BY A PUBLIC SECTOR BANK

Abstract

Every business needs money to continue its operations smoothly, and the bank is one of the sources through which this money is obtained. Before financing a project, the bank evaluates it to see if it complies with the bank's requirements. If it does, then the project is approved for financing. The financial status of a company is one of the most important factors when giving credit facilities for any project. Banks use a variety of methods for financial analysis. However, neither uniformity in evaluation nor established standards for such evaluation exist. Depending on the kind and scale of the project, the role may vary from bank to bank and from project to project within a same bank. However, there are certain significant, shared characteristics of financial evaluation that will be covered in this paper. Two key financial statements that must be presented with the loan application to the bank are the centre of the financial evaluation. The following financial statements: 1. Balance Sheet. 2. Manufacturing, Trading, and Profit & Loss a/c is also known as profit and loss a/c. While the profit and loss a/e provide a summary of activities for the operating year, the balance sheet shows the financial status of a company at a certain moment in time (often the closing date of the operating year). A balance sheet is typically constructed using the "business entity" concept, which treats the company as a distinct legal entity from its promoter with its own assets and obligations. Despite being an asset to the promoter, the capital contribution is a liability for the business. The balance sheet details the assets and liabilities of a company as of the closing date and must also show how these are allocated. Any company's entire assets will always be equal to its total liabilities. Profit and loss a/c is the statement of working results for the concern's operations for the entire year and is a key sign of how the concern is running its business and its financial outcomes. A crucial tool in the hands of bankers, financial evaluation serves as the cornerstone of each loan decision they make. Thus, it is crucial that the financial statements provided to the banks be believed. It is preferred that an audited balance sheet and profit and loss statement be provided, as they are typically seen as being more trustworthy. As the banks are interested in determining the pattern in which the business is being handled from year to year, it is also vital to keep in mind that financial statements from a single year may not vi be deemed adequate to develop any opinion on the financial status of a concern. To make year to-year comparisons of the key financial indicators of a concern, the financial statements of the last three or more years are concurrently evaluated. Thus, 'trend analysis' is conducted after the financial analysis, which takes greater important since banks may be more receptive to concerns with improving trends but comparably poor financial bases. Financial analysis of the company who is taking the loan is done through ratio analysis to check various conditions and feasibility of the company. For projects needing significant financial inputs, such as the building of power plants, pipelines, transportation networks, mining facilities, industrial facilities, and heavy manufacturing plants, project finance is a popular technique of financing employed in capital- intensive sectors. The value of the net cash flows that come from the implementation of a proposed project are evaluated using a procedure called financial appraisal. Economic evaluations are different from financial appraisals in terms of the depth of their research, the variety of impacts they analyse, and the methods they employ. Investment choices are primarily seen from the standpoint of the company making the investment in a financial analysis. Therefore, it exclusively evaluates how an investment choice directly affects the organization’s cash flow. Various techniques have been used to check the profitability of the project • Payback Period • Profitability Index • Average rate of return • Internal rate of return • Net Present Value The project's which has been taken in this research paper is being financed by SBI by checking or measuring the profitability and risk associated with the project and how these risks can be reduced. Financial evaluation, which primarily results in the feasibility study with capital budgeting calculations and ratio analysis.