For any Company finance is just like a blood in a human being.

Without availability of
proper funds a company cannot run smoothly even for a single day. Therefore to manage
funds effectively and efficiently is very important. Every decision with regard to finance
should be taken in a very professional manner. Actually it is team efforts and thus
coordination is very important. While making finance planning following points should
be considered: -

1. What is profit margin of the company? Whether it is appropriate enough to bear

the burden of cost of capital i.e. Interest and other incidental expenses.
2. If the margin is not appropriate then how we can reduce the cost.
3. Explore the possibility of reducing the inventory holding cost and collection
period. Normally a large part of funds blocked in dead inventory and debtors.
4. How we can improve the efficiency of the use of fixed assets. e.g. new technology
may be adopted to increase the efficiency of plant and machinery.
5. Company should explore what is the best option for raising the funds. Following
are the options available: -

Raising funds through Equity:

Public Limited Company normally prefers raising of funds through equity because of
the following reasons:

(i) Funds raised through Equity represent permanent capital there is no

liability for repayment.
(ii) It is up to the company to pay dividend or not. Thus it does not involve
any fixed obligation.
(iii) It enhances the creditworthiness of the company. Larger the capital base,
higher the ability of the company to obtain credit.
(iv) Normally the companies raises funds through equity to fulfill its long term
funds requirements, Expansion plans or major changes in technical know how
etc. If the same funds are raised through Loan or debenture, the company will
have to pay a very heavy interest and it will not be economical in the long run.

For the investors they have the controlling power, increase in their wealth as
the share market is booming and the dividend received by them is exempt
under the income tax Act, 1961.

On the other hand raising funds through equity is not an easy option for small
or medium scale organization. Company will have to fulfill the requirement of
SEBI, which is now a day is very strict and even the top listed companies have
to face the problems. The goodwill of the company, its past performance
particularly the financial results, the major stake holders of the company, the
business of the company, possibility of future growth are the major points that
the finance department must consider before going for the public issue.
Raising of Funds through Equity: -

First Maiden Issue

Right Issue
Sale of its own share or of the subsidiary company through book building.

Debenture / Bonds

Debenture is a loan raised by a company from the Capital Market as a source of long-
term finance. Debentures are secured by a charge on the immovable properties of the
company. The company promises the debenture holder to pay interest and repay the
principal at a stipulated period.

Main Characteristics of Debentures:

Interest: The debentures carry a fixed rate of interest, the payment of which is legally
binding on the company. Interest is taxable and normally is payable either yearly or half
yearly.

Maturity: Normally debentures are redeem at par of we can say at face value.

Security: Debentures are generally secured by a charge on the present and future
immovable assets of the company by way of an equitable mortgage.

Credit Rating: To ensure timely payment of interest and redemption of principal, all
debentures must be compulsorily rated by credit rating agencies such as CRISIL, ICRA,
CARE etc.

Types of Debenture:

Non-Convertible Debentures: These debentures cannot be converted into equity shares

and will be redeemed at the end of maturity period.

Fully convertible Debenture: These debentures will be converted into equity shares after
the stipulated time period

Partly Convertible Debentures (PCD) under this plan a portion of debenture is converted
into equity share capital after a specified period and the balance will be redeemed as per
the terms of issue after the maturity period.

Pro & Cons of Debenture:

1. For a company cost of issue of debentures are lower than the cost of preference or
equity capital. Interest on debenture is a deductible expense for the company
under the income tax Act.
 2. Debenture financing does not result in dilution of control since debentures holders
are not entitled to vote.
3. Debenture Interest and capital repayment are obligatory payments. Failure to meet
these payments can cause embarrassment and legal action.
4. Debenture holders earn a stable rate of return.
5. Debenture holders enjoy priority in the event of liquidation.
6. Interest is fully taxable in the hands of debenture holders.

Retained Earnings:

It is the cheapest source of funds. It is internal source of finance that left behind from
earnings after the payment of annual dividend. Normally all companies to promote the
growth of the company, a certain part of earnings is retained and ploughed back into
business. Retained earnings are readily available internally and there is no dilution of
control. Due to retain earnings the share price increases which lead to hectic trading in
shares and ultimately increases the wealth of the investors. On the other hand if the share
market is falling then this may not happened.

Term Loans

As the name suggests Term Loan is meant for specific period and for specific purpose In
other words we can say it is project finance. Sources of funds are financial institutions &
Commercial Banks. All nationalized bank, private sector banks and financial institutions
such as LIC, UTI and various financial bodies set up by Central & state govt. to promote
industrialization such as DSIDC, UPFC, etc.

