CHAPTER – I

PROFILE OF THE COMPANY

1.1 Introduction of the Organization

Sakthi Group of Coimbatore is well known for it’s outstanding

success in varied ventures and is highly reputed for maintaining standard of
excel lance is diversified fields such as sugar, foundry, textile gems,
transport, finances, industrial alcohol soya, dairy and beverage.

Being dynamic Sakthi group is rapidly expanding its horizons. At

the same time, it constantly bears in mind its soul responsibilities and
discharges them with dedication. It has setup educational and charitable
institutions, hospitals etc., and has contributed to thousand within a span of
few decades. Sakthi has become a recovered name in Indian business circle.
It also aided many rural developments through its agro-based industries.
The group is technologically given with high thrust on reach and
development.

Sakthi Sugars Limited

Sakthi Sugars Limited is a part of sakthi group of industries under

the chairmanship of Arulselvar.Dr.N. Mahalingam. The company has been
flourishing like a banyan tree by adopting multi-product and multi-locational
diversification policy under the dynamic leadership of Mr.M.Manickam
Vice Chairman and Managing director.

1
Sugar Unit
Sakthi sugars Limited is one of the largest producer of sugars in
India having four units. Two units each in Tamilnadu and Orisa states
accounting for about 12,500 tons of sugarcane crush per day.

Sakthi Nagar Unit

This is the first sugar mill established by Sakthi Sugars Limited at
Sakthinagar, Bhavani Taluk, Erode District in TamilNadu. The company
was incorporate on 12th May 1961 and sugar factory on 10th December 1964
with a capacity of crush 1250 tones of sugarcane per day. In stages it was
expended to reach a capacity of 4000 tones, of cane crush per day in 1955
and further expended to crush 6000 tones per day in 1998.

The factory is professionally managed with a general manager

assisted by a deputy general manager operations under whom an able
assistance team of executives heading various functions of sugarcane
department, engineering process, administration and cane at present.

By adopting all possible efficiency improvement treasures

considerably the technical tram could minimize the total losses of sugar
from 2.45% to 1.47% in 1987-88 crushing season, which is the record lowest
loss in India. Sugar product at this unit is on international standard
ICUMSA color value below 35 with exports worldwide covering most of
Eroupe. The cane department is maintaining optimum productivity through
effective implementation of various cane development activities.

2
Awards
The Government of India has conferred the following national
awards in recognition of technical efficiency and quality maintained by
sakthi.
1987 – 99: Commendation certificate for achieving standard
of technical efficiency.

1987 – 88: Lowest total losses.

1988 – 89: Achieving higher standards of efficiency.

1992 – 93: The special awards conferred for manufacture of

superior quality export sugar.

The unit is also bagging the safety awards continuously every year.

Location of the Company

The company is situated in Sakthinagar, Appakudal, in Erode

District.

The annual turnover in the economic year 2004-2005 is over Rs.2

crores out of 700 workers there is 50 supervisor 250 staffs are there.

3
 1.2 ORGANIZATIONAL CHART
Chairman and Managing
Director

Vice-President

GM AGM CE AGM DGM AGM Manager Programer Security

Technical Engineering Project (LANA) Accounts Manager Store EDP Officer
Store

HRD
AGM Maintenance Electrical Cane ALOW Store
AAO MANAGER
(Process) (Engineer) Engineer Officer Officer

Manufacturing Shift Assistant

Chemists Engineer Engineer

4
 CHAPTER – II
2.1 INTRODUCTION TO THE STUDY

The analysis of capital structure is a process of evaluating the

relationship between the Earning Before Interest & Tax and Earnings Per
share statements to obtain a better understanding of the capital structure of
the firm’s position and earnings of the equity shareholders.

The first task of the capital structure is to select the information

relevant to the decision under consideration from the total information
contained in the capital structure of the firm.

The second step is to arrange the information in a way to highlight

significant relationships.

The final step is interpretation and drawing of inferences and

conclusions.

So, capital structure is the process of selection relation and

evaluation.

Capital Structure

Introduction:

Various theories of capital structure have been discussed in an

attempt to establish the relationship between leverage, cost of capital and
value of the firm. The different theories have given differing explanation,
and the board conclusion of the traditional approach. Which takes a midway
was that, given the cost debt, equity and market capitalization rater there

5
may be an optimal structure a debt equity means at which the cost of capital
is minimized and value of the firm in maximized.

Capital structure is undertaken in the light of the two properties.

1. That the capital structure be designed in such a way so as to lead to

the objective of maximization of shareholders wealth.

