captial structure analsysis in kesoram industries project

CAPITAL STRUCTURE ANALYSIS

With Reference to

“KESORAM INDUSTRIES LIMITED”

A PROJECT REPORT SUBMITTED TO OSMANIA UNIVERSITY FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION

SubmittedBy

K. Karunakar096 -07-175

Department of Business AdministrationRONALD ROSS P.G.COLLEGE

(AFFILIATED TO OSMANIA UNIVERSITY)MANGALPALLY, IBRAHIMPATNAM,

RANGA REDDY (Dist)-501 510,(2007-2009).

1

DECLARATION

I here by declare that the project report entitled “CAPITAL

STRUCTURE ANALYSIS OFKESORAM CEMENT INDUSTRIES

LIMITED” Basanthnagar, Karimnagar district. is an original one,

Submitted by me in a partial fulfillment of the Requirement for the award

of the degree of “Master of Business Administration” For the

Academic year 2007 - 2009.It has not been Submitted Elsewhere for the

award of any Degree Or diploma of Osmania University.

K.Karunakar (096-07-175)

2

ABSTRACT

This paper offers an empirical look at the corporate performance and capital structure of large enterprises from four emerging market economies of Asia.

The paper combines two strands of business research: one from the international business field on corporate performance and country of origin; and the other from corporate finance research on capital structure. We study 81 corporations from Hong Kong, Malaysia, Singapore and Korea and find that both financial performance and capital structure are influenced by the country of origin. Specifically, we find that Hong Kong corporations have significantly higher returns on equity and invested capital than corporations from the other countries, possibly reflecting the concentrated conglomerate business structure typical of Hong Kong. The performance differences among firms from other countries are in these emerging market economies

Not statistically significant. Firms from Korea have significantly higher leverage than firms from the other countries. Leverage itself does not seem to affect corporate performance. The evidence lends only limited support to the extant capital structure theories

3

ACKNOWLEDGEMENT

I would like to convey my heartiest gratitude to several people, for their

support and guidance which helped me to complete this project. I wish to

take this opportunity to thank Mr. Maheshwar Reddy (Principal) for

permitting me to carry on this project. I also acknowledge my

thankfulness to Mr.T.Hareesh Kumar sir, internal guide for his valuable

suggestions and support in completion of this project. Last but not the

least, my endless appreciation goes to my family who has stood by my

side and given me moral support whenever I was low and boosted my

will power.

Thank you

4

CONTEXT OF THE STUDY

CHAPTERS P.NO 7 - 10

1. INTRODUCTION A). NEED OF THE STUDY B).OBJECTIVE OF THE STUDY C).METHODOLOGY D).LIMITATIONS OF THE STUDY E).SCOPE OF THE STUDY

2. LITERATURE REVIEW 12-13 A).A COMPRATIVE ANALYSIS BETWEN ICT AND NON- ICT FIRMS B).AN ANALYSIS OFASIAN CORPORAT 3. COMPANY PROFILE 15-24 A).OVERVIEW OF CEMENT INDUSTRY B).ORGANISTION PROFILE C).KESORAM CEMENT –ADVANTAGES

4. THEORITICAL FRAME WORK OFCAPITAL 26-39 STRUCTURE A).DETERMINTS OFCAPITAL STRUCTURE B).THEORIES OF CAPITAL STRUCTURE C).THE TRADITIONAL APPROACH

5. ANALYSIS &INTERPRETATION 41-58 A).EBIT-EPS ANALYSIS B).CAPITAL STRUCTURE ANALYSIS 6. CONCLUSIONS & SUGGESSTIONS 60-61 7. BIBILIOGRAPHY 62-63

5

CHAPTER-I

INTRODUCTION

6

CAPITAL STRUCTURE

INTRODUTION:

Every organization requires funds to run and maintain its business the required funds may be raised from short term sources or long term sources or a combination both the sources of funds, so as to equip it self with an appropriate combination of fixed assets and current assets. Current assets to a considerable extent are financed with the help of short term sources. Normally, firms are expected to follow a prudent financial policy, as revealed in the maintenance of net current assets. These net positive current assets must be financed by long term sources. Hence long term sources of funds are required to finance for both.

Long term assets (fixed assets) Net working capital (Positive Current assets).

A firm can easily estimate the required funds by a detailed study of the investment decision. In other words, anticipation of the require funds may be estimated analyzing the investments decision. Once anticipation of require funds is completed then the next step is financial for the manager to make decisions related to the finance or the selected investment decisions. Generally capital is raised from the prime source are

Equity Debt

Then the questions are what should be the proportion of equity and debt in the capital structure of a company.

As the objective of a firm should be directed towards the maximization of the valve of the firm, the capital structure decision should be examined from the point of its impact on the firm. If the valve of the firm can be affected by capital structure, a firm would like to have a capital structure, which maximizes the market valve of the firm. There exist conflicting theories on the relationship between capital structure and the valve of the firm.

Capital structure decisions are significant finance of the corporate firm in that they influence the return as the risk of equity shareholders.

7

That there exist close Nexus between optimum judicious debt and the market valve/valuation of the firm is well recognized in literature of finance. While the excessive use of debt may endanger the every survival of the corporate firms, the conservative policy may deprive its equity-holders the advantage of debt as a cheaper source of finance to magnify their rate of return. Following such an over-conservative policy runs counter the basic objective of financial decision making to maximize the wealth of equity holder.

Apart from financial risk return consideration, non-financial factors are also likely to be very decisive in designing capital structure of the corporate famous for instance use of debt, unlike equity doesn’t dilute the controlling power of existing owners in brief, debt is not an unmixed blessing and, hence a dilemma for the corporate finance manager.

ASSUMPTIONS: Firms employ only two types of capital, debt and equity. The firm has a policy of paying 100% dividends. The corporate and personal income taxes do not exist. The operating profit (EBIT) is not accepted to grow. The total assets are given and do not change. Business risk is constant over time and is assumed to be

independent of its capital structure.