Term loans represent a source of debt finance, which is generally repayable in more than
one year but less 10 years. The financial institutions provide project finance for new
projects and also for expansion/diversification and modernization. The main features of
term Finance are:

Maturity: The maturity period of term loan sanctioned by Financial Institutions are
typically longer and in the range of 6 to 10 years. Normally it is repaid in half yearly
installments.
Term Loan financed by Commercial banks is in the range of 3 to 5 years and is repayable
in installments. Repayment schedule mainly depends upon the project report and
financial date submitted by the company. Term loans are arranged on the fixed rate of
interest and the interest is normally payable either on monthly basis or it may be quarterly
or half yearly as agreed between the two parties.

Security: All term loans are secure. While the assets financed by terms loans serve as
primary security, all the other present and future assets of the company provide
collateral/secondary security for the term loan. Generally all the present as well as the
future immovable properties of the borrower constitute a general mortgage/first equitable
mortgage/floating charges for the entire institutional loan including commitment charges,
interest, liquidated damages and so on.
To protect their interest the financial institutions imposes certain stipulation with a
restrictive terms and conditions on the borrower some of the conditions are:

1. Maintain minimum current ratio and debt equity ratio.

2. Restriction on creation of further charge on asset.
3. Restrict sale of fixed assets without the lenders approval.
4. Restrict to obtain another loan without the approval of the lender.
5. Use of funds for the same purpose for which purpose it has been taken.
6. Furnishing of periodical reports/financial statements to the lenders.

Brief Analysis of Term Loan

1. Term Loan does not lead to dilution of control since lender is not entitled to
voting or participate in the day today affairs of the business of the company.
2. Interest paid on term loan is a deductible expense under the income tax act;
therefore the cost of term loan is lower than actual.
3. Payments of Interest and repayment installment are obligatory payments and
failure to meet these obligations can cause a lot of embarrassment.
4. Because of various restrictive clauses management freedom may be affected.

Cash Credit & Overdraft

This facility is provided by the commercial banks to meet the short-term requirement.
Under this facility banks specified a pre-determined limit for borrowings. The borrower
can draw the amount as per their requirement provided the outstanding do not exceed the
cash credit/overdraft limit. The borrower also enjoys the facility of repaying the amount
partially or fully as and when he desires. Interest is charged only on the running daily
balance and not on the limit sanctioned. This form of advance is highly attractive from
the borrower’s point of view because while the borrower has the freedom of drawing the
amount in installment as and when required, interest is payable only on the amount
actually outstanding. Cash credit operates against security of inventory and accounts
receivable (Debtors) in the form of hypothecation / pledge. Overdraft accounts operate
against security in the form of pledge of shares and securities, assignment of life
insurance policies and sometimes even mortgage of fixed assets.

Leasing

There are two parties under a contract of lease financing i.e. the owner and the user
respectively known as the lessor and the lessee. Third party may be lease broker who
acts as an intermediary in arranging lease deal. Lease represents a contractual agreement
whereby the lesser grants the lessee the right to use an asset in return for periodical lease
rental payments. In simple words the party who owns the assets provides that assets for
use to another person over a certain agreed period of time for the consideration which is
called lease rent.
The assets may be property or equipment such as automobile, plant and machinery,
equipment, land and building, factory, a running business, aircraft etc.

Main features of lease financing contract is that during the lease tenure, ownership
remain with the lessor and its use is allowed to the lessee. On the expiry of the lease
tenure the assets reverts to the lessor.

Broadly there are two types of Lease arrangements:

Operating Lease: It is a short-term lease and cancelable at short notice. The lessor is
responsible for maintenance, insurance and taxes. Operating lease normally is not
beneficial for the lessor as the lessee may misuse the asset. Moreover in the short run the
lessor is unable to recover the cost and the desired return.

Financial Lease: It is long-term non-cancelable arrangement. Normal period of financial

lease is 5 years to 8 years. The lessee is responsible for maintenance, insurance and taxes.
During the lease period the lessor recovers the full investments along with an acceptable
rate of return.

Hire Purchase

Hire purchase involves a system under which term loans for purchase of goods and
services are advanced and it is to be liquidated in stages through a contractual obligation.
This credit normally provided by the seller himself by setting non-banking financial
company. For example Sundaram Finance, Bajaj Auto Finance Ltd., Lakshmi General
Finance Ltd. L & T Finance Ltd. etc. Some private banks such as IDBI, ICICI are also
providing Hire purchase advances. Normally companies make hire purchase agreement
for purchase of Vehicles and Machinery items.

