Discuss about the Banking and Finance.
In order to carry out the business activities smoothly, the often the business organizations need loan or finance from the outside of the company. Owing to this reason the business organizations use to try several different options as well as according the suitability of the financing options as per the fund requirement to carry out the business the business organization use to select the financing options.[1] One of the most effective funding options is bank loan. The companies seek funding option from the banks in the form of bank loan. Moreover, the banks use to check the proposals or loan applications from the companies and after satisfied verification bank pass the loan to the applicants companies. Therefore, in order to approve the bank loan the companies have to place a reasonable proposal, where the companies show it expected profitability and income from the business activities, which will be funded by the bank loan.[2] If the bank considers that the business plan or scheme provided by the companies will be fruitful in near future then the banks approve the loan request of the business organizations. In the undertaken case study a business firm ‘Sengupta Fibres Ltd seek bank loan in order to carry out its business. The company’s current situation is not good as the company is running out of cash and has reached to the verge of the liquidity. Besides this, the bookkeeper of the company has made a business forecast and financial plan for the company by utilizing the present operating assumptions, which is worse and as per this business forecast the company cannot repay its loan from All India Bank & Trust Company’s loan by the end of the December 1990 and for this the bank would not approve the loan for the company.[3]
Working capital determines the amount of the day to day expenses of the company. For the improvement of the company financial conditions, the improvement of the performance of the working capital must be focused for the appropriate enhancement of the profits and henceforth the improvement of the cash helps in the enhancement of the cutting sales.[4] The management of the working capital for the company is seemed to be the toughest task for the enhancement of the solutions that must be reviewed for the creation of the financial data for the enhancement of the statistics and thus it also helps in the creation of the influence for the compensation.[5] The rewards for the persistent and the dedication to the improvement can be lucrative and hence the global crisis is also seen with the enhancement of the global economic breakdown. With focusing on the present situation of the company Sengupta Fibres, Ltd, the company is in the condition of bankruptcy. The company need to reduce the net working capital and hence the reduction of the capital cycle are required for the reduction of the net working capital for the company and henceforth the company provides the implications and henceforth the implementation also helps in creation of the assets and henceforth the company takes the assets and the liabilities that are requisite for the creation of the ways for the healthy investment.[6] While sanctioning the payment of the suppliers, the company cross checks the working capital of the other company before performing any kind of the dealing with the people. Thus in order to ensure the collection of the data, the outcome performance of the company is kept in mind for the enhancement of the visibility with setting the meaningful targets and the proper management of the process. The need of the working capital cycle is very much crucial for the enhancement and the growth of the performance with the varying of the sectors.[7] Since this sector deals with the textile industry, the company with the verifying the performance of the working capital in the past and the present situations of the industry will sanction the loan amount.
While continuing this process the company will keep two things in mind that are the modification of the metrics will helps in the elevation of the visibility and also focuses on the awareness of the collection of the data and henceforth the actions are performed as per the evaluation of the data.[8] Thus these measurement steps are taken for the proper enhancement of the advantages that helps in the creation of the expense and the payment terms. For the case of the inventory analysis, setting the meaningful targets are essential for the company for the creation of the target levels and thus it also helps in the reduction of the working capital expenditures in the company of Sengupta Fibres, Ltd.[9] Henceforth the proper functioning of the analysis of the working capital are essential for the improvement of the performance for the wide range and thus the functioning of the finances will be operated fruitfully by the organisation or the company. For the appropriate achievement of this purpose the maintenance of the momentum is requisite for lowering the company’s cost capital and hence it prevents the erosion of the time with the prevention of backsliding.[10] Thus insight analysis of the working capital is required for the company Sengupta Fibres, Ltd in order to gain the broad range of the functioning of the finance. Hence forth it also helps in the improvement of the management of the programs regarding the working capital and thus creates the bigger opportunity for pricing. It also helps in the easy generation of the cash in order to fund the value creation of the opportunities and also reveals the insight aspects of the business performance carried out by Sengupta Fibres, Ltd.