NEED OF THE STUDY:

The corporate and personal income taxes do not exist.

The business risk is constant over time and is assumed to be independent of its capital structure.

The given the assumptions of perfect information and rationality.

The business risk is equal among all firms with in similar operating environment.

OBJECTIVE OF THE STUDY:

8

To know over all the cost capital (KO) and the valve of the firm (V) are independent of the capital structure.

To know the capitalization rate of an equity and premium for financial risk.

To know cut off rate for investment purposes is completely independent of the way in which an investment is financed.

To make the impact of (Capital) not work in financial performance.

METHODOLOGY:

Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection of data through two principle sources viz.

(1) Primary data(2) Secondary data

PRIMARY DATA:

It is the information collected directly without any reference. In the study it was mainly interviews with concerned officers and staffs either individually or collectively. Some of the information had verified or supplemented with personal observation, the data collected through conducting the personal interview with the officers of KESORAM INDUSTRIES LIMITED.

SECONDARY DATA:

The secondary data was collected from already published sources such as pamphlets annual reports, reports and internal records the data includes: Collection of required data from annual reports of KESORAM INDUSTRIES LIMITED. Reference from text books and relating to financial management. Articles published in business details like the economic times, business time etc.

9

SCOPE OF THE STUDY:

Since it will not be possible to conduct a micro level of all cement industries in Andhra Pradesh, the study is restricted to KESORAM CEMENT only.

LIMITATIONS OF THE STUDY:

The data of study of project collected of investor or capital structure may not applicable in the situations.

The study of capital structure analysis of company financial position may be affected or not.

The calculations and methods adopted in my study may be carried an appropriately.

Due to time constant of 45 days, the data of the study may on way net present overall view of the capital structure.

It is dipped to judge the results-valve due to the change market valves of the firm.

10

CHAPTER-2

LITERATURE REVIEW

11

1. Dynamic capital Structure: Comparative Analysis Between ICT and Non-ICT Firms

Dany Aoun affiliation not provided to SSRN Junseok Hwang Seoul National University - College of EngineeringIcfai Journal of Industrial Economics, Vol. 4, No. 2, pp. 7-26, May 2007

This paper develops a model of dynamic capital structure based on

a sample of NASDAQ listed firms and estimated the unobservable

optimal capital structure using a wide range of observable determinants.

The authors separate the firms into two categories - Information and

Communication Technology (ICT) and non-ICT - in order to test whether

the uniqueness of the former has any different implications. For a panel

of ICT and non-ICT firms listed on the NASDAQ stock exchange, the

results reveal that the leverage ratio of an ICT firm is more affected by

income variability, uniqueness, and the dot-com crisis compared to non-

ICT firms2.

2. Performance, capital structure and home country: An analysis of

Asian Corporations

R. Charles Moyer, Dean

Cameron University, School of Business, 2800 W. Gore Boulevard,

Lawton, OK 73505 USA

Babcock Graduate School of Management, Wake Forest University,

Winston-Salem, NC 27109 USA

Available online 1 April 2002.

12

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=638213

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=873585

3. Capital structure analysis of the fertiliser industry: a case study

Of IFFCO and Indo Gulf Corporation Ltd., India

Authors: Khatik, S.K.1; Singh, P.K.2

Source: International Journal of Financial Services Management, Volume

1, Numbers 2-3, 3 May 2006, pp. 173-189(17)

Capital structure, or what is generally known as capital mix, is very important to control the overall cost of capital in order to improve the earnings per share of share holders. After globalization and liberalization, various financial sector reforms were started by governments, such as reducing rates of interest etc., which directly affected the capital structure planning of firms. Due to this situation, the fertiliser industry also reorganized their capital structure. The financing of a capital structure decision is a significant managerial decision. Initially, the company will have to plan its capital structure at the time of its promotion. Subsequently, whenever funds have to be raised for finance and investment, a capital structure decision is involved. In this research article, researchers try to evaluate the concept of capital structure, capital structure planning and patterns of capital structure in IFFCO and Indo Gulf Corporation Ltd. We found that both companies are using the maximum possible long-term debt in their capital structure planning. During the study period, both the companies raised more and more long-term funds to meet their development and expansion needs because debt is a cheaper source of finance, especially from 1994 1995 onwards when rates of interest decreased regularly in the Indian capital market.

Keywords: ECONOMICS AND FINANCE JOURNALS; Accounting

and Finance

Document Type: Research article

13

http://www.ingentaconnect.com/search;jsessionid=1g7psbb3wwwn2.alice?database=1&title=Accounting%20and%20Finance

http://www.ingentaconnect.com/search;jsessionid=1g7psbb3wwwn2.alice?database=1&title=Accounting%20and%20Finance

http://www.ingentaconnect.com/search;jsessionid=1g7psbb3wwwn2.alice?database=1&title=ECONOMICS%20AND%20FINANCE%20JOURNALS

http://www.ingentaconnect.com/content/ind/ijfsm;jsessionid=1g7psbb3wwwn2.alice

http://www.ingentaconnect.com/content/ind/ijfsm/2006/00000001/F0020002/art00003#aff_2%23aff_2

http://www.ingentaconnect.com/content/ind/ijfsm/2006/00000001/F0020002/art00003#aff_1%23aff_1

CHAPTER – III

COMPANY PROFILE

OVERVIEW OF CEMENT INDUSTRY:

14

During the world war-I cement was declared an essential commodity and it was brought under the defense of Indian rules, controlling the price distribution of cement. Cement remained under price and distribution control during the period 1939-45.After there world war-II arrangement was made between cement manufactures reading price and distribution of cement of avoid rate-war. In order t boost up sale of cement and concrete association of India was formed.