Public Deposits

The amount accepted from Public by non-financial manufacturing Company is known as

“Public Deposits”. Deposit will be subject to Section 58-A of the Companies Act, 1956
and Companies (Acceptance of Deposits) Rules, 1975 as amended from time to time.

Conditions for Public Deposit:

It cannot exceed 25% of the share capital and free reserves.
The maximum maturity period allowed for public deposits is 3 years and the minimum
maturity period is allowed 6 months.
The company will have to keep reserves of an amount equal to 10% of the deposit
maturing by 31st March of Current financial year. This investment must be made on or
before by 30th April of the Current financial year and it can only be used for repaying
such deposits.
A company inviting deposits from the public is required to disclose certain facts about its
financial performance and position.
Sources of International Finance

Integration and globalization of capital market has opened up a vast area of new sources
of finance. Internet plays a major role in this field. The Indian corporate can assess
foreign capital easily. There are various options available of raising funds through
International market i.e. Equity Capital, Bonds, loan from corporations, banks and Govt.
agencies

Raising of Equity Capital: The share should be issued in those countries where the
company can get best price. Issue of shares depends upon the goodwill of the company in
the international market. RBI guidelines, the law of that country in which the company is
entering etc. There are few companies, which are traded in the international share market.
International equity market is less well developed than bond market.

Bond Financing: A foreign bond is sold in a foreign country in the currency of the
country of issue. Foreign bond usually sold by brokers who are located in the country in
which the bonds are issued. e.g. Euro Bonds will be sold outside Europe and similarly an
U.S dollar bond will be sold outside U.S.A.

External Commercial Borrowings: Corporate acquisitions in India are setting a new

trend in raising funds through the External Commercial Borrowing (ECB) route and at
the same time saving on the withholding tax. Air-India, which is in the process of raising
funds overseas to purchase Boeing Aircraft, is planning to opt for lease financing rather
than a direct purchase. Towards this, the public sector airliner and its consortium of
lenders are setting up a Special Purpose Vehicle (SPV) in a foreign country, which would
lease the aircraft to A-I. The SPV would help A-I avoid paying withholding tax on
overseas funds arranged. This is because the SPV will be launched by the lenders in such
a country from where leasing aircraft to Indian Companies are exempt from withholding
tax under the current laws of international taxation. Usually, withholding tax is imposed
by the Government on the borrowing raised by domestic corporate from foreign banks.
Sources say another reason for working out the SPV structure could be the fact that India
was not one of the signatories to the Cape Town Convention on aviation protocol. While
the country for setting the SPV is yet to be decided, the shares of the SPV will be held
either by the overseas lenders or jointly by A-I and the lenders. Therefore, going forward,
if there is any legal hassle in getting the issues sorted, said the sources.

On 7th August 2007 the Government announced fresh restriction on ECB, limiting their
use for domestic expenditure. Companies will now be able to raise only upto $20 million
abroad for rupee expenditure, and that too with prior approval from RBI.

All ECBs above $20 million will be allowed only for foreign currency expenditure such
as imports, acquisition etc.

Bank financing & direct loans: This is very popular among MNC’s operating in India.
This is given preference as compared to equity mainly because interest on debt is
deductible under the income tax act.
Government and Development bank lending: Big Corporate houses and companies
gets support from foreign Govt. & various development banks which includes world bank
at a favorable terms.

Global Depository receipts and American Depository Receipts: These are now very
common GDR created by overseas depository banks, which are authorized by issuing
companies in India to issue them outside the country. GDR’s are issued to nonresident
investors against the shares of the issuing companies

Foreign currency convertible bonds: These bonds issued in accordance with the
scheme and subscribed by non-residents in foreign currency and convertible into ordinary
shares of the issuing company.

GDR’s & FCCB

Our company has issued 1,00,000 0.5% FCCB of USD 1,000/- each aggregating to USD
100 million. These bonds are convertible into equity shares of 10 each at the conversion
price of Rs.236.31 per share, with a fixed rate of exchange of Rs.43.785 equal to one
USD. The conversion is at the option of bondholders at any time on or after 29.3.2005
and prior to the close of business on 10.2.2010. Till date about 90% of the FCCB have
been converted into equity shares.

