Category: Knowledge Series-2
Author: Giridhar Narayanan

2nd November, 2018, Friday: Picking up further from where we left off (https://cashcowconsulting.in/balance-sheet/), let’s dive right into the current liabilities section of the balance sheet. Current liabilities represent all short term sources for the business. Let us explore each one of them in detail:

Sources of Funds (Liabilities)
Short Term Sources (Current Liabilities) Amount
Working Capital Finance From Bank
Creditors (for goods and expenses)
Advance from Customers
Provision for taxation
Other Statutory Liabilities
Others
Total Short Term Sources (A)

Working Capital Finance from Bank:

Working capital as you might have been told/heard is the funding required to keep the day to day operations of the firm running.

Now the question arises as to why is funding required for everyday business. The answer to that is that the funds you have pumped into business (your capital) is tied up in receivables (debtors) and/or stock and any other current asset.

Let me elaborate on it and take it a bit further. Any firm that does business will be booking sales and if that particular sale is on credit of say 2 months to your customer, you will be realising the money from that sale from that particular customer only after 2 months. For example, assume that the business has generated sales of Rs.100 in the month of April, which will be realised in the month of June ( as there is a 2 month credit). In this scenario, the business needs to pay its day to day operational expenses like salary, rent , electricity etc for the 2 months (April and May) where the business’s capital is stuck with the customer in the form of receivables and would require financing for this interim period. This is working capital and bank’s provide finance for the same at an agreed upon interest.

Although from an organisation standpoint , the funds invested in entire current assets (receivables, stock, statutory receivable, advance tax paid etc) form a part of the working capital requirement, Bank’s generally only finance funds that are tied up in the form of receivables(debtors) and stock (inventory). In some cases, Bank’s can fund other current assets, like the recent example of some bank’s rolling out a special scheme towards funding GST receivable for Exporter’s. But this is an exception rather than the norm.

Creditors:

Creditor’s is the accounting terminology for suppliers who are yet to be paid by you. Creditors can further be classified as creditors for goods or creditors for expenses, depending upon what they are supplying or the service they are dispensing. They act as a source of working capital finance for the business.

For example, if the business has purchased stock (be it Raw Material, Consumables, Packing Material etc) worth Rs.100 on credit, the supplier finance’s the purchase of stock thereby replacing the business’s capital to be allocated towards the same, thus acting as a source of short term funding for the business.

Advance from customers:

As the name suggests, this represents the advance you collect from your customers before starting the job in some cases, but most definitely before raising a sales invoice in favour of your customer. Effectively your customer funds a part of your job requirement and thus acts as a source of short term funding. Upon job completion and receipt of payment from the customer, the advance is adjusted against the total invoice amount receivable from the client.

Provision for Taxation:

This represents the outstanding income tax that needs to be paid to the government as on the particular date when the balance sheet is prepared.

Other Statutory Liabilities:

This is similar to the Provision for Taxation except that this represents all the other statutory liabilities like GST, Provident Fund (PF), ESIC etc that needs to be paid to the government on the particular date that is balance sheet is prepared on.

Others:

This represents any other short terms source of funding or all other short term payables apart from the ones mentioned above that is outstanding as on the date the balance sheet is prepared.

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Archana Trimbakkar


Archana Trimbakkar has over 7 years of financial experience with expertise in accounting, record keeping, managing information technologies, compliance, and report compilation.



Accounting| Reconciliation | Financial Statements Compliance | Book-Keeping



Archana Trimbakkar

Controller




Education & Experience

  • University of Mumbai
  • Over 7 years of financial experience


About Archana:

Archana Trimbakkar has over 7 years of financial experience with expertise in accounting, record keeping, managing information technologies, compliance, and report compilation.

Prior to Joining Cashcow, Archana handled accounts and compliance for various clients at an accounting services firm.

Archana is fond of swimming and listening music in her leisure time.

Testimonials

Clearship Freight fowarders PLC

R. Radhakrishnan

(Chairman, Clearship Group)

"Our association with Cashcow Consulting for the past 5 years has been deeply rewarding. They have made a significant impact in the way Clearship Group has been borrowing from banks, bringing in their expertise to help us to firstly determine our optimal working capital requirements and secondly, going ahead and arranging it through the banks at the lowest interest rates possible.

We wish them all the very best in all their future endeavours and looking forward to keep our symbiotic relationship going."

Rich Offset India

Tushar Shah

(Director, Rich Offset India)

"Cashcow Consulting has made a tremendous impact in the time we have been associated with them. They have been thoroughly professional in their approach and their CFO's have gone about setting up system's and process's which has gone a long way in improving the financial efficiency of the company.

I can confidently say that they are now a permanent fixture in the company and we look forward to a long innings with them."

Malhar Décor LLP

Sneha Rane

(Partner, Malhar Décor LLP)

"Cashcow Consulting has done a very professional job in terms of going about setting up the processes in the firm. These processes allowed for the seamless flow of data right from material procurement to production to inventory to sales in a timely and accurate manner. Armed with these data points, Cashcow Consulting appointed CFO's have been able to provide us with timely reports for management discussion thereby impacting process, product mix & distribution strategy to improve the overall financial health of the firm.

Cashcow Consulting has NOT played an advisory role, but that of an 'Active Implementer' getting the buy in from all our employees along the way. They are now very much a part of the management team and we would wholeheartedly recommend them to any of their prospective clients."

