CONTENTS

Page No.

CHAPTER-1

1-8

1.1 INTRODUCTION

1.2 NEED FOR STUDY

1.3 OBJECTIVES OF THE STUDY

1.4 SCOPE OF THE STUDY

1.5 METHODOLOGY

1.6 LIMITATIONS

CHAPTER-2

9-34

INDUSTRY PROFILE AND

COMPANY PROFILE

CHAPTER-3

35-57

THEORETICAL FRAMEWORK

CHAPTER-4

58-67

DATA ANALYSIS AND INTREPRETATION

CHAPTER-5 68-71

FINDINGS, SUGGESTIONS AND

CONCLUSION

BIBLIOGRAPHY

72

ANNEXURE

73-74
1.1 Introduction

Business concern needs finance to meet their requirements in the economic world. Any

kind of business activity depends on the finance. Hence, it is called as lifeblood of business

Organization. Whether the business concerns are big or small, they need finance to fulfill their

business activities.

In the modern world, all the activities are concerned with the economic
activities and very particular to earning profit through any venture or activities. The entire

business activities are directly related with making profit. (According to the economics concept

of factors of production, rent given to landlord, wage given to labor, interest given to capital

and profit given to shareholders or proprietors), a business concern needs finance to meet all

the requirements.

Hence finance may be called as capital, investment, fund etc., but each term

is having different meanings and unique characters. Increasing the profit is the main aim of any

kind of economic activity. Financial management is one of the important parts of overall

management, which is directly related with various functional departments like personnel,

marketing and production. Financial management covers wide area with multidimensional

approaches. The following are the important scope of financial management.

1. Financial Management and Economics

Economic concepts like micro and macroeconomics are directly applied with the

financial management approaches. Investment decisions, micro and macro environmental

factors are closely associated with the functions of financial manager.

Financial management

also uses the economic equations like money value discount factor, economic order quantity

etc. Financial economics is one of the emerging area, which provides immense opportunities to

finance, and economical areas.

2. Financial Management and Accounting

Accounting records includes the financial information of the business concern. Hence,

we can easily understand the relationship between the financial management and accounting.

In the olden periods, both financial management and accounting are treated as a same discipline

and then it has been merged as Management

Accounting because, this part is very much helpful to finance manager to take decisions.

But nowadays financial management and accounting discipline are separate and interrelated

1.2 Need for the study

In a perfect world there would be no necessity for current assets and current liabilities

because there would be no uncertainty, no transaction costs, information search costs,

scheduling costs, or production and technology constraints. However the world in which we live is
not perfect.

So organization may be faced with an uncertainty regarding availability of sufficient quantity of

critical inputs in future at reasonable price. This may necessitate the holding of critical inputs in
future at reasonable price. This may necessitate the holding of Inventory i.e., current assets.

To ensure that each of the current assets is efficiently managed to ensure the overall liquidity of the
unity and at the same time not keeping too high a level of anyone of them Capital Budgeting
management is a must.

Capital Budgeting management ensures smooth working of the unit without any production held
ups due to the paucity of funds.

Thus as Capital Budgeting is the life blood and nerve center of a business. It is managed in order to
attain a smooth running of the business.
1.3 Scope of the study

The present study is undertaken with an intention that it would be helpful in assessing

the Capital Budgeting position in the organization and to make recommendations for the

improvement of the Capital Budgeting requirements of Ultra Tech Cement

The Study also highlights the present scenario of the Sugar Industry in the global market as a whole
and the contribution of Ultra Tech Cement in the Indian Market & State Market in Particular.

The Study includes various aspects regarding the future plans and diversification activities of Ultra
Tech Cement; in Directors Report.

Thus a good deal of ground is covered in the study, including the trends of various components of
Capital Budgeting, so as to find the effect of each component on Capital Budgeting decision.

1.4 Objectives of the study

1. To determine the trends in Capital Budgeting components, so as to find the inference of

each component on Capital Budgeting of the firm.

