## What is Tandon committee method?

In this method the borrower should contribute from long-term sources to the extent of core current assets (Fixed Current assets) and 25% of the balance of the current assets. The remaining of the working capital gap can be met from bank borrowings. This method will further strengthen the current ratio.

**What are the methods suggested by Tandon committee for working capital assessment?**

The Group suggested the norms in relation to (i) Raw Materials; (ii) Stock-in-process; (iii) Finished Goods; and (iv) Receivables and Bills purchased on the basis of time element, i.e., in terms of month. These norms represent the maximum level for holding inventory and receivable.

### Which method under Tandon committee is mostly recommended for working capital finance?

In order to ensure that the borrowers do enhance their contributions to working capital and to improve their current ratio, it is necessary to place them under the second method of lending recommended by the Tandon committee which would give a minimum current ratio of 1.33:1.

**What is the formula of Method 2 under Mpbf?**

MPBF = (75% of Current assets) – (Current liabilities other than bank borrowings) The minimum current ratio under this method works out to 1.33: 1. Therefore, MPBF from Bank under the second method, is Rs. 2200 when Total Current Asset is Rs.

## How is Mpbf calculated from balance sheet?

MPBF under three alternatives are ascertained as follows:

- First Method: MPBF = 75% of (Current assets – Current liabilities other than bank borrowings)
- Second Method: MPBF = (75% of Current assets) – (Current liabilities other than bank borrowings)
- Third Method:

**When was the Tandon committee established?**

July 1974

Reserve Bank of India setup a committee under the chairman-ship of Shri P.L. Tandon in July 1974. The observation and recommendations made by Tandon committee were: Norms: The committee suggested 15 industries excluding engineering industries.

### What is Tandon committee first method?

As per Tandon’s ‘first method’ of lending, the borrower must arrange 25% of Working Capital Gap (WCG) as a margin. Let us take an example of any company which has Total Current Assets (TCA) of Rs. 1,000 and Other Current Liabilities (OCL), i.e. (without working capital facilities from the bank) is Rs. 200.

**What are the methods for working capital assessment Who recommended these methods detail calculations?**

There are broadly three methods of estimating or analyzing the requirement of working capital of a company, viz. percentage of revenue or sales, regression analysis, and operating cycle method. Estimating working capital means calculating future working capital.

## What is Mpbf in working capital?

5. Maximum permissible bank finance (MPBF) : The committee suggested the following three methods of determining the MBFC. 1. The borrower will contribute 25% of the working capital gap, the remaining 75% will be financed from bank borrowings.

**What is Mpbf in CMA data?**

Calculation of Maximum Permissible Bank Finance (MPBF) This is the fifth statement and a very important one. This includes a calculation which indicates the Maximum Permissible Bank Finance. It shows the borrower’s capacity to borrow money.

### What the main issues being studied by the Tandon committee to exercise control over working capital are?

The main issues studied by Tandon committee to exercise control over working capital were:

- Can the norms be evolved for current assets and for debt equity ratio to ensure minimum dependence on bank finance?
- How the quantum of bank advances may be determined?

**Why CMA report is prepared?**

A CMA report which is professionally prepared can enhance the chances of obtaining a bank loan. Under the Credit Monitoring Arrangement (CMA), banks have been permitted for sanctioning credit proposals (of large borrowers) after detailed analysis of the past performance.

## Which method is used for calculating the working capital cycle?

There are broadly three methods of estimating or analyzing the requirement of working capital of a company, viz. percentage of revenue or sales, regression analysis, and operating cycle method.

**What is the minimum margin for working capital assessment under Mpbf?**

COMPUTATION OF MPBF METHOD I Rs. CRORE | ||
---|---|---|

PROJECTED YEAR | ||

4 | Working Capital Gap( 2-3) | 80 |

5 | Min. required margin (25% of WCG) | 20 |

6 | Maximum Permissible Bank Finance (4-5) | 60 |

### What is CMA ratio analysis?

CMA Report also known as Credit monitoring arrangement report is the report showing the financial performance of the Company and its projections for the upcoming years. Bankers analyze these numbers and few ratios based on which the loan is sanctioned.

**What are the three pillars of Basel 2 norms?**

The Three Pillars of Basel II: Optimizing the Mix in a Continuous-time Model. The on-going reform of the Basel Accord relies on three “pillars”: capital adequacy requirements, centralized supervision and market discipline.

## What is first method of lending?

As per Tandon’s-I method (also called as ‘first method’) of lending the borrower has to arrange 25% of Working Capital Gap (WCG) as margin. The first method can be explained from the following illustration. Let us take an example of a company which has Total Current Assets (TCA) of Rs.

**What is CMA ratio?**

### How do you calculate CMA data?

The CMA Data must be prepared with due care….Mainly used ratio while preparing CMA Data is as below:

- Gross Profit Ratio (%)
- Operating Cost Ratio (%)
- Operating Profit Ratio (%)
- Net Profit Ratio (%)
- Interest Coverage Ratio (Times)
- Debt-Service Coverage Ratio.
- Debt-Equity Ratio.
- Total Indebtness Ratio.

**Which is the most popular technique of working capital forecast?**

(D) Projected Balance sheet method.