Happy Clients

67

Million Funds Raised

6984

Days Worked

3952

Years of Team Experience

77

Current health check-up

Cashcow’s expert approach is to analyse the current financial health and prospects of the ‘opportunity’ though various ratio’s run over a proprietary score card. The report of the same, points to the current weakness and strengths. Understanding the value proposition that amalgamation would bring in the current market is the deal maker.

Long term Forecast & Budgeting

To evaluate opportunities and growth plans, it is necessary to prepare forecasts and budgets. These help us understand the business better and provide a stronger basis for deciding the strategy of the merger and acquisition companies to achieve its goals. Cashcow consulting provides the management team with valuable reports that act as input for product pricing, finance requirement for project execution and necessary capacity utilisation for break even. The team has done Techno Economic Viability (TEV) & Valuation for numerous mergers and acquisition companies and that forms the backbone for recommendations.

Raising finance for Acquisition

Size of the project determines whether existing reserves are sufficient or the methodology for raising term debt gets defined. Cashcow Consulting is equipped with a professional debt raising team with almost 25 years of experience amongst them. The team decides various modes of raising finance either through domestic or foreign currency based term loans or External Commercial Borrowing (ECB) from abroad, or through part cash and part shares swap. Basis fund flow analysis and long term forecasting the required structuring of the debt is undertaken to ensure better risk management for repayment. Term debt is always accompanied by enhancement in working capital. 
Read more about working capital finance here.

Strategic Mergers and acquisitions

Every business owner, at some point of time, has to answer the below critical questions:
  • How to scale up a small business to a big one? or,
  • How to grow the existing one at an accelerated pace into a position of dominance?
The answer to above requires meticulous planning, data backed decision-making and successful execution of any growth strategy. 

Every growing mergers and acquisition companies with surplus funds may look at expansion via an inorganic or organic route. Alternatively, backward or forward integration of the product lines can bring significant value to the organisation. Each growth strategy comes with its own risk and rewards. Mergers and acquisition companies that grow inorganically, can gain access to new markets, improved revenue streams and better technology, through successful mergers and acquisitions companies, but on the flip side the challenges of size-management & culture-blending need to be addressed too. Organically growing, on the other hand is more like gulping what can be chewed and that requires time and patience to nurture, flipside being the market and competition, not providing the comfort of time. 

To make such critical decision Cashcow CFOs provide you with best insights and advisory. Our market presence & regular interaction within our strong network makes us continuously aware of unique opportunities that arise, we ascertain the value proposition basis SWOT, using available data. 

Long term Forecast & Budgeting

To evaluate opportunities and growth plans, it is necessary to prepare forecasts and budgets in order to know about the cash credit and overdraft situation of the company. These help us understand the business better and provide a stronger basis for deciding the strategy of the company to achieve its goals. It is basis the above that the surplus long term funds available with the organisation at any point of time gets highlighted.

Analysis of the existing financial statements allows us to understand the manner in which a particular source of fund i.e cash credit and overdraft has been utilised by the organisation. Any diversion of the same needs to be corrected while completing the forecasting exercise. Cashcow consulting brings in tremendous experience in executing long term forecasts that corrects the wrongs of the past while incorporating the growth strategy that the company is going to embark on.

Raising working capital finance

Financial institution is every organisation’s partner in growth. Cashcow’s debt team, with an overall experience of over 25 years, is fully equipped to raise the working capital finance from the best of financial institutions in India or abroad. Our experience enables the best of possible structuring coupled with the best of financial terms from the respective institutions. The team has handled mandates in excess of INR 20 billion on raising working capital finance till date.

Raising Debt

The size of a project determines whether the existing reserves are sufficient or would it require raising long-term debt. Cashcow Consulting is equipped with professional team with almost 25 years of experience in debt-raising. The team has raised domestic and foreign currency term loans as well as External Commercial Borrowing (ECB) from abroad. Basis fund flow analysis and long term forecasting the required structuring of the debt is undertaken to ensure better risk management for repayment. Term debt is always accompanied by enhancement in working capital.

Cash Credit and Overdraft

Simply stated, working capital is the difference between current assets and current liabilities. Every entity with an intention to grow requires working capital to meet the entire range of short-term fund requirements such as cash credit and overdraft that arise within their day-to-day operations. It’s a measure of short-term liquidity and addresses the overall efficiency of the organisation. 

Analysis pertaining to Working capital sufficiency addresses:
  • Credit term to offer for sales orders
  • Credit term to negotiate for purchases
  • Assistance required from the financial institutions
  • Decision pertaining to organisation’s team expansion or any capital expenditures
  • Company’s growth rate and profitability
At Cashcow consulting we specialise in ‘Analysing’ the working capital sufficiency i.e cash credit and overdraft by studying the current and previous year’s balance sheet of the institution. Understanding the capacity utilisation in the current period coupled with budgeting allows us to frame the long term forecasts on profitability and growth. This in turn forms the basis to address the above mentioned concerns of the company.

Current health check-up: Cashcow Consulting approach is to analyse the current financial health such as cash credit and overdraft of the company though various ratio’s run over a proprietary score card. The report of the same, points to the current weakness and strengths. This frames the short term strategy focused to address the same. 


The above chart is a representation of ideal source and utilization of fund.
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