Drawing power

This query is : Resolved

23 June 2012 1.DOES THE TOURNOVER MATTERS(AFFECT) IN CALCULATION OF DRAWING POWER? IF YES THEN HOW IT IS AFFECTING IN CALCULATION?

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

23 June 2012 Turnover effects the eligibility limit of loan. Stock effects the Drawing Power.

OM SAI SRI SAI JAI JAI SAI

AMITKUMAR RAMESHKUMAR JOSHI

AMITKUMAR RAMESHKUMAR JOSHI (Querist)

25 June 2012 please explain me by practical example how tournover afeect the eligibility limit of loan & stock affect the drawing power

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)

25 June 2012 Generally all the banks required 5 times turnover to OD limit i.e 20% of the turnover is maximum eligible for OD Loan.

And bank has the 25% margin(or depend on the stock/goods it would be high) margin means amount funded by us i.e 75% of the stock value(purchase value) by finances.

Let go for example.

Assume ABC Ltd is a company trading in X goods and it's annual turnover is Rs.25,00,000. and it holds stock of Rs.5,00,000 at any time. Assume banker's(i.e finance provider's) Margin is 25% i.e means finances only for 75%.

As per above explanation The ABC Ltd is eligible to get OD limit Maximum is Rs.5,00,000(20% of 25,00,000). If the turnover increases the eligible limit increases and vice-verse. it holds Rs.5,00,000 of stock at any time banker's margin is 25% thus Drawing power is Rs.3,75,000(75% of Rs.5,00,000). In case holding of stock increases the drawing power also increases but maximum upto OD limit and vice-verse. If the stock hold by the company is Rs.7,00,000 then it's drawing power would be Rs.5,00,000. Let i will explain you 75% of Rs.7,00,000 is Rs.5,25,000 but OD limit is Rs.5,00,000. So drawing power is maximum of OD Limit.

Are you clarified otherwise write your doubt i will explain you.

OM SAI SRI SAI JAI JAI SAI

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