During in the year 1947 India Standard Specification for indigenous cement has applied in place of British standard Specification. All cement manufactures were obliged to maintain quality of cement as per the standard laid down in the specification. Norms for 1 day 3 day’s strength as well as setting time was prescribed to safeguard the interest of the customer. In 1956, cement control orders was promulgated and price and distributed of cement was vested with standard trading corporation and this arrangement continued up to 1966. For Govt. and function of earlier being performed by STC was taken by cement allocation and Co-ordination Organization formed by the cement manufactures and pricing irregularities Govt. again brought under control which lasted up to 28th Feb.1989.

It will thus be seen form the above that from the beginning cement industry as whole barring for very short period, was constantly under the control by the Govt.Cement manufacturing units were just carrying out the instructions of the Govt. authorities regarding dispatching cement to stipulated destination and on price fixed by the Govt. from time to time.

15

Results of Partial decontrol:

Installed capacity in 70’s was 2,13,29,000 tones, which was raised to 4,19,03,000 tones in 80’s.number of other entrepreneurs entered the cement field with latest technology. On account of partial decontrol the financial position of existing units improved which attracted other manufacturers in the cement manufacturing activities. The unpredicted growth registered by cement industry after 1982-83 is only because of partial decontrol.

Existing sick units turned into viable units. Cement manufactures earned a good profit during 1982-83 to 1983-84, the part of which was utilized for the modernization of cement plants and setting Research and Development center. Cement was available to the public at reasonable rates between Rs.60-70 per beg at free market. Black marketing of cement disappeared to some extent.

Partial decontrol of cement by Government:

Cement industries had continuously been knocking doors of government for relief and everything after an inordinate delay government announced a meager increase in retention price. The increase was so inadequate that the same could not take care of even partial increases in cost of input on cement of Government. Action i.e., increases in petroleum product rates, coal, power, and tariff consequently number of cement units was of sick list. On 28th Feb 1982, Government declared partial decontrol by introducing principles of levy and free sale cement as it was existing in sugar industry. Under the new dispensations for existing units the levy quota was fixed at 6.66% and for six units at 50% of installed capacity.

Partial decontrol announcing by the Government gave a good relief to the industry, as Cement industry was able to set off their loss on cement of levy sales out of free sales. Uniform pricing system for levy cement after partial decontrol.

16

From 1982:Rs.335 Per ton for Ordinary Portland Cement.

(OPC) and Portland Stage Cement (PSC).Rs.320 Per ton for Portland Pozzolona Cement (PPC)From 1984:Rs.375 Per ton for OPC and PSC.Rs.360 Per ton for PPC.From 1986:Rs.399.50 Per ton for OPC and PSCRs.384.50 Per ton for PPC.

Complete decontrol of Cement

However things were not as smooth as expected. Most of old units were having out dated technology and consequently cost of cement production as compared to the retention price fixed by the Govt. was very high.

In the sale area they had to complete with new units having latest technology and comparatively less share of levy obligations, Govt. had also increased excise duty which partially these units had to absorb to complete with new units.

More new units started adding which brought the ear of competition, which was earlier absent. Cost of inputs like railway and road freight, tariff went up day by day and once a better looking cement area against started going back.

Government continued changing basis of levy, free sale quota. Earlier it was on capacity basis of which was subsequently linked to actual production sick units were also identified. Gradually levy quota was reduced and during 1986 the concept of levy/non levy was removed from cement and control on price and distribution was lifted

17

ORGANISTION PROFILE

LOCATION:Kesoram cement industry is one of the leading manufacturers of

cement in India. It is a day process cement plant. The plant capacity is 8.26 lakh tones per annum. It is located at Basanthnagar in Karimnagar district of AP. Basanthnagar is 8Km away from Ramagundam Railway Station, linking Madras to New Delhi. The chairman of the company is Shri B.T.Birla

HISTORY:The first unit at Basanthnagar with a capacity of 2.1 lakh tones per

annum incorporating humble suspension preheated system was commissioner during the year 1969. The second unit was setup in the year 1971 with a capacity of 2.1 lakh tones per annum went on stream in the year 1978. The coal for this company is being supplied from Singareni Collieries and the power is obtained from APSEB. The power demand for the factory is about 21Mw. Kesoram has got 2 DG sets of 4 MW each installed in the year 1987. Kesoram cement has set up a 15KW captor power plant to facilitate for uninterrupted power supply for manufacturing of cement at 24th August 1997 per hour 12MW, actual power is 15 MW.

Birla Supreme in popular brand of Kesoram cement from its prestigious plant of Basanthnagar in AP which has outstanding track record. In performance and productivity serving the nation for the last two and half decades. It has proved its destination by utilization. Kesoram offers a choice a top quality portioned cement for light, heavy construction and allied applications. Quality is built every fact of the operations.

The plant lay out is rational to begin with the limestone is rich in calcium carbonate a key factor that influence the quality of final product. The day process technology uses in the latest computerized monitoring overseas the manufacturing process. Samples are sent regularly to the Bureau of Indian Standards. National council of construction and building material for certification of derived quality norms.

18

The company has vigorously under taking different promotional measures for promoting their product through different media, which includes the use of newspapers, magazine, hoarding etc.Kesoram cement industry distinguished itself among all the cement factories in Indian by bagging the National Productivity Award consecutively for two years i.e., for the year 1985-87. The federation of AP Chamber & Commerce and Industries (FAPCCI) also conferred on Kesoram Cement. An award for the best industrial promotion expansion efforts in the state for the year 1984. Kesoram also bagged FAPCCI awarded for “Best Family Planning Effort in the State” for the year 1987-88.

One among the industrial giants in the country today, serving the nation on the industrial front. Kesoram industry Ltd. has a checked and eventful history dating back to the 20’s when the Industrial House of Birla’s acquired it. With only a textile mill under its banner 1924, it grew from strength and spread its activities to newer fields like Rayon, Pulp and Transparent paper, Pipes, Refractors, tires and other products.