2. The exact optimal capital structure may be impossible and therefore,

efforts to be made to achieve the best approximation to the optimal
capital structure.

6
 2.2 SOURCES OF CAPITAL STRUCTURE

Internal

Long term Investment Short term Investment

Reserves and Surplus

Provisions

Investment Reserve
Depreciation Provision

Investment Allowance
Reserve
Final Provision

General Reserve
Dividend Provision

Retained Profit

Capital Reserve

7
 External

Long term Short term

Equity Capital
Trade Credit

Performance share
capital Bank Credit

Debenture Capital Other Current Liabilities

Profit Deposit

8
2.3 Factors Determining Capital Structure

Numerous of factors relative to capital structure decisions could be

created, however, some of the most important of these factors are discussed
here. The considerations affecting the capital structure decision can be
studied in the light of the following.

1. Minimization of Risks

A firm’s capital structure must be developed with an age towards

risk because it has a direct link with the value. Risk may be factored by two
considerations.

a). The capital structure must be consistent with the business risk.

b). The capital structure results in a certain level of financial risk.

a) Business Risk

It may be defined as the relationship between the firm’s sales and its
earning before interest and taxes (EBIT). The higher fixed operating cost,
leads to higher business risk. Business risk varies among firms regardless of
line of business, and it not affected by the capital structure decisions. The
level of business risk must be taken. The firms had higher business risks, it
should more cautions must be needed while establishing its capital structure.

b) Financial Risk

The firm’s capital structure directly affects its financial risk, which
may be described as the risk resulting from the use of financial leverage.
Financial leverage is concerned with the relationship between earning before

9
interest and taxes (EBIT) and earning per share (EPS). The more fixed cost
financing were debt and preferred stock, if a firm has more in its capital
structure, its financial risk was greater.

Since the level of this risk and the associated level of returns are key
inputs to the valuation process. The firm must estimate the potential impact
of alternative capital structure on these factors and ultimately on the value in
order to select the best capital structure.

A capital structure may be called an efficient capital structure if it

keeps the total risk of the firm in to the minimum level. The long term
solvency and financial risk of a firm should be assessed for a given capital
structure.

Control

The ultimate decision making power of the firm lies in the hands of
equity shareholders, therefore the issue of additional shares can affects who
controls the firm. A management concerned about control may prefer to
issue debt rather than equity share to raise funds. A capital structure of a
firm should be one, which reflects the management’s philosophy of control
over the firm.

Flexibility

The flexibility of a capital structure refers to ability of the firms to

raise additional capital funds wherever needed to finance profitable and
viable investment opportunities. The capital structure should be one, which
enables the firm to meet the requirements of the changing situations.

10
 Flexibility means that a capital structure should always have an
untapped borrowing power. Which can be used in conditions, which may
arise any time in future due to uncertainty of capital market Government
policies etc.

Profitability

A capital structure of the firm should be most profitable to the point

of view of equity shareholders.

Capital structure of a new firm

The capital structure of a new firm is designed in the initial stages of

the firm and the financial manager has to take case of many considerations.

Capital structure of an existing firm

An existing firm may require additional capital funds for meeting

the requirements of growth, expansion, and diversification or even
sometimes for working capital requirements. The decision for a particular
source of funds is to be taken in the totality of capital structure.

Evaluation of proposed capital structure

A financial manager has to critically evaluate various costs and

benefits implications and the after effects of a capital structure before
deciding the capital mix.

11
2.4 Source of capital

Depreciation

Depreciation does not result in out flow of cash and therefore net
profit well have to be increased by the amount of depreciation or
development rebate charged in order to find out the real cash generated from
firm’s operations.

Intangible Assets

Goodwill, preliminary expenses, etc., when written off against

profits, reduce the net profit without affecting the cash balance. The amounts
written off should therefore, be added back to profits to find out the cash
firm operation.

Loss on Sale of Fixed Assets

It does not result in out flow of cash and therefore should be added
back to profits.

Gains from Sale of Fixed Assets

Since sale of fixed assets is taken as a separate source of cash, it

should be deducted from firm’s net profits.

Transfer of Reserves

If profit for the year has been arrived at after charging transfers to
reserves. Such transfers should be added back to profits. In case operations
show a net loss. Such net loss after making adjustments for non-cash items
will be shown as an application of cash.

12
Issue of New Shares

Shares have been issued for cash, the net cash received will be taken
as a source of cash.