CHAPTER – III

THEORETICAL & CONCEPTUAL FRAME WORK

Capital Structure Theories

1. Net Income approach

2. Net operating income approach
3. Modigliani – Miller approach
4. Traditional approach

NET INCOME APPROACH

 According to the Net Income (NI) Approach, suggested by the Durand,
the Capital structure decision is relevant to the valuation of the firm. In other
words, a change in the financial leverage will lead to a corresponding change in
the overall cost of capital as well as the total value of the firm. The degree of
financial leverage as measured by the ratio of debt to equity is increased, is the
weighed average cost of capital will decline, while the value of the firm as well as
the market price of ordinary shares will increase. Conversely, a decrease in the
leverage will cause an increase in the overall cost of capital and a decline both in
the value of the firm as well as the market price of equity shares.
The NI approach to valuation is based on three assumptions first, there
are no taxes, second, that the cost of debt is less than the equity – capitulation rate
or the cost of equity, third, that the use of debt doesn’t change the risk perception
off investors. That the financial risk perception of the investor doesn’t change
with the introduction of debt or change in leverage implies that due to change in
leverage, there is no change in either the cost of debt or the cost of equity.
The financial leverage is, according to the NI Approach, an important
variable to the capital structure of affirm. Which a judicious mixture of debt and
equity, a firm can evolve an optimum capital structure which will be the one at
which value of the firm is the highest and the overall cost of capital is the lowest.
At that structure, the market price per share would be maximum.
If the firm uses no debt or if the financial leverage is zero, the overall cost of
capital will be equal to the equity capitalization rate. The weighed average cost of
capital will decline and will approach the cost of debt as the degree of leverage
reaches one.
ASSUMPTIONS:

1. Due to the assumptions that re and ki, ke remain unchanged as the degree
of leverage changes. We find that both the curves are parallel to the X-
Axis. But as the degree of leverage increases, ko decreases and
approaches the cost of debt when leverage is 1.o, that is, (ko=ki)
2. It will obviously be so owing to the fact that there is no equity capital in
the structure at this point, the firm’s overall cost of capital would be
minimum. The significant conclusion, therefore, of the NI approach is
that the firm can employ almost 100 percent debt to maximize its
value.
NET OPERATING INCOME (NOI) APPROACH

Another theory of capital structure, suggested by Durand, is the Net

Operating Income (NOI) Approach. This Approach is diametrically opposite to the
NI Approach.
The essence of this approach is that e decision of firm is irrelevant. Any
change in leverage will not lead to any change into the total value of the firm and
the market price of shares as well as the overall cost of capital is independent of the
degree of leverage.
The NOI approach is based on the following propositions.

Residual Value of Equity

The value of equity is a residual value, which is determined by deducting

the total value of debt (B) from the total value of the firm (V), symbolically, total
market value of equity capital
(S) = V-B.

Change in Cost of Equity Capital

The equity –capitalization rate / cost of equity capital (re) increases which
the degree of leverage. The increase in the proportion of debt in the capital
structure relative to equity shares would lead to an increase in the financial risk to
the ordinary shareholders. The ke would be = ko + (ko-ki) [B/S]
Cost of Debt

The cost of debt (ki) has two parts (a) Explicit Cost which is represented by
the rate of interest. This implies that the increasing proportion of debt in a
financial structure does not affect the financial risk of the lenders. (b) Implicit or
‘hidden’ cost as shown in the assumption relating to the changes in ke increase in
the degree of leverage or the proportion of debt to equity causes an increase in the
cost of equity capital. This increase in ke, being attributable to the increase in
debt, is the implicit part of ki. The advantage associated with the use of debt,
supposed to be a ‘cheaper’ source of funds in terms of the explicit cost, is exactly
neutralized by the implicit cost represented by the increase in Re. As a result, the
real cost off debt and the real cost of equity, according to the NOI Approach, are the
same and equal ko.

Optimum Capital Structure

The total value of the firm is unaffected by its capital structure. No matter
what the degree of leverage is, the total value of the firm will remained constant.
The market price of shares will also not change with the change in the debt –
equity ration. There is nothing such as on optimum capital structure.
 ASSUMPTIONS

1. Due to the assumption that ko and ki remain unchanged as the degree

of leverage changes, we find that both the curves are parallel to the X-
axis.
2. But as the degree of leverage increases, the ke increases continuously.

MODIGLIANI – MILLER (MM) APPROACH

The Modigliani – Miller Thesis3 relating to the relationship between the

capital structures, cost of capital and valuation is akin to the NOI Approach. The
NOI approach, in other words, does not provide operational justification for the
irrelevance off the capital structure. The mm proposition supports the NOI
Approach relating to the independence of the cost of capital of the degree of
leverage at any level off debt – equity ratio. In other words, the MM approach
maintains that the weighted average (overall) cost of capital does not change, as
shown in fig. 19.3, with a change proportion of debt to equity in the capital
structure (or degree of leverage). They offer operational justification for this and
are not content with merely standing the proposition.

Basic propositions
There are three basic propositions of the MM approach. The overall cost of
capital (ko) and the value of firm (V) are independent of its capital structure. The
Ko and V are constant for all degrees of leverage. The total value is given by the
cut-off rate for investment purposes is completely independent of the way in which
on investment is financed.

9
 ASSUM PTIOMS
1. Perfect capital markets
2. Given the assumption off perfect information and rationality, all
investors have the same expectation off firm’s net operating income
(EBIT) with which to evaluate the value of a firm.
3. The dividend payout ratio is 100 percent. There are no taxes. This assumption is
removed later.