In March 2006 the company had issued another FCCB aggregating EURO 165 million,
which was also oversubscribed. If we convert this into Indian currency it will be about
Rs.900 Crores.

Main features of FCCB

1. Issue of GDR’s and FCCB’s need prior permission from the Ministry of Finance,
Govt. of India.
2. The company should have a consistent track record of good performance for a
minimum of three years.
3. Profit before tax is used as a criterion for assessing the profitability of the
company.
4. The share issued upon conversion of FCCB is to be denominated only in India
Currency.
5. FCCB issued against ordinary shares are treated, as direct foreign investment and
therefore it should not exceed 51% of the issued capital of the company.
6. Interest payment is subject to liable to income tax i.e. TDS is applicable.
7. The converted equity shares can be sold in India without any lock in period and
net proceed can be reconverted into foreign exchange without RBI approval.
8. The amount so received from this issue should be used only for that purpose for
which has been defined. In other words the net proceeds cannot be used for
meeting day-to-day expenses. Normally it is used for Capital Expenditure.
Financial Analysis and Planning.

Users of Financial statement

Traditionally Financial statements were prepared only for accounting purpose. Records
were prepared and use to be dumped in the storeroom. But with rapid computerization,
tough competition both from domestic and international and increase in awareness from
all the sectors the concept and approach dramatically changed. Because of this the role of
a finance controller has increased. Now the question arises what are these financial
statement and who are the users.

The prominent users are:

1. Shareholders of the Company

2. Investors and Creditors
3. The Management of the company
4. The business partners of the company
5. Various Govt. agencies such as Income Tax, Sales Tax, Service Tax, Excise etc.
6. Stock Exchange where shares of the company are listed.
7. Financial Institutions.

In case of Govt. agencies these financial statement are statutory and are useful for the
following purpose

Collection of revenue, checking control over monopoly, reports on the financial

health of economy etc.

Ratio Analysis

It is a widely used tool of financial analysis. The rationale behind is that it makes related
information comparable. In ratio analysis the figures are generally obtained from the
financial statement i.e. Profit & Loss Account and the Balance Sheet.

Funds Flow Statement:

A Financial statement, which depict the causes of changes in assets, liabilities and owners
equity from the beginning of the accounting year to the end of accounting year. In other
words it refers to change in the economic values of an entity. The event causing increase
in the volume of funds are called sources of fund. On the contrary event leading to
depletion of fund are called application of or usage of fund

In short, funds flow when there is a transaction between:

• A current asset and a fixed asset.

• A fixed asset and a current liability
 • A fixed liability and a current asset
• A fixed liability and a current liability

On the other hand funds do not flow when the transactions effect:
• A fixed asset and a fixed liability
• A Current asset and a current liability
• Two Current assets simultaneously and
• Two current liabilities simultaneously.

Cash Flow Statement.

Availability of required Cash is very important, without which an organization cannot run
smoothly. Cash is required for purchase of raw materials, payment of wages, meeting
other operating expenses, repayment of loan etc.

Significance of Cash Flow Statement

1. Indication of profitability and liquidity.
2. Planning and coordination.
3. Performance evaluation.
4. Capital budgeting decision
5. Projected Cash flow statement is must at the time submitting any loan proposal to
any financial institution.

Financial forecasting & Budgeting

Generally most of the companies draw a financial plan for the future based on the past
performance. In past the budgets were top-down in nature i.e. the top management were
use to do the whole exercise. But now the approach changed altogether. It is rather
bottom-top approach i.e. integration of decision from the shop-floor level to different
level of management.

Budgeting involves detailed analysis of

(i) Various elements of revenues and costs.
(ii) Cash inflows and outflow.
(iii) Capital expenditure proposals.
(iv) Financing plans.
(v) Sales forecast.
(vi) Preparation of budgeted Income Statement.
(vii) Preparation of budgeted Balance sheet.
(viii) Growth and external funds requirement.
According to Tondon Committee Report, the commercial Banks must follow the
following three methods to supervise credit from the point of view of ensuring proper end
use of funds and keeping a watch on safety of services.

1. As per the first method of lending, the borrower is required to bring in min Net
Working Capital to the extent of 25% of WCG. The balance, which is maximum
75% of the WCG, will be the MPBF.

