Core Limited submitted a credit proposal XYZ Bank Limited for the sanction of a Term Loan of 150.00 crore required for procuring and installing a…

To investigate the profitability of the business for judging the accuracy of the schedule of repayment furnished by the borrower, as well as the value of the security in the form of assets of the business already possessed and those which will be created out of the loan, the investigating accountant should take the under-mentioned steps: (1) Prepare a condensed income statement from the Statement of Profit and Loss for the previous five years, showing separately therein various items of income and expenses, the amounts of gross and net profits earned and taxes paid annually during each of the five years. The amount of maintainable profits determined on the basis of foregoing statement should be increased by the amount by which these would increase on the investment of borrowed funds. (2) Compute the under-mentioned ratios separately and then include them in the statement to show the trend as well as changes that have taken place in the financial position of the company: (i) Sales to Average Inventories held. (ii) Sales to Fixed Assets. (iii) Equity to Fixed Assets. (iv) Current Assets to Current Liabilities. (v) Quick Assets (the current assets that are readily realisable) to Quick Liabilities. (vi) Equity to Long Term Loans. (vii) Sales to Book Debts. (viii) Return on Capital Employed. (3) Enter in a separate part of the statement the break-up of annual sales product-wise to show their trend.