TRADITIONAL APPROACH:

The preceding discussions clearly show that the Net Income (NI) as well as net
Operating Income Approach (NOI) represents two extremes as regards the
theoretical relationship between financing decisions as determined by the capital
structure, the weighted average cost of capital and total value of the firm. It also
knows as the Intermediate approach. At the optimum capital structure, the marginal
real cost of debt, defined to included both implicit and explicit, will be equal to the
real cost of equity.

Increased valuation and Decreased Overall cost of Capital

During the first phase, increasing leverage increases the total valuation of
the firm and lowers the overall cost of capital. As the proportion of debt in the
capital structure increases, the cost of equity (ke) beings to rise as a reflection of
the increased financial risk. Therefore, they are prepared to lend to the firm at
almost the same rate of interest. Since debt is typically a cheaper source off
capital then equity, the combined effect is that the overall cost of capital begins
to fall with the increasing use of debt.
Constant valuation and constant overall Cost of Capital

After a certain degree of leverage is reached, further moderate increases in

leverage have little or no effect on total market value. During the middle range, the
changes bought in equity – capitalization rate and debt capitalization rate balance
each other. As a result, the value of (V) and (ko) remain almost constant.

Decreased valuation and increased overall Cost of Capital

Beyond a certain critical point, further increases in debt proportions are not
considered desirable. They increase financial risks so much that both Re and R1
start rising rapidly causing (ko) to rise and (V) to fall.
DESIGNING OF CAPITAL STRUCTURE INTRODUCTION

Financial distress includes a broad spectrum of problem ranging from

minor liquidity shortages to bankruptcy. The capital structure is said to be optimum
when the marginal real cost (explicit as well as implicit) of each available source of
financing is identical. With an optimum debt and equity mix, the cost of capital is
minimum and the market price per share (or total value of the firm) is maximum.
The use of debt in capital structure or financial leverage has both benefits as well
as costs. While the principal attraction of debt is the tax benefits as well as costs.
While the principal attraction of debt is the tax benefit. Its cost is financial distress
and reduced commercial profitability. The team financial distress includes
abroad spectrum of problems ranging from relatively minor liquidity
shortages to bankruptcy
It should be clearly understood that identifying the precise percentage of
debt that will maximize price per share is almost impossible. It is possible,
however, to determine the approximate proportion of debit to use in the financial
plan in conformity with the objective of maximizing share prices. The terms
designing capital structure, capital structure decision, factor determining capital
structures and capital structure planning are used interchangeably here.
PROFITABILITY ASPECT

Earnings before interest and Tax (EBIT) – Earnings per share (EPS) analysis

Keeping in view the primary objective of financial management of maximizing

the market value of the firm. The EBIT-EPS analysis should be considered logically
as the first step in the direction of designing a firm’s capital structure. This analysis
is useful for two reasons (i) the EPs is measure of a firm’s performance – given the
P/E ratio, the larger the EPS, the larger would be the value of a firm’s shares; and
(ii) given the importance of EPS and the function of the EBIT-EPS analysis to
show the value of EPS under various financial alternatives at different levels of
EBIT, the EBIT-EPS analysis information can be extremely useful to the
finance manager in arriving at an appropriate financing decision.On the other hand,
if the probability of EBIT falling below the indifference points is high, the equity
alternative should be preferred. In general, the higher the level of EBIT and the
lower the probability of downward fluctuation, the greater is the amount of debt that
can be employed. Therefore, increase in EPS should be greater so that its
advantage is not completely offset or more than offset by using debt in the
capital structure. Moreover, if the debit alternative entails a provision for creating
a sinking fund, the finance manager should keep in mind that earnings available
for payment of dividends and reinvestment to further expand facilities would be
reduced by the amount of the sinking fund payment.
 UEPS – Debt Plan UEPS Equity Plan
---------------------------= ----------------
(EVIT-I)(1-t)-SF (EBIT)(1-T)
--------------------------- --------------
-- N1 N2

Where UEPS = uncommitted earnings per share

SF = Sinking fund payment per annum

I = Interest payment

LIQUIDITY ASPECT

Cash follow analysis

EBIT-EPS Analysis and coverage ratios are very use full in making explicit
the impact of leverage on EPS and on the firm’s ability to meet its commitments
at various levels of EBIT. But the EBIT/interest ratios is less than a perfect
measure to analyze the firm’s ability to service fixed changes because the firm’s
ability to do so depends on the total payment required, that is, interest and
principal, in relation to the cash flow available to meet them.
 Therefore, the analysis of the cash flow ability of the firm to service fixed
chargers is an important exercise to be carried out in capital structure planning
in addition to profitability analysis. If the firm borrows more than its debt
capacity and, therefore, fails to meet its obligations in future, the lenders may
seize the assets of the company to satisfy their claims thus, the basic existence of
the company would be endangered.