Total Current Assets: Rs.4000

Less Current Liability Rs1000
Working Capital Gap Rs3000
Less 25% from long term sources: Rs.750
Maximum permissible bank borrowings: Rs.2250/-

2. As per the second method of lending, the borrower is required to bring minimum
NWC to the extent of 25 % of the total current assets & the balance the MPBP.
Total Current Assets: Rs.4000
Less Current Liability Rs1000
Working Capital Gap Rs3000
Less 25% of CA from long-term sources: Rs.1000/-
Maximum permissible bank borrowings: Rs.2000/-

3. As per the third method the borrower contribution from long term funds will be to
the extent of 25% of the balance current asset, thus strengthening the current
ration further.

Total Current Assets: Rs.4000

Less Core Current Assets: Rs.500
Total Balance Current Asset: Rs.3500
Less 25% of CA from long-term sources: Rs.875/-
Balance Current Assets: Rs.2625/-
Less Current Liability Rs1000/-
Maximum permissible bank borrowings: Rs.1625/-
Questionnaire (Required by Financial Institutions / Banks)

A. History and Overview

• Provide a description of the origins of the Company including a description of the

initial business and how it developed and diversified and a description of the
original and subsequent ownership. Describe the main historical events and the
stages in the growth of the Company, including major events in its development
such as product or service developments, acquisitions etc.
• Discuss growth opportunities as well as constraints on growth relating to the
Company’s different markets.
• Outline any special risk factors particular to the Company and the industry.
• Discuss any major acquisitions, diversifications, restructuring or other material
transactions being considered.

B. Business Strategy.

• Outline the Company’s corporate strategy for existing and new business. Discuss
strategies for adding/dropping activities and major product groups.
• Provide an overview of how the mix of activities has shifted and is expected to
shift.
• Give an overview of the industry and the trends within the industry in which the
Company is operating. It includes commentary on participants in the market,
supply/demand fundamentals, speculative activity, current market condition and
outlook.
• Discuss the current concerns and priorities of Management.
• Have there been and changes in business activities or in business strategy which
would significantly alter the Company’s balance sheet or competitive position,
etc.
• Are any significant new factors expected to affect the Company during the next
two years? Describe the significant areas of risk, which are currently facing
Management and how Management mitigates or accounts for these risks in each
case, Which (if any) of these risk can be attributed to the Company’s strategy.
• Is the Company active in derivatives in respect of (a) commodities (b) foreign
Currency, (c) Interest rates or (d) other areas. Does the Company employ a
strategy of hedging all/any of its operations? If so, how does the Company
manage its exposure? How does the Company account for its derivative
contracts?
• Describe the mix of assets, revenue and reserves (EBITDA) between the
Company’s principal bases of operation.
(C) Economic, Political and Regulatory Factors.

1. Outline the macroeconomic, regulatory and other factors that have affected and
will affect the Company’s main business and other relevant industries in general
and the Company in particular for the last three years and for the next two
financial years.
2. Uncertainty- Comment on level of political and economic uncertainty in general;
what risk does this pose for the Company. Any risk posed by foreign
governments.
3. Overseas operations: Comment on any foreign operations and the risk related to
these operations.
4. An overview of government relations (both national and regional) in the domicile
of the operations.

(D) Competition

1. Outline the Company’s position in the industry, including peer group analysis and
growth strategy. The factors that separates your company from its competitors.
2. What is the Company’s position on the industry cost curve both at present and
based on future production projections.
3. Trends in competition: Consolidation, exploration expenditure, country risk, and
technological advances.

(E) Management

1. Provide a description of the functioning of the board of directors and their relationship
with senior management or the executive officers and with the respective boards and
senior management of the Company’s principal subsidiaries.

2. Describe the management structure in terms of reporting lines and the degree of
autonomy in decision-making at senior managers.

3. State the full names, title and function within the company and date of initial
appointment of members of the board of directors and of senior management.

4. Provide a one-paragraph biography of each board member and senior manager stating
for example, their professional qualification, length of services with the company and the
principal outside business and other activities performed by such persons where these are
significant with respect of the Company’s activities.

5. Provide the aggregate cash remuneration paid to board members and senior managers
as a class, together with non-cash remuneration, in each of the company’s last two
financial years (including fees, salaries, loans, performance relating bonuses, share option
plans, pension scheme, non-compete agreements in vogue in respect of any person in the
Management.
6. Describe the Company’s dependence on key personnel. Describe any recent or
proposed changes in senior management.