Raising Long Term Loans

Long-term loan such as issue of debentures loans from industrial

finance corporation state financial corporations, IDBI, etc., are sources of
cash.

Purchase of Plant and Machinery on Deferred Payments

Plant and machinery has been purchased on a deferred payments

system. It should be shown as a separate source of cash to the earliest of
deferred credit. However, the cost of machinery purchased will be shown as
an application of cash.

Short term Borrowings Cash Credit from Banks

Short-term borrowings etc from Banks increase the cash available and
they had shown separately under this head.

Payment of Dividend

This decreases the cash available for business and hence it is an

application of cash.

Decrease in Unsecured Loans Deposits

These liabilities denoted that they have been paid off to that extent.

13
LEVERAGE ANALYSIS

The term leverage, in general refers to a relationship between two

interrelated variables. With reference to a business firm, the variables may
be costs, sales revenue, earnings before interest and tax, earnings per share
etc. in financial analysis the leverage reflects the responsiveness or influence
of one financial variable.

Percentage change in dependent variable

Leverage: ---------------------------------------------------

Percentage change in independent variable

There are two leverage are there,

1. Operating leverage

2. Financial leverage

Operating leverage:

When the increase or decrease in the sales level, the earnings before
interest and tax also changes. The operating leverage measures the
relationship between the sales revenue and the earnings before interest and
tax or in other words it measure the effect of change in sales revenue on the
level of EBIT. The operating leverage in calculated by dividing the
percentage change in EBIT by the percentage change in sales revenue.

14
 Contribution

Operating leverage: -----------------------------------------

Earnings before interest and tax

Financial leverage:

The financial leverage measures the relationship between the

earnings before interest and tax and the eating per share and it reflects the
affect of change in EBIT on the level of earning per share. The financial
leverage measures the responsiveness of the EPS and the change in EBIT
and it is defined on the percentage change in earning per share divided by
the percentage change in earnings before interest and tax.

Percentage change in EPS

Financial leverage: ---------------------------------------------
Percentage change in EBIT

Combined leverage:

The combined leverage is not a district type of leverage analysis

rather it is a product of the operating and financial leverage. The combined
leverage may be defined on the percentage change in earnings per share for a
given percentage change in the sales level and may be calculated as follows.

Combined leverage = Operating leverage x Financial leverage

EBIT – EPS Analysis:

15
 The EBIT – EPS analysis, as a method to study the effect of
leverage. It involves the comparison of alternative methods of financing
under various assumptions of EBIT. A firm has the choice to raise funds for
financing its investment proposals from different sources in different
proportions. For instance, it can

1. Exclusively use equity capital.

2. Exclusively use debt capital.

3. Exclusively use preference capital.

Capital Gearing:

Capital Gearing refers to the proportion between fixed interest or

dividend bearing funds and non-fixed interest (or) dividend bearing funds in
the total capital employed in the business. Non –fixed interest or dividends
bearing funds are the funds provided by the equity shareholders. The
amount, therefore, includes, the equity share capital and other Reserves. A
proper proportion between the two funds in necessary in order to keep the
cost of capital at the minimizes.

The amount of fixed interest or fixed dividend bearing funds is more

than the equity shareholders funds. The capital structure is said to be “high
geared”. If the amount of equity shareholders funds is more than the fixed
interest or dividend bearing funds the capital structure is said to be “Low
geared”. In case these two are equal, the capital structure is said to be “even
geared”.

Profitability

16
 Profitability is an indication of the efficiency of the firm with which
the operations of the business are carried on. Poor operational performance
may indicate poor sales and hence poor profits. A lower profitability may
arise due to the lack of control over the expenses.

Banker, financial institutions and other creditors look at the

profitability ratio’s as an indicator whether the firm earns substantially more
than its interest payment of borrowed funds and whether the ultimate
repayment of these debt appears reasonably certain owners are interest to
know the profitability, it indicates the return which they can get on their
investments.

17
 CHAPTER- III

3.1 Research Methodology

Research methodology of this study is only depends upon following

factors.

i. Nature of research design

ii. Period of study

iii. Method of data collection

iv. Tools used for this study

Nature of research Design

Nature of the research design of this study has the descriptive

research. It includes survey and fact finding experiences of different kinds.
The major purpose of descriptive research is description of the state of
affairs as its exists at present.

Period of study

Period of study was five years from 2001to2005 it depends on the

Balance sheets and profit and loss account of the year 2001 to 2005

Method of data collection

Method of data collection is all the data, which are used in this
study, was extracted from the secondary data of the company’s annual
records.