Cash flow analysis yield a number of district advantages in the crucial task of
setting debt policy (i) it focuses on the solvency of the firm during adverse
circumstances in contrast to EBIT-EPS Analysis which is concerned with the
effects of leverage under normal circumstances;
(ii) it takes into consideration the balance sheet change and other cash flows that do
not appear in the profit and loss account (iii) it gives an insight into the
inventory of financial resources available in the event of recession and (iv)
finally, it views the problem in a dynamic contest over time where as EBIT / EPS
and coverage analysis normally consider only a single year.

Cash flow analysis evaluates the risk of financial distress. Cash flow
analysis, various measures can be employed. One such measure 2 is the ratio of
fixed charges to net cash follows. This ratio measures the coverage of fixed
financial charges (interest plus repayment of principal, if any) to net cash follows.

Since the probability of various cash flow patterns is known, the firm can
work out the amount of fixed charges as well as the debt that the firm can employ
and still remain within an insolvency limit tolerable to the management.
CONTROL

Another consideration in planning the types of funds to use attitude of the

management towards control. Lenders have no direct voice in the management of a
company. They may, of course, place certain restrictions in the loan agreement on
the management’s activities. So long as there is no default in the payment of
interest or the repayment of the principal, there is little that they can do legally
against the company. For all practical purposes, they have very little say in the
policy – discussions of the company or in the selection of the board of directors.

In most of the cases, they like the creditors do not have any say in the selection
of the management. The power to choose the management inmost cases rests with
the equity holders. Accordingly, if the main object of the management is to
maintain control, they will like to have a greater weight age for debt and
preference shares in additional capital requirements, since by obtaining funds
through then the management sacrifices little or no control.

LEVERAGE RATIOS FOR OTHER FIRM’S IN THE INDUSTRY

The capital structure decision is to make a comparison with the debt

equity ratios of companies belonging to the same industry, having a similar
business risk. The rational of the use of industry standards is that debt-equity
ratios appropriate for other firm’s in a similar line of business should be
appropriate for the company as well. Industry standards provide a useful bench
mark.They may be more conservative or more aggressive risk takers then desired.
However comparison is helpful as it acts as a red signal to the management.
 1.10.TYPES OF LEVERAGES:

The term leverages in general refers to a relationship between two

interrelated variables. In financial analysis it represents the influence of one
financial variable over some other related financial variables.There are three
commonly used measures of leverage in financial analysis they areOperating
Leverage, Financial Leverage, Combined Leverage.

OPERATING LEVERAGE:

Operating leverage caused due to fixed operating expenses in firm.

Operating leverage results from the existence of fixed operating expenses in the
firm’s income stream. The operating costs of a firm fall into three categories (1)
fixed costs which may be defined as those which don’t vary with sales volume
they are a function of time and are typically contractual (2) variable costs which
vary directly with the sales volume (3) Semi variable costs or semi fixed costs
those which are partly fixed and partly variable.
The operating leverage may be defined as the firm’s ability to use fixed
operating costs to magnify the effects of changes in sales on its earnings before
interests.
Operating leverage is function of three factors.
(i) Rupee leverage is function of three factors
(ii) Variable contribution margin and
(iii) Volume of sales
Operating leverage can also be defined and illustrated in another way. This is a
more precise measurement in terms of degree of operating leverage (DOL). The
DOL measures in quantitative terms the extent or degree of operating leverage.

Operating leverage = Contribution

EBIT

Degree of operating leverage = %  inEBIT

%  in sales

FINANCIAL LEVERAGE:

Financial leverage is caused due to fixed financial costs in firm. It is

defined as the ability of a firm. To use fixed financial charges to magnify the effects
of changes in EBIT on the earnings per share. In other words financial leverage
involves the use of funds obtained at a fixed cost in the hope of increasing the
return to the share holders.
Financial leverage is also called as trading on equity. Thus the leverage
trading on equity will operate in the opposite direction such that the earnings per
share, instead of increasing as a result of the use of funds carrying fixed cost.
The procedure outlined above is merely indicative of the presents or absence of
financial leverage. Financial leverage can be more precisely expressed in term of
the degree of financial leverage.

Degreeoffinancialleverage = %increaseinearningpershare(EPS)
% increase in earnings before interest and tax (EBIT)

EBIT – EPS ANALYSIS

EBIT-EPS analysis involves comparison of alternative methods of

financing at various levels of EBIT. The EBIT-EPS analysis, as a method to study
the effect of leverage, essentially involves the comparison of alternative methods of
financing under various assumptions of EBIT. A firm has the choice to raise
funds for financing its investments proposals from different sources in different
proportions for instance, it can (i) exclusively use equity capital (ii) exclusively
use debt (iii) exclusively use preference capital. The choice of the combination of
the various sources wood be one which, given the level of earnings before
interest and taxes, wood ensure the largest EPS.