7. Provide a list of stock options held by directors or employees, their expiration date and
their exercise prices.

8. State whether there have been any related party transactions in the last five years or
since the Company’s last financial year. “Related party transaction” means any
transactions which is material in size, directly or indirectly, with any of the management
or 5% or more shareholders or promoters of the company or any other group company, or
(b) any entity in which any such person is interested, or (c) any person who is connected
or related to any such person, or (d) any entity which is not a subsidiary of the Company,
where the transaction is not arms’ length and for full value.

G. Employees and Labour Relations.

1. Provide in tabular form the details of employee with regard to numbers, distinction
between part time and full time employee and also discuss the Company’s plan to
increase or decrease its work force.

2. Describe the Company’s work force demographics (Age, Education).

3. Describe the Company’s employee’s turnover statistics.

4. Provide a breakdown of payroll costs across operations including distinction between

employees and contractors. Does the company have any unfounded pension liabilities?

5. Describe any collective agreements with the Company’s employees and those in each
operating division and generally relations with trade unions or other labour organization.
Provide the number and percentage of employees of the Company who belongs to a trade
union. Discuss any annual or periodic negotiations with trade unions and interaction
between the Company’s unions and other. Are there any material outstanding disputes
between management and employees?

6. Outline the circumstances of any industrial action within the last five years and any
anticipated industrial action. What provisions or measures, if any, have been put in place
to mitigate the effect of such?

7. Discuss any legislation expected to be introduced, which would increase the

Company’s labour costs, either by provision of additional facilities for workers, reduction
of normal working hours, provision of pension rights or other.

8. Discuss Company’s safety policy and culture. Details of lost time statistics of each
operation.
9. Comment on the adequacy of pension provision and other related employer related
plans to meet future liabilities.

10. Provide details of any service agreements between any officer or director and the
Company.

11. Describe the Company’s compensation structure, salaried vs. hourly employees,
incentive plans

12. Describe the Company’s personnel policies and procedures.

13. Discuss the Human Resources Development. It covers Training, performance

appraisal, Industrial relations, Safety, Disaster Management Authority (DMA).

14. Are there any Government regulations or other arrangements that govern the
company’s relations with its work force?

15. The state and Central Government have enacted laws and rules to govern employment
conditions of workforce in the industry / establishment. Some of the important
legislations are – Industrial Dispute Act, Industrial Employment (Standing Order) Act,
Factories Act, Employees Provident Fund & Miscellaneous Provision Act, Payment of
Gratuity Act, Payment of Bonus Act, ESI Act, Maternity Benefit Act, Contract Labour
(Regulation & Abolition) Act, Trade Unions Act, Workmen’s Compensation Act,
Payment of Wages Act, Minimum Wages Act, The Building and other Construction
Workers (Regulation of Employment and Conditions of Service) Act, The shops and
Establishment Act.

16. Which kind of union representation does the Company have?

17. Provide a comparison between the Company’s employee wages and employment
conditions with those of its competitions.

Accounting Information.

1. How frequently are the Company accounts audited? Do the auditors review the
interim financial statements?
2. Have the auditors to the Company raised any issued or made any comments
which would be considered material in the context of the Bonds
3. Comment on whether the Company has planned or expects any changes in
accounting policies or anticipated changes that will affect Company’s financial
statements.
4. Discuss any accounting weakness or issued identified by the Company’s external
auditors and the Company’s response thereto. Are there any or have there been
any disagreements with the auditors in repect of the choice of accounting policies,
the application of these policies or any other matter?. If so how have/will these be
resolved?
 5. Provide a summary of major accounting policies and procedures. Has there been
any recent changes in accounting policies and tax policies.---are any such changes
planned?
6. Comment on whether there has been any fraud involving any Company in the
Group by external parties or won employees in the last 5 years.
7. Comment on adequacy of financial systems and controls. Are there areas in which
these could be improved?
8. Is there sufficient holding capital for present requirements?
9. Are there any surplus or deficit values of assets in the balance sheet cross-
referencing market values
10. What is the impact of movement of interest rates on the Company?
11. How often does the Company meet with its auditors?
12. How often are the management accounts prepared?

