How is cash credit limit calculated based on the financials of a an organisation? A simple example please!!
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Cash Credit
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A figure is arrived at calculating 75% of the current assets consisting of moving inventory and realisble debtors. From that figure the current liabilities consisting of trade creditors and term loan instalments falling within one year are deducted to arrive at the working capital limits. The bifurcation of working capital limits into cash credit, Bills discounting, over draft against book debts etc are arrived at based on the history as well as requirements.
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