Financial break – even and indifference analysis

Financial BEP is the level of EBIT which is equal to firm’s fixed financial
costs. Financial break – even point is the minimum level of EBIT needed to
satisfy all the fixed financial charges, i.e., interest and preference dividends. It
denotes the level of EBIT for which the firms EPS equals zero. If the EBIT is less
than the financial break – point, then the EPS will the negative but if the expected
level of EBIT is more than the break even point, then more fixed cost financing
instruments can be taken in capital structure, otherwise, equity wood be preferred.
EBIT-EPS break even analysis is used for determining the appropriate amount of
debt a firm might carry.

Indifference point

Indifference point is the EBIT level beyond which benefits of financial leverage
accrue with respect to EPS. The EBIT level at which the EPS is the same for to
alternative financial plans is referred to as the in difference point or level.The
indifference pint may be defined as the level of EBIT beyond which the benefits
of financial leverage begin to operate with respect to earnings per share. The
capital structure should include debt. If, however, the expected level of EBIT is
less than the indifference point, the advantage of EPS wood be available from the
use of equity capital.
(EBIT-II)(1-T) (EBIT-12)(1-T)
=
E1 E2
Where
EBIT = Indifference point

E1 = No of equity shares in alternative 1

E2 = No of equity shares in alternative 2

11 = Interest charges in alternative 2

12 = Interest charges in alternative 2

T = Tax – rate

Alternative 1 = All equity finance

Alternative 2 = All debt – equity finance

COMBINED LEVERAGE

Combined leverage is the product of operating leverage and financial

leverage. Combined leverage may be defined as the potential use of fixed
costs, both operating and financial, which magnifies the effect of sales volume
change on the earning per share of the firm. The operating leverage has its effects
on operating risk and is measure by the percentage change in EBIT due to
percentage change in sales. The financial leverage has its effects on financial
risks measure by the percentage changing in EPS due to percentage change in
EBIT. Degree of combined leverage = Degree of operating leverage XDegree of
financial leverage.

Degree of combined leverage = PercentagechangeinEPS

Percentage change in sales
CHAPTER -IV

DATA ANALYSIS

&

INTERPRETATION
4.1. Data Analysis & Interpretation

2017-2018

Profit before tax -1,81,215,512

Finance cost - 10,519,827

Interest to bank +
Working capital axis bank +
Cash credit KDCC bank +
Working capital loan NDDB+
(586049+540348+4581250) -5,707,647
Interest to others
( S.c +s. deposits )
2998400+2668479 -5,666,879
Profit after tax -2,18,94,353
EBIT 15,93,21,159

Here EBIT = profit before tax – profit after tax

= 1,81,215,512-2,18,94,353

= 15,93,21,159

Operating leverage = EBIT/ Sales

= 15,93,21,159/6,616,437,746

=0.024

2018-2019

Profit before tax - 21,52,60,836

Finance cost -
1,03,88,303 Interest to bank +
Working capital axis
bank + Cash credit
KDCC bank +

Working capital loan

NDDB+

-37,54,623
Interest to others

( S.c +s. deposits )

3175464+2186347 -53,61,811

Profit after tax -1,95,04,737

EBIT 19,57,56,099

Here EBIT = profit before tax – profit after tax

= 21,52,60,836-1,95,04,737

= 19,57,56,099

Operating leverage = EBIT/ Sales

= 19,57,56,099/7,117,,351458

=0.275

2019-2020
Profit before -13,93,28,581
tax Finance cost - 25,20,01,49
Profit after tax - 2,520,0149
EBIT 11,41,28,432
Here EBIT = profit before tax – profit after tax

= 13,93,28,581-2,520,0149

= 11,41,28,432

Operating leverage = EBIT/ Sales

=11,41,28,432 /7,94,06,71,747

=0.014

2020-2021
Profit before tax - 27,20,41,474

Finance cost - 6,70,52,295

Interest to bank
+ +
Cash credit KDCC bank +

Working capital loan NDDB+

(29461079+14119163+17633298) -6,123,540
Interest to others
( S.c +s. deposits )

2252824+2670810 -4,923,634
Profit after tax - 13,31,89,469
EBIT 13,88,52,005
Here EBIT = profit before tax – profit after tax

= 27,20,41,474-13,31,89,469

= 13,88,52,005

Operating leverage = EBIT/ Sales

=13,88,52,005 /9,115,374,875

=0.015

2021-2022

Profit before tax - 33,32,80,792

Finance cost - 6,24,35,781

Interest to bank +
Working capital axis bank + Cash
credit KDCC bank +

Working capital loan NDDB+

(41978869+13574744) -5,55,53,613
Interest to others
( S.c +s. deposits )
2012736+2729456 -47,42,192
Profit after tax - 12,27,31,586
EBIT 21,05,49,206
Here EBIT = profit before tax – profit after tax

=33,32,80,792 -12,27,315,86

= 21,05,49,206
 Operating leverage = EBIT/ Sales

= 21,05,49,206/10,06,26,74,080

=0.020

4.1SECTION-A LEVERAGE ANALYSIS TABLE-1

OPERATING LEVERAGE

The following table shows the operating leverage of the company during the period of study 20017-
20018 to 2021-2022.