Looking to the wide gap between the demand and supply of virtual commodity cement, which play in important role in National building activity the Govt. of India, had de-licensed the cement industry in the year 1966 with a review to attract private entrepreneur to argument the cement production. Kesoram rose to the occasions and dividend to set up a few cement plants in the country.

Kesoram cement undertaking marketing activities extensively in the state of Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharastra and Gujarat. In AP sales Depts., are located in different areas like Karimnagar, Warangal, Nizambad, Vijayawada and Nellore. In other state it has opened around 10 depots.

The market share of Kesoram Cement in AP is 7.05%. The market share of the company in various states is shown as under.

STATE MARKET SHARE

Karnataka 4.09%Tamilnadu 0.94%Kerala 0.29%Maharastra 2.81%

19

Process and Quality control:

It has been the endeavor of KESORAM to incorporate the World’s latest technology in the plant and today the plant has the most sophisticated.

X-ray Analysis:

Fully Compared XRF and XRD X-RAY Analyzers keep a constant round the clock vigil on quality.

Supreme performance:

One of the largest Cement Plants in Andhra Pradesh, the plant incorporates the latest technology in cement making. It is professionally managed of the Cement Manufacturing Company enjoying the Confidence of the consumers. Kesoram has outstanding track record in performance and productivity with quite a few national and state awards to its credit.

BIRLA SUPREME, the 43 Grade Cement, is a widely accepted and popular brand in the market, commanding a premium. However to meet the specific demands of the consumer, Kesoram bought out the 53 grade BIRLA SUPREME-GOLD, which has special qualities like higher fineness, quick setting, high compressive strength and durability.

Supreme Strength:

Kesoram Cement has huge captive Limestone Deposits, which make it possible to feed high grade limestone consistently. Their natural Grey color is anion-born ingredient and gives good shade. Both the products offered by Kesoram, i.e., BIRLA SUPREME-43 Grade and BIRLA SUPREME GOLD-53 Grade cement are outstanding with much higher compressive strength and durability. The following characteristics show their distinctive qualities.Comprehensive Strength

Opc 43 gris 8112 1989

Birla Supreme 43 Grade

Opc 53 gris 1226987

Birla Supreme Gold 53gr

3 days mpa Mm.23 31+ Mm.27 38+7days mpa Mm.23 42+ Mm.37 48+28 days mpa Mm.43 50+ Mm.53 60+

20

D.C.S SYSTEM:

Clinker making process is a key step in the overall cement making process. In the case of BIRLA SUPREME/GOLD, the clinker-making process is totally computer control. The Distributed Control System (DSC) constantly monitors the process and ensures operating efficiency. This eliminates variation and ensures consistency in the quality of Clinker.

SUPREME PROCESS:

Closed-Circuit Cement grinding process involving high efficiency separators manufactures BIRLA SUPREME. This ensures uniform and high quality in cement, which in turn contributes to its superior strength and optimum setting time.

PHYSICAL CHARACTERISTICS:Opc 43 gris 8112-89


Opc 53 gris 12269-87

Birla Supreme Gold 53gr

setting timea.Intial (mats) Min 30 120-180 Min 30 130-170b. Final (mats) Max 600 180-240 Max 600 170-220Fineness 2/Kg Mm 225 270-280 Mm 225 300-320Soundness Max 10 1.0-2.0 Max 10 0.5-1.0a.le-chart(mm) Max 0.8 0.04-0.08 Max 0.08 0.04-0.02b.autoclave(%)

SUPREME EXPERTISE:

The best Technical Team, exclusive to Kesoram, mans the plant and monitors the process, to blend the cement in just the required propositions, to make BIIRLA SUPREME/GOLD OF Rock Strength.

18 BILLION TONES OF SOLID FOUNDATION: Staying at the top for over a Quarter Century, is no less an achievement. In fact, Kesoram is synonymous with for over 28 Years. Over the year, Kesoram has dispatched 18 million tones of cement to the nook and corners of the country and joined hands in strengthen the Nation. No one else in Andhra Pradesh has this destination. The prestigious World Bank aided Ramagundam Super Thermal Power project of NTPC and Mannair Dam Of Pochampad Project in AP are a couple of projects for which Kesoram Cement was exclusively used: to cite an example.CHEMICAL CHARACTERISTICS:

21

Opc 43 gris 81132-89


Opc 53 gris 12269-87

Birla Supreme Gold 53 gr.

Loss of Inflection % Max 5 <1.6 Max 4.0 <1.5Insoluble residue % Max 2.0 <0.8 Max 2.0 <0.6Magnesium Oxide % Max 6.0 <1.3 Max 6.0 <1.3Lime Saturation Factor 0.66-1.02 0.8-0.9 0.8-1.02 0.88-0.9Alumna: Iron ratio Mm 0.66 1.5-1.7 Mm 0.66 1.5-1.7Sulfuric Anhydride % Max 2.5/3 1.6-2.0 Max 2.5/3 1.6-2.0Alkalis Chlorides Max 0.05 Max 0.01 Max 0.05 Max 0.4

KESORAM CEMENT –ADVANTAGES:

1. Helps in designing sleeker and more elegant. Structure, giving greater flexibility in design concept.

2. Due to its fine quality, super fine construction can be achieved.

3. Its gives maximum strength at minimum use of cement with water in the water cement ratio, especially the 53 grade Birlas Supreme Gold.

Mm c:fa:ca Water w/c ratioPcc 1:4:8 30 Lts 0.6M10 1:3:6 28 Lts 0.56M15 1:2:4 27Lts 0.54M20 1:1.5.5 26 Lts 0.52M25 1:1:2 24 Lts 0.487

4. Improve durability is achieved, the permeability reduces and the volumetric changes are also reduced.

22

5. Better water proofing is achieved due to low heat of hydration as the shrinkage will be less, which means fewer cracks.