18
3.2 Tools Used for this study

(i) Percentage schedule of capital structure

(ii) Leverage analysis

1.Operating leverage

2.Financial leverage

3.Combined leverage

(iii) Schedule of earnings per share

(iv) Ratio analysis

1. Leverage Ratio

2. Profitability

3. Financial stability

4. Proprietary Ratio

19
3.3 OBJECTIVES OF THE STUDY

1. To study about capital structure of Sakthi Sugars Limited.

2. To study the Export and financial performance of the Sakthi Sugars

Limited.

3. To find out the financial stability of the Sakthi Sugars Limited.

4. To analyze the sugar production and turnover of the financial year

2000-01 to 2004-05 of the Sakthi Sugars Limited.

5. To suggest suitable measure of the firm.

20
3.4 LIMITATIONS OF THIS STUDY

1. All the capital structure analysis is only based on the balance sheets
and profit and loss account.

2. The company does not have any indication for the future planning.

3. The company doesn’t have funds to efficient production.

4. Due to lack of time the data’s, which is related to this study, is not
able to collect from the company.

21
 CHAPTER – IV

4.1 Analysis and interpretation

Table No.4.1

Capital Structure of the year 2000-01

Particular Amount in Rs. Percentage

1.Share Capital 406821000 6.55

2.Reserve & surplus 962415000 15.50

3.Net worth (1+2) 1369236000 22.05

4.Long term borrowings 4844748000 77.95

Total (3+4) 626984000 100

Interpretation:

The above table shows that the share capital of the year 2001 was 6.55
percentage and reserves and surplus was 15.50 percentage, long-term
borrowings are 77.95 percentages. So the year 2000-01 most of funds
arranged from the long term borrowings.

22
 Chart No.1
Capital structure of the year 2000-2001
90

77.95
80

70

60

50
percentage

40

30

20
15.5

10
6.55

0
Share Capital Reserve & surplus Long term borrow ings

23
 Table No.4.2

Capital Structure of the year 2001 - 02

Particular Amount in Rs. Percentage

1.Share Capital 326821000 6.33

2.Reserve & surplus 974018000 18.87

3.Net worth (1+2) 130089399000 25.20

4.Long term borrowings 3862942000 78.80

Total (3+4) 5163781000 100

Interpretation:

The above table shows that the share capital of the year 2002 was 6.33
percentage and reserves and surplus was 18.87 percentage, long-term
borrowings are 78.80 percentages. So the year 2001-02 most of funds
arranged from the long term borrowings.

24
 Chart No 4.2
Capital structure of the year 2001-2002

90

80 78.8

70

60

50
percentage

40

30

18.87
20

10
6.33

0
Share Capital Reserve & surplus Long term borrowings

25
 Table No.4.3

Capital Structure of the year 2002-03

Particular Amount in Rs. Percentage

1.Share Capital 397321000 7.70

2.Reserve & surplus 928619000 17.99

3.Net worth (1+2) 1325940000 25.69

4.Long term borrowings 3835607000 74.31

Total (3+4) 5161547000 100

Interpretation:

The above table shows that the share capital of the year 2003 was 7.70
percentage and reserves and surplus was 17.99 percentage, long-term
borrowings are 74.31 percentages. So the year 2002-03 most of funds
arranged from the long term borrowings.

26
 Chart No 4.3
Capital Structure of the year 2002-2003

80

74.31

70

60

50
percentage

40

30

17.99
20

10 7.7

0
Share Capital Reserve & surplus Long term borrow ings

27
 Table No.4.4

Capital Structure of the year 2003-04

Particular Amount in Rs. Percentage

1.Share Capital 397321000 4.95

2.Reserve & surplus 3114347000 38.76

3.Net worth (1+2) 3511668000 43.71

4.Long term borrowings 4522069000 56.29

5.Total (3+4) 8033737000 100

Interpretation:

The above table shows that the share capital of the year 2004 was 4.95
percentage and reserves and surplus was 38.76 percentage, long-term
borrowings are 56.29 percentages. So the year 2003-04 most of funds
arranged from the long term borrowings.