Sengupta Fibres Ltd has to take necessary steps in order to increase the profitability and performance that will help to take loan from the bank.[11] The management of working capital is very much important in order to generate cash that will enhance the profitability of the company. The financial statements forecasting developed by Mr. Ashoka is not effective and shows that the company would not be able to pay off its loan to the bank at the end of the year. Therefore, it is important for the finance department to prepare financial statements forecasting that shows profitability of the company and would be able to pay off its loan amount at the end of the year. The forecasted cost of goods sold has increased and the net profit has decreased substantially. This shows that the company is not generating enough profits in comparison to previous year. The forecasted and actual assets and liabilities of the company are constant.[12] The forecasted net profit is less which shows negative performance and it should be improved while preparing the financial statements. The supply system has been improved that will reduce the requirement of raw materials from 60 days to 30 days. The reduction of inventories requirement will affect the working capital of the company and increase the space in warehouse. The report will help to take loan from the bank.[13] Hibachi chemical of the Yokohama has also approached with the proposal to supply the polyester pellets on the basis from the plant in Majala. The pellets accounts for 35% of the purchases of the raw materials. The estimation should be done on the basis of the production efficiencies that arise from the annual production level. The most significant thing that the company should focus on is the net profit, cash flows and working capital management. The forecasting should show that the gross margin will rise by 2 or 3 percent that reflects production efficiencies and labor savings gained from the stable workforce and absence of the seasonal training and setting up the costs. The layoffs and seasonal hirings would no longer be essential and helps the company to build stronger workforce. The production level will increase and decreasing the manufacturing risks. The working capital management will help to generate cash and net profit as well as increasing the efficiency of the company. The bank manager will analyze the profitability and performance as well as assets and liabilities of the company for the year end. Therefore, it is important for the finance department to show the forecasting results positive and would be able to pay off the loan amounts. The working capital management will increase the flow of cash, revenues and profitability of the company.
Conclusion
The bank would provide loan to the company ‘Sengupta Fibres Ltd if it can show profitability within the given time period. If the company can show that its income will improve and the account receivable will be increased within the time period and the company can be able to repay its loan amount then the bank will approve its loan amount. As per Davis and Merin the working capital of the company must be reduced that will increase the profitability of the company so that the possibilities of approving the bank loan for the company will be increased.
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2 Banking & Finance. Hong Kong: China Economic Review Publishing.2007
3 Brealey, Richard A, Stewart C Myers, and Franklin Allen.Corporate Finance. New York: McGraw-Hill Irwin.2006
4 Brindley, Barry..A Dictionary of Finance and Banking. Oxford: Oxford University Press.2008
5Helbæk, Morten, Snorre Lindest and Brock McLellan. Corporate Finance. New York: McGraw-Hill.2010
6 Hillier, David. Corporate Finance. London: McGraw-Hill Higher Education. 2010
7 Jones, Jonathan, William W Lang, and Peter Nigro. Recent Trends In Bank Loan Syndications. [Washington, D.C.]: U.S. Office of the Comptroller of the Currency. 2000
8Laurin, Alain and Giovanni Majnoni. Bank Loan Classification and Provisioning Practices In Selected Developed And Emerging Countries. Washington, D.C.: World Bank. 2003
9 Moles, Peter, Robert Parrino, and David Kidwell. Corporate Finance. Chichester: Wiley. 2011
10 Pokharel, Babin. “Customer Relationship Management: Related Theories, Challenges and Application In Banking Sector”. Banking J 1 (1). doi:10.3126/bj.v1i1.5140. 2011
11 Ross, Stephen A, Randolph Westerfield, and Jeffrey F Jaffe. Corporate Finance. Boston: McGraw-Hill/Irwin. 2005
12 Silva Buston, Consuelo. “Active Risk Management and Banking Stability”.Journal Of Banking & Finance. doi:10.1016/j.jbankfin.2015.02.004. 2015
13Smart, Scott B, William L Megginson, and Lawrence J Gitman. Corporate Finance. Mason, Ohio: Thomson/South-Western. 2004
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