Change in EBIT

Operating Leverage= ----------------------

Change in sales
 Sno Year EBIT Change in EBIT Sale Change in Operating
sales Rs leverage
Rs Rs s Rs

1 2017-2018 15,93,21,159 - 6,61,64,37,746 - -

2 2018-2019 19,575,6099 35,50,77,258 7,11,73,51,458 1,37,33,78,920 0.0014

4

3 2019-2020 11,41,28,432 46,92,05,690 79,40,67,1747 2,16,74,46,095 0.0011

1

4 2020-2021 13,88,52,005 60,80,57,695 9,11,53,74,875 307,898,358,2 0.004

6

5 2021-2022 21,05,49,206 81,86,06,901 1,00,62,67,40, 4,085,250,990 0.003

80 6

ANALYSIS

The data in the above table represent the fact that the operating leverage of
the company is 0.0014 during the year 2018-2019.It has decreased to 0.0011
during the year 2019-2020.It has decreased to 0.004 during the year 2020-2021.It
has further decreased to 0.003 during the year 2021-2022.

CONCLUSION

The operating Leverage of the company is fluctuating

GRAPH-1

The following graph shows the operating leverage of the company during the period of study.

INTERPRETATION

The data in the above table represent the fact that the operating leverage of the
company is 0.0014 during the year 2018-2019.It has decreased to 0.0011 during the year
2019-2020.It has increased to 0.004 during the year 2020-2021.It has further decreased to
0.003 during the year 2021-2022.
TABLE-2 FINANCIAL LEVERAGE
The following table shows the financial leverage of the company during

the period of study 2017-2018 to 2021-2022.

Change in EAT
Financial Leverage = -------------------

Change in EBIT

S no Year EA Chang EB Chang financ

T IT
e in e in ial
R EAT R EBIT levera
s s
1 2017-2018 125,481,26 - 159,321,15 - ge -
7 9

2 2018-2019 14,56,20,0 2,71,10,29 19,57,56,0 35,50,77,2 0.763

24 1 99 58

3 2019-2020 9,88,42,72 369,944,01 11,41,28,4 46,92,05,6 0.788

5 6 32 90

4 2020-2021 18,30,41,4 552,985,49 13,88,52,0 60,80,57,6 0.909

74 0 05 95

5 2021-2022 25,02,41,2 803,276,69 21,05,49,2 81,86,06,9 0.981

07 7 06 01
ANALYSIS

The data in the above table represent the fact that the financial leverage of the
company is 0.763 during the year 2018-2019.It has increased to 0.788 during
the year 2019-2020.It has increased to 0.639 during the year 2020-2021.It has
further increased to 0.981 during the year 2021-2022.

CONCLUSION

The financial leverage of the company is fluctuating.

GRAPH-2

The following graph shows the financial leverage of the company during the
period of study.
INTERPRETATION

The data in the above table represent the fact that the financial leverage of
the company is 0.763 during the year 2018-2019.It has increased to 0.788
during the year 2019-2020.It has decreased to 0.639 during the year 2020-2021.It
has further increased to 0.981 during the year 2021-2022.

TABLE-3 COMBINED LEVERAGE

The following table shows the combined leverage of the company

during the period of study 2017-2018 to 2021-2022.

Change in
EAT Combined leverage =
----------------

Change in sales.
Sln Year Change in EAT change in sales combined
o R leverage
Rs
s

1 2017-2018 - - -
2 2018-2019 27,11,01,291 1,37,33,789204 0.019

3 2019-2020 36,99,44,016 21,67,44,60,951 0.017

4 2020-2021 55,29,85,490 30,78,98,35,826 0.017

5 2021-2022 80,32,76,697 40,85,25,09,906 0.019
 ANALYSIS

The data in the above table represent the combined leverage of the
company is 0.019 during the year 2018-2019.It has decreased to 0.017 during the
year 2019-2020. It has equal to
0.017 during the year 2020-2021.It has further increased to 0.019 during the year
2021-2022.

CONCLUSION

The combined leverage of the is fluctuating

GRAPH-3
The following graph shows the combined leverage of the company during the period of study.
INTERPRETATION

The data in the above table represent the combined leverage of the company is 0.019
during the year 2018-2019.It has decreased to 0.017 during the year 2019-2020. It
has eqal to 0.017 during the year 2020-2021.It has further increased to 0.019 during
the year 2021-2022.