28
 Chart No 4.4
Capital Structure of the year 2003-2004

60
56.29

50

38.76
40
Percentage

30

20

10
4.95

0
Share Capital Reserve & surplus Long term borrowings

29
 Table No.4.5

Capital Structure of the year 2004 - 2005

Particular Amount in Rs. Percentage

1.Share Capital 553921000 6.89

2.Reserve & surplus 2731015000 33.94

3.Net worth (1+2) 3284936000 40.83

4.Long term borrowings 4761157000 59.17

5.Total (3+4) 8046093000 100

Interpretation:

The above table shows that the share capital of the year 2005 was 6.89
percentage and reserves and surplus was 33.94 percentage, long-term
borrowings are 59.17 percentages. So the year 2004-05 most of funds
arranged from the long term borrowings.

30
 Chart No 4.5
Capital Structure of the year 2004-2005

70

59.17
60

50

40
Percentage

33.94

30

20

10
6.89

0
Share Capital Reserve & surplus Long term borrow ings

31
LEVERAGE ANALYSIS

The employment of an asset or source of funds for which the firm has
to pay a fixed cost or fixed return.

OPERATING LEVERAGE

The relationship between the firm’s sales revenues and its earnings
before interest and tax.

Contribution
Operating leverage = --------------------------------------
Earning before interest and tax

32
 Table No 4.6
Operating Leverage Ratio of The Year 2000 - 2004

Operating
Year Contribution EBIT
Leverage

2000-01 43509.21 41820.88 1.04

2001-02 43436.47 41850.47 1.05

2002-03 30089.95 27958.58 1.07

2003-04 30080.36 30779.30 0.97

Interpretation:

Above table indicates that the operating leverage in the year 2002-
2003 it was greater value of 1.07 units and it was lower value of 0.97 in the
year 2003-2004. So all the value of operating leverage’s are greater than 1
except the year 2004. So the firm should be avoid this high operating
leverage. Otherwise the firms have to meet high-risk situation.

33
 Chart No 4.6
Operating Leverage of the year 2001 -2004

1.08

1.07

1.06

1.05

1.04 1.04

1.02
Percentage

0.98

0.97

0.96

0.94

0.92
2000-01 2001-02 2002-03 2003-04
Year

FINANCIAL LEVERAGE

34
 It presents the relationship between the firms’ earnings before interest
and tax and earnings available for ordinary shareholders.

Change in EPS
Financial leverage = ------------------------
Change in EBIT

Table No 4.7
Financial leverage of the year 2000 - 2004

Year Change in EPS Change in EBIT Financial Leverage

2000-01 1.56 29.59 0.0527

2001-02 45.19 13891.89 0.0032

2002-03 11.27 2820.72 0.0039

2003-04 91.7 35502.87 0.0025

Interpretation:

Above Table shows that the financial leverage of the all the four years
has the related value. Because the both earnings per share and earnings
before interest and tax was changed in equal proportion in the study period.
So, the results indicate the same value of the study period.

35
 Chart No 4.7
Financial Leverage

0.06

0.0527

0.05

0.04
Percentage

0.03

0.02

0.01 0.0032 0.0039 0.0025

0
2000-01 2001-02 2002-03 2003-04
Year

36
COMBINED LEVERAGE

The Operating Leverage and Financial Leverage are closely

concerned with ascertaining the ability to cover fixed charges.

Combined leverage = operating leverage x financial leverage

Table No 4.8
Combined leverage of the year 2000 - 2004

Operating Financial Combined

Year
Leverage Leverage Leverage

2000-01 1.04 0.0527 0.054

2001-02 1.05 0.0032 0.003

2002-03 1.07 0.0039 0.004

2003-04 0.97 0.0025 0.002

Interpretation:

Above the table shows that the combined leverage of this study it was
high value of 0.054 is the year 2000-2001 and the lower value of 0.002in the
year 2003-2004. Combined leverage in derived from the operating leverage
and financial leverage so both the values are not good. So they had meet the
financial risk.

37
 Chart No 4.8
Combined Leverage of the year 2001 - 2004

0.06

0.054

0.05

0.04
Percentage

0.03

0.02

0.003 0.004 0.002

0.01

0
2000-01 2001-02 2002-03 2003-04
Year

38
 Table No.4.9

Schedule of Earning per shares of the Sakthi Sugars Ltd.,

Particular 2000-01 2001-02 2002-03 2003-04 2004-05

Earnings before
41820.88 41850.47 27958.58 30779.30 63282.17
Interest and tax

Less: Interest 6732.91 6330.22 4971.04 4666.07 4970.70

35087.97 35520.25 22987.54 26113.23 58311.47

No. Of Equity shares 27732066 27732066 27732066 27732066 31373066

EPS 126.52 128.08 82.89 94.16 185.86

Interpretation:

The above table shows that the financial plans of the year 2004 – 2005
was the higher Earnings per share value. Because of this value the profit was
high. So this plan 2004 – 05 year is good. But the other study period was not
good.