Financial Information

1. Discuss (to extent available) income statements (especially net turnover, total
operating income and net profit), balance sheets and cash flow statements for the
past two fiscal years. Describe material changes to the Company’s balance sheet
since 31st March or income statement (compared to the same period in the
previous year) since 31st March 2006.
2. Discuss the performance of the individual operating units, paying particular
attention to any unit whose performance varied significantly form forecast or
budgets.
3. Has there been any material change in the financial or trading position or
prospects of the Company or the Group since 31st March 2006.
4. Discuss profitability over the last 2 years and trends therein.
5. Discuss the trend over the last 2 years and projected trend for the last 2 years
regarding Capital Expenditure & Indebtedness.
6. Discuss factors (technology changes, competition, inflation or government
regulation for instance), which may influence (positively or negatively) the
profitability, growth, direction or prospects of the Company during the next 3 to 5
years.
7. What are the Company’s debt finance strategy, methods, markets, and currencies?
Does the Company make and effort to diversify funding sources?
8. Significant cash investments and requirements including capital expenditure and
debt service.
9. Discuss any available lines of credit with banks. How is the relationship with
principal lenders?
10. Liquidity position and liquidity resources. What is the Company’s policy on debt?
Debt/equities ratios compared to other companies in the industry? (Including
domestic and international credit lines).
11. Significant financing, capital markets transactions or refinancing that are expected
to occur in the next six months?
12. Significant contingent liabilities (including guarantees) and reserves?
13. Describe nature of debt currently outstanding including principal terms, amount,
security granted, restrictions on repatriation of cash flow to Company and
recourse to parent. Where guarantees exist provide description of nature and
expected tenor.
14. Are there any borrowing restrictions or restrictions on payment of dividends in the
company’s existing borrowings documentation or under its constitutional
documents?
15. Is the Company in default on any of its obligations (including financial ratio
covenants) under existing borrowings or contracts? Are there any onerous
contracts that could lead to material losses?
16. What are the Company’s off-balance sheet liabilities: leases, unfounded pensions,
hedging contracts, other contingencies, product liability etc?
17. Please review any extraordinary changes.
18. Foreign currency exposure: Policy in regard to hedging foreign currency
denominated operating costs.
19. Interest rates/inflation/tax rates: Sensitivity of operations to changes.
20. Discuss any other derivatives activities including commodities and interest rates.
How are derivatives exposure monitored? What is the strategy for use of land and
the exposure to any derivative instruments? What is the internal authorization
process for the use of derivatives? Provide details of current exposure to
derivative contracts.
21. What is the intended use of the proceeds of the issue of the Bonds?
22. Have any significant acquisition joint ventures or dispositions or other major
financial transactions occurred recently and does the Group plan any such
transactions?
23. Are there any significant projects/joint ventures planned to be implemented or
terminated during the next six months?
24. Are there any material contracts about to be entered into or lost?
25. Are there intentions to diversify into new business areas of dispose of peripheral
business
26. Provide a description of any profit improvement/cost reduction programs and
historical comparison of initial saving projected versus actual savings realized.
27. Describe history of collections and bad debts (including from wholesalers)
experience to date, trends and projection for the future.
28. Describe the Company’s equity finance strategy. Any limitation to access to the
stock markets? Describe capital raising activities during 2005.
29. If any equity issue is planned, will it materially affect the control and ownership
of the Company?
30. Comment on the Company’s dividend policy and any expected changes to it.
31. Describe any financial or capital leases.
32. What are the major areas of opportunity and concern for the Group in the year to
follow?
 MANAGEMENT’S DISCUSSION AND ANALYSIS

1. Contribution at the operating income level and contribution to net income from
each of the Company’s principal products or divisions and any anticipated
changes in those contributions.
2. Gross margins, operating margins and net margins and trends in margins.
3. Quality of earnings and level of recurring revenues.
4. Does the Company have any equity issue plans?
5. Describe the Company’s actual results vs budget (including summary of actual
results versus forecast) for the last three years.
6. How and when are budgets prepared and how are budgets compared against
results?
7. How are forecasts for the Group made and how often are they revised? How
accurate have recent forecasts been?

Control / Technology

1. Comment on the adequacy of the Group’s financial system, management

information systems and controls and whether all acquired companies are
presently incorporated in the Group’s financial systems and controls.
2. Have there been any lapses in control and management procedures in the last two
years? If so, how were these lapses rectified and what was their effect?
3. Have there been any frauds perpetrated against any company within the Group by
external parties or by the Group’s own employees in the last 5 Years?
4. Discuss the Company’s overall IT Strategy.

INSURANCE

1. Provide with respect to the Company the current level, type and cost of insurance
cover and the strategy in relation to insurance cover.
2. Discuss past and present claims under the policies.
3. Discuss the strategy for future insurance cover.
4. State what you paid for your aggregate insurance premium, in each of the last three
years.

Pollution Control, Environment and Safety.