6. Better finish is achieved due to fineness and hence better workability. Thus plastering becomes easier with better finish.

7. Faster construction is possible as both Birla Supreme and Birla Supreme-Gold achieve their high early strength in just 24 hours and hence the form work ca easily be removed: the improving the efficiency and saving in cost and time.

Feathers in Kesoram’s cap:

Kesoram has out standing track record, achieving over 100% capacity utilization, I productivity and energy conservation. It has proved its destination by bagging several national and state awards, noteworthy being.

NATIONAL:1. National productivity award for 1985-86.2. National productivity award for 1986-87.3. National award for mines safety for 1985-86.4. National award for mines safety for 1986-875. National award for mines safety for 1985-86.

STATE:

1. A.P State productivity award for 1988.2. State award for best industrial management 1988-89.3. Best industrial productivity award of FAPCCI (Federation of A.P

Chamber of Commerce and Industry) 1991.4. Best management award of the State Govt. 1993.5. FAPCCI award for the workers welfare, 1995-96.

I.S.O 9002:All quality system of Kesoram have been certified under

I.S.O.9002/I.S.4002, which proves the worldwide acceptance of the products. All quality systems in production and marketing of the product have been certified by B.I.S under ISO 9002/ ISI 4002.

ECO-FRIENDLY:

Kesoram has been doing its best for protecting the environment and maintaining the ecological balance in the area. Appropriate pollution

23

control equipments have been installed in the plant. Lot of a forestation measures have been taken and green belts developed and lacks of tree have been Planted in a around the factory, mines township and in the nearby area. Thanks to the massive tree plantation driver over the years, Basanthnagar has become a paradise with lush greenery, beautiful landscapes and avenues. The tree plantation is so dense that it has virtually drowned the township.

It’s but natural that the ambient temperature in the township is now less by 3-4 C, compared to the near by Ramagundam, one of the hottest spot in the country.It’s in the fitness of the things that Kesoram’s senior president Shri.K.C.JAIN has been recommended by the state government to the Central Government for the prestigious “Vrikshamitra” national award.

CAPTIVE POWER:

For uninterrupted power supply, a captive thermal power plant of 15MW capacity has been installed at Kesoram.This would ensure consistency in the supply of cement even during power-cut periods. This is in addition to the D.G sets generating 8 MW of power.

24

CHAPTER-IV

THEORITICAL FRAME WORK OFCAPITAL STRUCTURE

25

DEFINITION AND SYMBOLS:

BASIC SYSMBOLS:

S=Total market valve of money. B= Total market valve of debt. I= Total interest payments. V= Total market valve of the firm.(VS+B). NI=Net income available to equity holders.

BASIC DEFINITION: 1. Cost of debt=Interest/Market value DebtX100

Valve of debt (B) =I/K1

2. Cost of equity (Ke) = (DI/Po) +g (if there is income tax) Where DI= net divided;

3. Overall cost of=EBIT/value of the companyX100

Po=current market price of shares g=br(r=rate of return)

(If there is no IT) Ke= (E 1(X) N) = (EBIT-I orNI)/sPer share basis (PO) =E1/KTotal basis(s) =PON=(EBIT-1)/Ke

Weighted average cost of capital:

K0=W1K1=W2K2 (w1, w2 are relative weight) or K0= (I-NJ)/ (v=EBJT/V Where V=EBIT/K0

26

Determinants of Capital Structure:

1. Cost of borrowings (CB): When the cost of borrowing increases, the dependence on borrowed funds is likely to decline. As a result, the leverage ratio is expected to have a negative relationship with the cost of borrowing. The cost of borrowing can be measured as total interest payment as percentage of total borrowings of total borrowings of the firm.

2. Cost of Equity (CE): If the cost of equity increases, the firm is likely to depend more on debt than equity capital. Therefore, the leverage ratio can be accepted to be an increasing function of the cost of equity. This variable can be measured as the ratio of dividend payment to share capital of the company.

3. Size of the Firm (SF): It has been suggested by a number of authors that the size of the firm is likely to be positively related to the leverage ratio. The rational behind this view is provided by Warner (1977), and Angchua and McConnell (1982). They have argued that the ratio of direct bankruptcy costs to have firm’s valve decreases as the valve of firm is said to be negligible is also argued that the larger firms are more diversified and they have easily access to the Capital Markets, and borrow more favorable interest rates. Also Chung (1993) argued that the larger firms have lower agency costs associated with the assets substitution and under investment problems which mostly arise from the conflicting interests of shareholders? Further, the similar firms are more likely to be liquidated when they are in financial distress. All, such considerations suggest a positive relationship between the firm size is measured as the volume of total assets of firm and the leverage ratio.

4. Probability (PR): Myers (1977) suggested that the firms prefer retained earnings as their main source of financing. Their second preference is for debt financing followed by new equity issues, which might be due to the significant transaction cost of issuing new equity. It is suggested that the observed capital structure of the firm would reflect the cumulative requirements for external financing. An unusually profitable firm with a slow growth rate will end up with an unusually low leverage low ratio compared with the industry average in which it operatives. On the other hand, an unprofitable firm in the same industry will end up with a relatively high leverage ratio. The profitability of the firm enables it to use retained earnings over external finance and therefore, one should accept a negative.

27

Association between the profitability of the firm and its debt ratio. Barton and Gordon (1988) have also argued that a firm with high rates would maintain a relatively lower debt level because of its ability to finance itself with internally generated funds. This is consistent with the proportion that the management of firm desire flexible and freedom from the profitability of the firm. Which can be measured as the ratio of operating income to total assets, will be negatively related to the debt level of the firm?

