Last week we looked at the EIC ( Economy Industry Company) approach to detailing a project report. We looked at Michael Porteralt39s five force which serves as an ideal framework for industry analysis. This week w
e will examine the various details with regards to the Company that have to be incorporated in the project report. One should note to include both quantitative and qualitative details w. r. t the project.
THE FINANCIAL JUNGLE Anil Menon
What is an important qualitative factor that needs to be included in the project report?
A significant qualitative factor that investors examine is the background of the promoters, their educational qualifications, experience etc. This past track record of performance promoters is critical. It needs to be noted here that investors will be comfortable with promoters who are experienced.
Experience in allied or similar industries is especially taken as big comfort factor. In addition the personal credit history of the promoters is tracked and analysed.
How is the personal credit history of promoters tracked?
In most countries we have databases which track past credit history of individuals.
In India the popular database for individual credit history is CIBIL which is an acronym for Credit Information Bureau India Ltd. CIBIL tracks the past credit history of individuals and gives a score depending on the past credit history. In case there have been defaults in past loan repayments the same reflects in a poor score. It is thus obvious that higher the CIBIL score, the more comfortable investors will be.
All investors especially bankers track the personal credit history of the promoters and obtain the credit score of the promoters from CIBIL.
What are the other personal details of the promoters that are carefully examined by investors?
The investors also seek details of legal cases against the promoters, if any. It is obvious that investors will not be comfortable with promoters who have legal cases lodged against them. Another key point worth noting here is that details of the second line of management should be highlighted as investors keenly analyse the same.
Why are the details of the second line of management important?
The second line of management is very important to ensure business continuity.
One should never forget that any promoter however experienced and qualified he may be, is a natural person after all.
Often business ventures fail when the promoter falls sick or passes away. This is especially true of one man shows ( a firm run by a single individual and all powers concentrated with him).
It is obvious that investors will be comfortable when the firm has a qualified second line of management with well defined roles and responsibilities.
Note: Often investors insist that the management of a firm should not travel together.
The same logic of ensuring business continuity applies here.
One should never forget the tragic case of the entire top brass of the Polish Govt perishing in an air crash.
Apart from the details of the individual promoters, one should also include details of group companies, subsidiaries etc.
What is the information that needs to be incorporated with regards group & subsidiary firms?
These are firms promo