1. Discuss the Company’s present and historical compliance record with

environmental, health, safety and other relevant regulations and the Company’s
relationship with the government regulators, in particular discuss the constraints
that the regulations, license and the regulators place on the Company’s freedom of
action. Also does the Company have all relevant permits, licenses and consents?
2. What approach does the Company take towards environmental risk management?
Does the Company have an environment policy? What is the state of compliance
with local, national and World Bank environmental guidelines?
 3. Describe the likely future environmental health, safety and other laws and
regulations relevant to the Company and the likely affect of such regulations on
the Company.
4. State whether the Company or any of its operating divisions has carried out any
environmental, health or safety audits. If so, please supply details of them and
discuss any actual or potential environmental, health or safety liabilities
identified.
5. State whether there are any incidents or circumstances, which have or could lead
to, environmental or other liabilities for the Company.
6. How would the company react if their hydroelectric schemes received a similar
level of attention to that of other Indian hydro projects? Particularly relating to the
allegation of a sub-standard Environmental Impact Assessment and public
consultation.

LITIGATION / REGULATORY

1. Describe the Company’s internal controls and procedures for ensuring compliance
with law and regulations.
2. Describe any litigation, arbitration or other proceeding made or threatened against
or being brought by the Company. Provide details of each such proceeding, where
the value of the claim exceeds U.S 500,000 or equivalent in local currency,
including an assessment by lawyers as to its chance of success. Provide details of
each material judgments awarded or claim settled within the last five years and
since the Company last financial year.
3. Discuss any activities, which may be illegal or subject to adverse public comment.
4. Has the Company breached/failed to satisfy any regulatory or contractual
requirements over the past 2 years? Including (a) liquidity, (b) management (c)
minimum paid in Capital?
5. Describe the Company’s relationship with regulators in general.
6. Are there any regulatory or administrative proceedings pending or threatened
against any Group Company?
7. Are there any governmental controls (including import duties or excise taxes,
trade agreements between different countries in relations to pricing, wages,
foreign exchange transactions, imports and exports, regulation of the Company’s
industry, environmental protection or other areas of the Company’s operations?
What is the effect on the Company?
8. Give information on the applicable license, patents, franchises or trademarks of
the Company up to date.
9. Has any director, officer or employee of the Company ever been charged with or
invested in respect of any criminal offence, which might affect the Company’s
business?
10. Please comment on all material contracts entered into in the ordinary course of
business.
11. Please give details of any material breach by the Group of any material contract to
which it is a party.
 12. Has the Group entered into any contracts of a material or unusual nature outside
of the normal course of business?
13. Has the Company or any director, officer or employee ever violated or otherwise
breached any relevant regulations?

TAX

1. Describe the corporate tax regime from the Company’s perspective and discuss
any disputes pending, threatened or anticipated with tax authorities in main
market.
2. Discuss how the Company’s tax liabilities are calculated and what percentage of
taxable profits of the Company pays as tax-to-tax authorities.
3. Ascertain the most recent date up to which the tax authorities have agreed the
Company’s tax liability. When did the last tax audit occur? Any additional
assessments expected?
4. Discuss any management anticipated or forthcoming tax changes and how any
recent changes affect the Company’ results and plans for future financings.
5. Provide details of any disputes between the Company and any government, tax or
regulatory authority. Discuss whether the Company has ever been the subject of
an investigation by any such body over the last 10 years.

GENERAL

1. Is there any intention in the near term to submit the Company to a formal credit
rating?
2. Is any Group Company in default or potentially in default under any of its
borrowings? What would be the consequences of a default for the Group and with
your shareholders and investors?
3. Are there any developments or announcements, which may occur or be made over
the next few months, which we should be aware of?
4. Are there any other or additional risks associated with the Group’s business or the
industry or otherwise?
5. Is there anything else that is material, which has not been disclosed, that is likely
to be of concern to us investors?

GENERAL CORPORATE INFORMATION

1. Provide
(a) Date of incorporation of the Company
(b) Legislation under which the Company was incorporated
(c) If relevant, description of the Company’s principal objects and the clause
of the articles of incorporation in which they are described
(d) Amount of the Company’s authorized and issued share capital
(e) The number and classes of shares of which the Company’s capital is
composed
(f) Details of any issued share capital which is not fully paid up
(g) If the Company has authorized but unissued share capital or is committed
to increase the capital
(h) The terms and arrangements for the issue of such unissued capital
(i) Details of any outstanding long-term debt or debt programs, including
debt covenants