As the manager of a financial services company, you have received a proposal seeking a term loan of ₹300 lakh, from a firm planning an investment in fixed assets of ₹500 lakh in a new project. The loan is indicated to be repayable in three annual instalments commencing from the end of the second year. The following information concerning the project is available:

Assuming other techno-economic criteria to be satisfactory, you are required to:

(a) compute appropriate financial ratio which, in your opinion, would guide the financing decision, and

(b) interpret briefly the ratio so computed and give your views on the proposal.

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Particulars Gross profit (before depreciation) Depreciation Interest on term loan Working capital borrowing (interest) Provision for tax 1 75 50 25 10 2 100 45 45 15 - Year 3 150 40 30 20 10 (in lakh) 4 150 35 15 20 30