5. Growth Rate (GR): The growing firms need more funds. The greater the future need for the funds, the more likely that the firm will retain earnings or issue debt. A firm is except to rarely on debt financially to rely on debt financing to maintain its debt ratio as its equity increases due to the large retention of earnings. Thus the firm’s debt level and growth rate are expected to have a positive relationship. This variable can be measured as the annual growth rates are expected to have a positive relationship. This variable can be measured as the annual growth rate of total assets of the company.

6. Collateral Valve of Assets (CVA): Some capital structure theories have argued that the type of assets owned by the firm affects its capital structure choice. Scott (1977) ahs suggested that by selling the secured debt, the firms can increase the valve of their equity by taking away the wealth without payment, from their existing unsecured debtors. By issuing debt secured by assets, the firm can avoid higher interest costs and high issuing cost. For these reasons the firms with assets that can be used as collateral may be expected to issue more debt. Therefore, the collateral valve attribute can be one of the determinants of capital structure of the firm. This variable can be measured as the ratio of accounts receivable plus net fixed assets to total assets, and it can be expected to be positively related with the leverage ration.

7. Liquidity (LQ): Liquidity ratios are mostly used to judge a firm’s ability to meet its short term obligations. The liquidity ratio may have conflicting affects on the capital structure decisions of the firm. First, the firm with higher liquidity rations might have relatively higher debt rations. This is due to greater ability to meet short-term obligations. Form this viewpoint one should accept a positive relationship between the firm liquidity position and its debt ratio. However, the firms with greater liquid assets may use these assets to finance their investments. If this happens there will be a negative relationship between the firm’s liquidity ratio and debt ratio. We include the liquidity as the argument in our capital structure determination model. It is measured as the ratio of

28

current assets to current liabilities and the direction of its effect on capital structure is allowed to be empirically determined.

8. Non-Debt Tax Shields (NDTS): DeAndelo and Masulis (1980) presented a model of optimal capital structure that incorporated the impact of corporate taxes personal taxes and non-debt related corporate tax shields such as deprecation, investment tax credits, etc. They argued that to use less borrowed capital. NDTS [Operating Income-Interest Payments-(tax payments/corporate tax rate)]/Total assets. The relationship between the non-debt tax shields and leverage ratio can be expected to be negative.

THEORIES OF CAPITAL STRUCTURE:

Different kinds of theories are have been1. Net Income Approach(NI)2. Net Operating Income Approach(NOI)3. The Traditional Approach4. Modigliani and Millar Approach(MM)

1. Net Income Approach (NI): This approach introduced by ‘Durand’. A firm can minimize weighted average cost of capital and increase the valve of the firm and share valve in the market.

This approach is based upon the following assumptions: (I) The cost of debt is less than the equity. (ii) There are no taxes. (iii) The risk percentages of inversion are not changed by The use of the debt.

Degree of leverage:

The reasons for assuming cost of debt is less then cost of Equity are that interest rates are lower then divided rates due to element of risk and the benefit of tax as the interest is a deductible expenses.

The total market valve of a firm on the basis of NI is: V=S+D

29

V=Total market valve of firm. S=Total market valve of equity shares (or) NI/Equity capitalization rate. D=market valve of debt.

Weighted Average Cost of Capital can be calculated as: KO=EBIT/V

0.1 Ke

Ko

Cost of Capital 0.05

Degree of leverage:The reasons for assuming cost of debt is less than the cost of equity

are the interest rates are lower than dividend rates due to elements of risk and benefit of tax as the interest is a deductible expenses.

The total market value of firm on the basis of NI is:

V = S+D V = Total market value of firm S= Total market value of equity share (or) NI/Equity capitalization rate D=Market value of debt.

Weighted average cost of capital can be calculated as

KO = EBIT/V

30

2. Net Operating Income Approach: This theory suggested by‘Durand’. It is opposite to the NI approach .Here Change in the capital structure of a company does not effect in the market valve of the firm and the weighted cost of capital remains constant whether the debt-equity mix is 50:50 or 20:80 or 0:100. This theory presumes that:

(i) The market capitalizes the valve of the firm as a whole (ii) The business risk remains constant.(iii) There are no corporate taxes.

The valve of the firm can be determined as: V=EBIT/KO

KO=Overall cost of capital

Y Ke(0/0)

Ko(0/0)

Ki(0/0)

O X

Leverage and cost of capital(NOI)

The market valve of equity is: S=V-DS=Market value of equity sharesV=Total market value of firmD=Total market value of debt

31

Traditional Approach

Ke

3. The Traditional Approach:

The traditional approach also known, as ‘Intermediate Approach’ is a compromise between the two extremes of income approach and net operating Income approach. According to this theory, the valve of the firm can increase initially or the cost of capital can be decreased by use more debt is a cheaper sources of funds than equity. Thus, a proper debt-equity mix can reach the capital structure When the increased cost of equity can’t be offset by the advantage of low cost debt. Thus the overall cost of capital according to this theory, decrease up to a certain point, remains more are less unhinged for moderate increase in debt thereafter, and increase or rise beyond a certain point.

5. Modigliani -Miller (MM) Approach:

The MM thesis relating to the relationship between capital structures, cost structures, cost of capital and valuation is a kin to the NOT approach, in other words, does not provide operational

32

Ko

Kd

justification for the irrelevance of the Capital Structures. The MM proportion supports the NOT approach relating to the independence of the independence of the capital of the degree of leverage level of debt-equity ratio.

Basis Proportions:

1) The over all cost of capital (KO) and the valve of the firm (V) are independent of the capital structure.

2) Ke is equal to the capitalization rate of a pure equity stream plus premium for financial risk\to the difference to the pure equity capitalization (Ke) time the ratio of debt to equity.

3) The cut off rate for investment purposes is completely independent of the way in which an investment is financed.