Net income approach

2017-2018

EBI
WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total
Debt−C where:

MC=Market capitalization; equal to the current stock

price multiplied by the number of outstanding stock shares

Total debt=Equal to the sum of
short-term and long-term debt

C=Cash and cash equivalents; the liquid assets of

a company, but may not include marketable securities

Stock of inventory =
1,23,57,70,340 Long term
liabilities = 8,04,10,791

1,31,61,81,131

Cash & cash equivalent = 426,708,857

- 1,316,181,131

88,94,72,2
74

EBIT =15,93,211,59

WACC = EBIT /value of the form

= 15,93,21,159/88,94,72,274

= 0.17911
2018-2019

EBIT

WAC=
Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total Debt−C

Stock of inventory =
1,19,01,25,260 Long term
liabilities = 9,88,38,910

1,28,89,64,170

Cash & cash equivalent = 556,032,222

_ 1,28,89,64,170

73,29,31,9
48
EBIT =19,57,56,099

WACC = EBIT /value of the form

= 19,57,56,099/73,29,31,948

= 0.26708
2019-2020

EBIT

WACC=____________

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total Debt−C

Stock of inventory = 195,86,23,091 Long term liabilities = 12,31,54,404

2,08,17,77,495

Cash & cash equivalent = 23,06,05,715

_ 2,08,17,77,495

1,85,11,71,780

EBIT =11,41,28,432

WACC = EBIT /value of the form

=11,41,28,432 /1,85,11,71,780

= 0.06165
2021-2022

EBIT
WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total Debt−C

Stock of inventory =
1,09,46,79,083 Long term
liabilities = 257,083,004

1,35,17,62,087

Cash & cash equivalent = 1,62,65,54,359

- 1,35,17,62,087

274,792,272

EBIT = 210,549,206

Wacc = EBIT /value of the form

=210,549,206/274,792,272
= 0.76621
Table
Sl Year EB Value of WACC
IT the
no
firm
1 2017- 1,59,21,159 88,94,72,274 0.17911
2018
2 2018- 19,57,56,099 73,29,31,948 0.26708
2019
3 2019- 11,41,28,432 1,85,11,71,780 0.06165
2020
4 2020- 13,88,52,005 1,49,92,08,573 0.09261
2021
5 2021- 21,05,49,206 27,47,92,272 0.76621
2022

1. Net operating income approach

2017-2018

Cost of equity = EBIT /value of equity

Value of equity = total assets -total liabilities

= 1,960,065,643 – 80,410,791

= 1,879,654,852

EBIT = 159,321,159

Cost of equity = 159,321,159/ 1,879,654,852

= 0.08476
2018-2019

Cost of equity = EBIT /value of equity

Value of equity = total assets -total liabilities

= 215,01,34,461 – 9,88,38,910

= 2,05,12,95,551

EBIT = 19,57,56,099

Cost of equity = 19,57,56,099/ 2,05,12,95,551

= 0.09543

2019-2020

Cost of equity = EBIT /value of equity

Value of equity = total assets -total liabilities

= 308,33,70,638 – 12,31,54,404

= 2,96,02,16,234

EBIT = 11,41,28,432

Cost of equity =2,05,12,95,551 / 2,96,02,16,234

= 0.03855
2020-2021

Cost of equity = EBIT /value of equity

Value of equity = total assets -total liabilities

= 3,98,13,26,686 – 13,88,61,019

= 3,84,24,65,667

EBIT = 138,852,005

Cost of equity = 138,852,005/ 3,84,24,65,667

= 0.03613

2021-2022

Cost of equity = EBIT /value of equity

Value of equity = total assets -total liabilities

= 3,89,04,47,827 – 25,70,83,004

= 3,63,33,64,823

EBIT = 21,05,49,206

Cost of equity =21,05,49,206 / 3,63,33,64,823

= 0.0579
Table

Cost of equity = EBIT /value of equity

Sl Year EBIT Value of the WACC

no firm
1 2017- 1,59,21,159 1,879,654,852 0.08476
2018
2 2018- 19,57,56,099 2,05,12,95,551 0.09543
2019
3 2019- 11,41,28,432 2,96,02,16,234 0.03855
2020
4 2020- 13,88,52,005 3,84,24,65,667 0.03613
2021
5 2021- 21,05,49,206 3,63,33,64,823 0.0579
2022

Traditional approach

2017-2018

EBIT
WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total
Debt−C where:

MC=Market capitalization; equal to the current stock

price multiplied by the number of outstanding
stock shares Total debt=Equal to the sum of
short-term and

long-term debt

C=Cash and cash equivalents; the liquid assets of

a company, but may not include marketable securities

Stock of inventory =
1,23,57,70,340 Long term
liabilities = 8,04,10,791

1,31,61,81,131

Cash & cash equivalent = 426,708,857

- 1,31,61,,81131

88,94,72,2
74

EBIT =15,93,211,59

WACC = EBIT /value of the form

= 15,93,21,159/889,,472274

= 0.17911
2018-2019

EBIT
WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total
Debt−C

Stock of inventory =
1,19,01,25,260 Long term
liabilities = 9,88,38,910

1,28,89,64,170

Cash & cash equivalent = 556,032,222

_ 1,28,89,,64170

73,29,31,9
48

EBIT =19,57,56,099

WACC = EBIT /value of the form

= 19,57,56,099/73,29,31,948

= 0.26708
2019-2020

EBIT

WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total Debt−C

Stock of inventory =
195,86,23,091 Long term
liabilities = 12,31,54,404

2,08,17,77,495

Cash & cash equivalent = 23,06,05,715

- 2,08,17,77,495

1,85,11,7,,1,780

EBIT =11,41,28,432

WACC = EBIT /value of the form

=11,41,28,432 /1,85,11,71,780

= 0.06165
2020-2021

EBIT

WACC =

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total
Debt−C

Stock of inventory =
2,14,60,85,984 Long term
liabilities = 13,88,61,019

2,284947003

Cash & cash equivalent = 78,57,38,430

_ 2,28,49,47,003

1,49,92,08,
573

EBIT =1,38,85,2005

WACC = EBIT /value of the form

=138,852,005/1,49,92,08,573

= 0.09261
2021-2022

EBIT

WACC=

Value of the firm

Enterprise Value (EV) Formula and Calculation

EV=MC+Total Debt−C

Stock of inventory =
1,09,46,79,083 Long term
liabilities = 257,083,004

1,35,17,62,087

Cash & cash equivalent = 16,265,54359

- 1,35,17,,62087

27,479,2272

EBIT = 210,549,206

WACC = EBIT /value of the form

=210,549,206/ 27,479,227

= 0.76621

WACC = EBIT /value of the form

Table

Sl Year EB Value of WACC

IT
n the
o1 2017- 1,59,21,159 firm
88,94,72,274 0.17911
2018
2 2018- 19,57,56,099 73,29,31,948 0.26708
2019
3 2019- 11,41,28,432 1,85,11,71,780 0.06165
2020
4 2020- 13,88,52,005 1,49,92,08,573 0.09261
2021
5 2021- 21,05,49,206 27,47,92,272 0.76621
2022

2. M&MAPPROACHORMODIGLIANIMILLERAPPROACH

The Modigliani Miller Approach MODIGLIANI MILLER APPROACH theorem

states that a A company’s capital structure is not a factor in its value. It is
determined by the present value of the future earnings, the theorem states . the
theorem has been highly influential since it was introduced in the 1950’s .
CHAPTER - V
FINDINGS

1.It was found that the operating leverage of the Company is during the 2018-2019
is 0.0014 and it is decreased to 0.003 during the year 2021-2022. So that
operating leverage of the company is decreased.
2..It was found that the financial leverage of the Company during 2018-2019 is
0.763 and it is increased to 0.0981 during 2021-2022.So that the financial
leverage of the company is increased.

3.It was found that the combined leverage of the Company during 2018-2019 is
0.019 and it is equal to 0.019 during 2021-2022. So that combined leverage of the
company is equal.

4.The debt equity ratio of the company if constantly decrease

5.Current ratio of the company is increasing because of effective utilization of

financial resources.

6.The company EPS is increasing from the past to present year by year
continuously.
SUGGESTIONS

1. Operating leverage is decreasing. The company has to improve the

operating leverage.
2.Financial leverage is fluctuating. The company has to maintain stable
financial leverage.
3.Combined leverage is equal . The company has to improve combined leverage.
4.The company has to increase short term financial resources to increase the assests
of the company.
5.The company has to increase selling prices and decrease the cost of goods and
attract customers by introducing new products for earning experted rate of returnes.
6.The company has to provide welfare activities to employees like, medical
expenses, education facilities, insurance packages etc.
CONCLUSION

Capital Structure referce to the mixture of debt and equity it is a purpose of

decesion making by the corporate manageres of the company size, profitability,
risk of the firm. The ascent company as a capable to utilization of funds to meet
organizational needs and goals. The company has a short term financial resources to
increase the total assets of the industry. The company ains to forcast of innovative
client satification for increasing of company performance as well as net profit..Firm
has to increase the share holders wealth by increasing in the earning pershare..The
long term solvency position of the company has shown a recurrent increase.
Bibliography

Reference books:

1.Development, paper no.14 working paper series, finance and development.

2.Asian journal of management research.

• Kitoni-2007 a test of relationship between capital structure and agency cost

evidence from the Nairobi stock exchange, unpublished and management
research project of the university of Nairobi.
• Lokong-2010 the relationship between capital structure and profitability and
microfinance institutions in Kenya, unpublished management research project
of the university of Nairobi.

Websites:

• https://www.ascent/online.com
• https://www.finance.yahoo.com
• https://www.mutualfundsindia.com