39
 Chart No 4.9
Earning per share of the year 2001-2005

200
185.86

180

160

140 126.52 128.08

120
Amount in Rs.

94.16
100
82.89

80

60

40

20

0
2000-01 2001-02 2002-03 2003-04 2004-05
Year

40
LONG TERM POSITION STATEMENT RATIO

1.Capital Gearing Ratio

Capital gearing refer to the proportion between fixed interest or

dividend bearing funds and non fixed interest a dividend bearing funds in the
total capital employed in the business.

Equity Share Capital + Reserves and Surplus

Capital Gearing Ratio = ------------------------------------------------------
Total Capital Employed

41
 Table No.4.10

Capital gearing ratio of the year 2001-2005

Equity share capital + Total capital Capital gearing

Year
Reserves & surplus employed ratio

2000-01 12513.39 51142.81 0.25

2001-02 12059.40 50415.47 0.24

2002-03 33916.68 79317.37 0.42

2003-04 30083.36 77694.93 0.38

2004-05 33086.08 90633.06 0.36

Interpretation:

The above table shows that the capital-gearing ratio of the year 2002-
2003 was 0.42. It was greater than the other years result because the reserve
and surplus are increased. In the year 2001-2002 it was lower value of 0.24.
Because the total of share capital and reserves and surplus was decreased.

42
 Chart No 4.10
Capital gearing ratio of the year 2001-2005

0.42
0.45

0.38
0.4
0.36

0.35

0.3
0.25 0.24

0.25
Ratio

0.2

0.15

0.1

0.05

0
2000-01 2001-02 2002-03 2003-04 2004-05
Year

43
2.Debt – equity Ratio

The debt-equity ratio is determined to ascertain the soundness of the

long-term financial policies of the company. It is also known as “External –
Internal” equity ratio.

External equities
Debt equity ratio = ---------------------
Internal equities

44
 Table No.4.11

Dept-equity ratio of the year 2001-2005

Debt. Equity
Year External Fund Internal Fund
Ratio

2000-01 38629.42 13008.39 2.9

2001-02 38356.07 13259.40 2.8

2002-03 45220.69 35116.68 1.3

2003-04 46611.57 38849.36 1.5

2004-05 57546.98 35852.08 1.6

Interpretation:

The above table shows that the debt-equity ratio was the higher value
of the year 2000-2001. It was very high in this study period that is 2.9.
Because the external funds are increased than the internal funds. So the
debtor’s equity has lower funds. But the year 2002-2003 it was lower debt-
equity ratio because the external funds are increased than the internal fund.
This much of funds are not enough to meet their financial commitments.

45
 Chart No 4.11
Debt. Equity Ratio of the year 2001-2005
2.9
3 2.8

2.5

1.6
1.5
Ratio

1.5 1.3

0.5

0
2000-01 2001-02 2002-03 2003-04 2004-05
Year

46
3. Proprietary Ratio:

It is a variant of debt equity ratio. It establishes the relationship

between proprietor’s funds and total tangible assets.

Shareholders Funds

Proprietary Ratio= ----------------------------------x 100

Total Assets

47
 Table No.4.12

Proprietary ratio of the year 2001-2005

Year Shareholders Fund Total Asset Percentage

2000-01 13008.39 51637.81 25.19

2001-02 13259.40 52689.99 25.16

2002-03 35116.68 80893.41 43.41

2003-04 38849.36 80460.93 40.82

2004-05 35852.08 93399.06 38.40

Interpretation:

The above details shows that proprietary ratio of the year 2002-2003
was very high percentage of 43.41. The lower vale is 25.16 percentages in
the yea 2001-2002. Because the proprietary funds that the shareholders
funds are decreased but the total assets are increased.

48
 Chart No 4.12
Proprietary ratio of the year 2001-2005

43.41
45 40.82
38.4

40

35

30
25.19 25.16

25
Ratio

20

15

10

0
2000-01 2001-02 2002-03 2003-04 2004-05
Year

4.Return on Share holders investment

49
 The profitability from the point of view of the equity shareholders will
be judged after taking into account the amount of dividend payable to the
preference shareholders.