Assumption:a) Perfect capital market the implication of a perfect capital

market is that. Securities are infinitely divisible. Investors are free to busy/sell securities. Investors can borrow without restrictions; There is no transaction cost. Investors are rational.

b) Given the assumption of perfect information and rationally.c) Business risk is equal among all firms with in similar Operating environments. Capital Structure Planning and Policy:

V

33

Degree of Leverage (B/V)

(0/0)Ko

In (Rs)

Vo

Introduction: Capital structures refer to the mix of long-term of sources of the funds, such as debentures, long-term debt and preference shares. Some companies do not plan there capital structure they may face considerable difficulties in raising funds to finance there activities. May also fail to economize the use of their funds.

Features of an appropriate capital structure: The capital should be

planned generally keeping in view the interest of the equity shareholders, being the owners of the owners of the company. An appropriate capital structures should have the following features:

Return Risk Flexibility Capacity Control

Approach to establish capital structure:There are 3 most common approaches to decide about a firm’s capital

structures.

1. EBIT-EPS APPROACH: For analyzing the impact of debt on EPS.

2. VALUATION APPROACH: To know value of the company.

3. CASH FLOW APPROACH: For analyzing the firm’s ability to Serve debt.

Practical Considerations in determining capital structures: Concern for dilution of control Desire to maintain operating flexibility. Ease of marketing capital inexpensively. Capital for economics of scale. Agency costs.

34

1. INVESTMENTS:

Total investments, as on 31st March, 2008 is Rs.4782.66 Lakhs as against Rs.2887.28 Lakhs as on 31st March, 2007.

2. FINANCIAL:

TURN OVER AND PROFIT: KESORAM INDUSTRIES LIMITED recorded a turnover of Rs. 344032.16 Lakhs during 2007-08 as against Rs.251645.89 Lakhs during 2006-07.Net profit after Tax is Rs. 38335.04 Lakhs as compared to Rs.26568.32 Lakhs during the previous year i.e.2006-07

CAPITAL STRUCTURE: The authorized share capital of KESORAM

INDUSTRIES LIMITED is Rs.12000.00 Lakhs. The issued, subscribed and paid up capital 575435 shares of Rs.10/- each allotted as fully paid up with out payments being received in cash pursuant to a scheme of amalgamation and 5949480 shares of Rs.10/- each allotted as fully paid up bones shares by way of capitalization of reserve, 400000 shares of Rs.10/- each Rs.3.75/- per share received in cash and balance credited as bonus by way Capitalization of Reserve 45743318 ordinary Shares of Rs.10/- each fully paid Rs.4574.16 Lakhs.

3. SECURED LOANS

1. TERM LOANS froma) Rs.50833 Lakhs from State Bank of India.b) Rs.4880 Lakhs from State Bank of Hyderabad.c) Rs.1632 Lakhs from State Bank of Bikaner & Jaipurd) Rs.3256 Lakhs from State Bank of Indore.e) Rs1221 Lakhs from State Bank of Mysore.

2. FROM SCHEDULED Banks 12650.96 Lakhs

35

UNSECURED LOANS:

a) By Fixed Deposits Rs.164.22 Lakhsb) By Security Deposits from selling agents and others

Rs.12246.08 Lakhsc) Short term Loans Rs.11511.06 Lakhsd) Interest free loan from State Industrial & Investment

Corporation of Maharastra Ltd. Rs.16.05 Lakhs. 4 .RESERVES AND SURPLES:

A) CAPITAL RESERVE: During the year the company has not transferred any capital. B) GENERAL RESERVE:

Rs.4000 Lakhs have been transferred from profit & Loss A/C during the year. The closing balance as on 31st march 2008 is Rs.31391.5 Lakhs. C) FOREIGN PROJECT RESERVE:

During the year, the company did not make Foreign Project Reserve.

CAPITALISATION STATEMENT

Rs. In Lakhs

SL.NO Particulars As on 31-03-2008

A

Debt: a)Short term b)Long term Debt

97106.02 24375.36

C Total Debt 121481.38

Ba)Equity Share Capital b)Results and Surplus 4574.16 93617

Total Equity 98191.16

CTotal Valve of the company Debt/Equity Ratio 1.23%

36

5. SHARE CAPITAL:

The company did not raise any Capital during the year under report. The authorized Capital Company is 1,20,00,00,000 Equity Shares of Rs.10/- each. The ISSUED AND, SUBSCRIBED, PAID-UP CAPITAL of the company is 4, 57, 43,318 Equity shares of Rs.10/- each fully paid.

YEAR TOTAL DIVIDEND PAID TOTAL PAID UP CAPITAL2007-08 2943.45 4574.162006-07 2086.35 4574.162005-06 1546.76 4574.162004-05 1303.97 4574.162003-04 1290.11 4574.162002-03 1036.11 4574.66

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2006-07 2005-06 2004-05 2003-04 2002-03

TOTAL DIVIDEND PAID

TOTAL PAID UPCAPITAL

37

6. DIVIDENDS:KESORAM INDUSTRIES LIMITED pays Interims dividend. The Company paid Interims dividend of Rs.2086.35 Lakhs to the equity Share holders for the financial year of 2006-07.

BOARD OF DIRECTORS MEETINGThe Board of Directors annual General meeting of KESORAM INDUSTRIES LIMITED held on 14th March, 2007. They declared interims dividend for the financial year2006-07. The interim dividend paid on 4, 57, 43,318 Ordinary Shares face valve of Rs.10/- each @ Rs.4/- per share.