Net Profit
ROI = ---------------------- x 100
Share holders fund

50
 Table No.4.13

Return on shareholder investment ratio of the year 2001-2005

Percentage of
Year Net Profit Shareholders Fund
ROI

2000-01 323.97 13008.39 2.49

2001-02 428.57 13259.40 3.23

2002-03 -5315.77 35116.68 -15.13

2003-04 -4287.99 32849.36 -13.05

2004-05 2814.45 35852.08 7.85

Interpretation:

The above table shows that the net profits are not good because the
year 2002 and 2004 was the negative value and loss was very high in the
year 2002-2003. In the last year the study reveals that the shareholders funds
increased gradually.

51
 Chart No 4.13
Return on shareholders investment of the year 2001-2005

10 7.85

3.23
5 2.49

0
Ratio

-5

-10

-13.05
-15
-15.13

-20
2000-01 2001-02 2002-03 2003-04 2004-05
Year

52
Financial Stability Ratio:

1. Whether the firm the adequate resource to meet its long term funds
requirements.

2. Whether the firm has used an appropriate debt-equity ratio to raise

long-term funds.

3. Whether the firms have enough amounts to pay interest and

installment of long-term loans in time.

53
 Net worth
1.Financial stability ratio = -------------------
Fixed assets

Table No.4.14

Financial stability of the year 2001-2005

Year Net Worth Fixed assets Ratio

2000-01 13629.36 19115.80 0.72

2001-02 130089.39 19476.84 0.66

2002-03 13259.40 18988.80 0.70

2003-04 35116.68 52569.49 0.66

2004-05 32849.36 50520.42 0.65

Interpretation:

The above table shows that the ratio was higher value of 0.72 in the
year 2000-2001 and in the year 2004-2005 it was reduced to 0.65 due to the
value of net worth and fixed assets was changed in proportionally.

54
 Chart No 4.14
Financial stability Ratio of the year 2001-2005

0.72
0.72

0.7

0.7

0.68

0.66 0.66
Ratio

0.66 0.65

0.64

0.62

0.6
2000-01 2001-02 2002-03 2003-04 2004-05

Year

55
 Net worth
2. Financial stability ratio = -------------------
Net sales

Table no. 4.15

Financial stability of the year2001-2005

Year Net Worth Net Sales Ratio

2000-01 13629.36 45197.53 0.30

2001-02 130089.39 45022.47 0.30

2002-03 13259.40 45022.47 0.41

2003-04 35116.68 30313.24 1.20

2004-05 32849.36 63942.19 0.51

Interpretation:

The above table shows that the net worth and net sales of the year
2000-2001and 2001-2002 in the study period was good. Because both of the
year had lower equity funds and net sales higher than the other year. So the
ratio of this year was 0.30. But the year 2003-04 it was higher equity funds
but net sales are very low. So the ratio of this year also increased.

56
 Chart No 4.15
Financial stability ratio of the year 2001-2005

1.2
1.2

0.8
Ratio

0.6
0.51

0.41

0.4
0.3 0.3

0.2

0
2000-01 2001-02 2002-03 2003-04 2004-05

Year

Net worth
3. Financial stability ratio = -------------------------
Total outside liability
57
 Table No.4.16

Financial stability ratio of the year 2001-2005

Year Net Worth Total outside liability Ratio

2000-01 13629.36 51637.81 0.26

2001-02 130089.39 52689.99 0.24

2002-03 13259.40 80893.41 0.16

2003-04 35116.68 80460.93 0.44

2004-05 32849.36 93399.06 0.35

Interpretation:

The above table shows that the financial stability ratio of the year
2003-04 it was the higher value of 0.44. And the lower value of 0.16 in the
year 2002-03. Because net worth was decreased but the outside liabilities
was increased in the year 2002-03.

58
 Chart No 4.16
Financial stability of the year 2001-2005

0.44
0.45

0.4

0.35

0.35

0.3
0.26
0.24
0.25
Ratio

0.2
0.16

0.15

0.1

0.05

0
2000-01 2001-02 2002-03 2003-04 2004-05

year

59
PROFITABILITY RATIO:

Gross profit
1. Gross profit ratio = ------------------- x 100
Net sales

Table no.4.17

Gross Profitability ratio of the year 2001-2005

Year Gross profit Net Sales Ratio (%)

2000 – 2001 41820.88 45197.53 92

2001 – 2002 41850.47 45022.47 92

2002 – 2003 27958.58 32221.35 86

2003 – 2004 29779.30 30313.24 98

2004 – 2005 63282.17 63942.19 98

Interpretation:

The above table shows that the Gross profit ratio of the year 2003-
2004 was the higher percentage of 98 percentages because the Gross profit
was increased but the net sales are decreased.

60
 Chart No 4.17
Gross profitability ratio of the year 2001-2005
98 98

98

96

94
92 92

92

90
Ratio

88
86

86
61

84
 Net profit
2. Net profit ratio = -------------------------
Net sales
62
 Table no.4.18

Net profitability ratio of the year 2001-2005

Year Net Profit Net Sales Ratio (%)

2000 - 2001 323.97 45197.53 0.72

2001 – 2002 428.51 45022.47 0.95

2002 – 2003 -5315.77 32221.35 -16

2003 – 2004 -4287.99 30313.24 -14

2004 – 2005 2814.45 63942.19 4.40

Interpretation:

The above table shows that the net profit ratio of the company reveals
in negative value of the year 2002-2003 and 2003-2004. Particularly in the
year 2003-2004 was very high percentage of loss for –16 percentages
because the net loss was increased but the net sales was decreased.

63
 Chart No 4.18
Net profitability of the year 2001-2005

4.4

0.72 0.95

-5
Ratio

-10

-14
-15
-16

-20
2000 - 2001 2001 – 2002 2002 – 2003 2003 – 2004 2004 – 2005
Year

64
 Table no 4.19

Table no 4.20

Schedule of Total Turnover Of The Year 2001-2005

Turn over Sugar Production

Year
(Rs.in Crores) (in Lakh quintals)

2000-01 451.98 23.33

2001-02 450.22 19.33

2002-03 322.21 19.25

2003-04 303.13 12.46

2004-05 639.42 25.76

65
Interpretation:

The above table shows that the total turnover of this year 2005 was
639.42 crores. It is higher turnover than the previous year. Because the
sugar production of the year 2005 is higher than the previous 4 years.

66
 Chart No 4.20
Total turn over of the year 2001-2005

700
639.42

600

500 451.98 450.22

400
Rs in crores

322.21
303.13

300

200

100

0
2000-01 2001-02 2002-03 2003-04 2004-05

Year

67
 Chart No 4.21
Sugar Production of the year 2001-2005
30

25.76
25

23.33

19.33
20
19.25
In Lakh Quintals

15

12.46

10

0
2000-01 2001-02 2002-03 2003-04 2004-05
Year

CHAPTER – V

68
 FINDINGS

 About capital structure analysis of this study, the firm is mostly used
outsider’s fund in the form of long-term loans.

 The operating leverage ratio was satisfactory.

 The financial leverage ratio was not good, because both, earning per
share and earning before interest & tax was changed in equal
proposal.

 The long-term solvency ratio was not satisfactory.

 Earning per share of this company was not good.

 Return on share holders investment ratio was not good. Because the
company didn’t get any profit in the year 2002 to 2005.

 The export performance of the firm was not good, because is reduced
in every year.

 Total turnover of the company was not good in the year 2003 and
2004.

 The debt-equity ratio was not satisfactory, because the external fund is
increased in every year.

 Presently the company’s financial performance is good when

compared with previous years.

69
 SUGGESTIONS

 The firm should be able to reduce its dependence on outside funds, more
over, he firm should generate good returns from the funds which
already borrowed.

 The firm should increase the reserves & surplus from profits.

 The indirect expenditure should be reduced.

 The company should increase the space level to generate returns.

 The company usages of short-term fund to long-term liabilities should be

reduced.

70
 CONCLUSION

The study was done to analyze the capital structure of Sakthi Sugars
Limited. And it was found that the leverage position of the company was not
satisfactory. The capital gearing ratio position is also not good. Because the
company has depended more on the outsider’s fund. The net sale of the
company is decreasing which has led to a decline in the profit.

It is hoped that the company management will look into the problems
pointed out in the study and take necessary steps to rectify it by
implementing the suggestion given for the better performance.

71
 BIBLIOGRAPHY

1. Financial Management - Khan M.Y and A.K.Jain

3rd Edition, TATA McGraw
Hill
Publishing company ltd,
New Delhi-1992

2. Management Accounting - Sharma R.K & Shastri Gupta

6th Edition, Kalyani
Publisher, New Delhi-1992

3. Fundamentals Of Financial - Rustagi R.P

Management 3rd Edition, Galgotia
Publishing House Ltd,
New Delhi – 2001

4. Management Accounting - S.N. Mahaeswari

5th Edition, Vikas
Publishing House Ltd
New Delhi.

5. Research Methodology, - C.R.Kothari

Methods and Techniques 2nd Edition, Viswaprakasam
Publishing Ltd, New Delhi-2003

72