FOR THE YEAR ENDED MARCH, 2007

DIVIDEND REPORT

Particulars 2008 2007 2006 2005 2004Share CapitalFace valve(Rs) 4574.16

4574.16 10/-

4574.16 10/-

4574.16 10/-

4574.16 10/-

Rate of Dividend Final Interim

-4/-

-4/-

-4/-

-4/-

-4/-

Amount of dividend Final In term

_ -1829.73

-1372.29

-1143.5

-1143.5

(Rs. In Lakhs)

38

7. PROFIT:

Profit before Depreciation & Tax Rs.64180.08 Lakhs during the current year 2007-08 against previous year 2006-07 was Rs.40008.97 Lakhs. Provision for Income Tax for the year 2007-08 Rs.16500 Lakhs as against previous year 2006-07 Rs.7500 Lakhs.Profit after Tax works out Rs. 26568.32 Lakhs in 2007-08 against Rs.26568.32 Lakhs for the year of 2006-07.

8. EPS Calculation:

9. WORKING RESULTS:

Particulars 2003-04 2004-05 2005-06 2006-07 2007-08Turnover in Lakhs 156572.15 170901.53 187781.55 251645.89 344032.16Interest 3149.73 2041.1 2278.97 2991.29 5210.72Depreciation 5359.18 5349.2 5157.17 5830.64 8926.89PBT 8299.5 4351.28 8092.92 34178.32 55253.19Provision for tax 2000 1000 3400 7500 16500PAT 6299.5 3351.2 4570.92 26568.3 38335Dividend & Tax 1143.5 1143.5 1372.29 1829.73 2558.5

Particulars 2005-06 2006-07 2007-08Net Profit After Tax (Rs.in Lakhs) 4570.92 26568.32 38335No. of Equity shares 45743.318 45743.318 45743.318EPS 9.99 58.08 83.8Face Valve of Share 10/- 10/- 10/-

39

CHAPTER-V

ANALYSIS AND INTERPRETATION

40

2007-08 FINANCIAL YEARS CAPITAL STRUCTURE ANALYSIS 1. Capitalization Information

Particulars Rs. In lakhs

A.

Debt: a)Secured loans b)Un secured loans

97106.0224375.36

Total debt 121481.38

B.

Equity Capital:a)Equity share capitalb)Reserves andsurplus

4574.1693617

Total Equity Capital 98191.16

C.

Total Value: a)Capital Employed

219672.54

Total Value of the Company

219672.54

D. Debt/Equity Ratio 1.23

41

2. EBIT-EPS ANALYSIS

particulars 2007-08(Rs. In Lakhs)

EBITLess: Interest

60658.935405.74

Profit before TaxLess: Provision for TaxLess: Provision for Fringe Benefit

55253.1916500.00418.19

Profit After Tax 38335

Proposed/Interim Dividend & Tax

6943

Earning Per Shares(EPS)[(PAT/Share capital)X 10]

38335/4574.3318X10=83.80

Overall cost of=EBIT/value of the companyX100 Ko=60658.93/219672.54X100=27.67%

Cost of debt=Interest/Market value DebtX100 KD= 5405.74/121481.38X100=4.45%

3. Ratios 2007-08

Return on capital employed 48.12%

Return on Net worth 39.04%

Debt/Equity ratio 1.21

42

Interpretation:

i) Total net value of KESAVARAM INDUSTRIES LIMITED was increased in the year 2007-08 from87280.00 to121481.

ii) Equity capital of the KESAVARAM INDUSTRIES LIMITED Same as the previous year. The value is 4574.16 Lakhs. iii) Debt Equity ratio was recorded as1.23 in the year 2007-08. iv) Net worth of the company 39.04 in the financial year 2007-08. v) Earning per share of the company was Rs.83.80.

SOURCE OF FINANCE

The total investment on 31st March, 2008 is Rs. 3026.02 Lakhs. The source of investments is given below.

KESORAM INDUSTRIES LIMITED’S Sources of Finance as 31st March, 2008

Total Investment Rs. 3026.02 Lakhs

GOVERNMENT SECURITIES 0.13BONDS 29.64FULLY PAID SHARES 2899.02PARTIALLY PAID SHARES 6.12

GOVERNMENTSECURITIES

BONDS

FULLY PAIDSHARES

PARTIALLY PAIDSHARES

43

2006-07 FINANCIAL YEAR CAPITAL STRUCTURE ANALYSIS

1. Capitalization Information


A. Debt: a)Secured loans b)Un secured loans

64319.0022960.00

Total debt 87289.00

B. Equity Capital: a)Equity share capital b)Reserves and surplus

4574.1660869.28


C. Total Value: a)Capital Employed

152732


152732


44


particulars 2006-07(Rs. In Lakhs)

EBITLess: Interest

37528.633350.30


34178.327500.00110.00

Profit After Tax 26568.32

Proposed/Interim Dividend & Tax

2086.35


[(26568.32/4574.3318)X10]=58.08

Overall cost of=EBIT/value of the companyX100 KO=37528.63/152732X100

KO=24.57%

Cost of debt=Interest/Market value DebtX100 Kd=3350.30/87289.00X100

Kd=3.83%

3. Ratios 2006-07

Return on capitalemployed 40.85%

Return on Net worth 40.59%

Debt/Equity ratio 1.33

45

Interpretation:

i) Total net value of KESORAM INDUSTRIES LIMITED was increased in the year 2006-07 from 62135.45 to 87280.00.ii) Equity capital of the KESORAM INDUSTRIES LIMITED was same as the previous year. The value is 4574.16 Lakhs.iii) Debt Equity ratio was recorded as 0.98 in the year 2006-07.iv) Net worth of the company 40.59% in the financial year 2006-07.v) Earning per share of the company was Rs.58.08.

SOURCE OF FINANCE

The total investment on 31st March, 2007 is Rs.2887.28 Lakhs. The source of investments is given below.


Total Investment Rs.2887.28 Lakhs



BONDS

FULLY PAIDSHARES


46

2005-06 FINANCIAL YEAR CAPITAL STRUCTURE ANALYSIS 1. Capitalization Information


A.Debt:a)Secured loansb)Un secured loans

41336.8320798.60

Total debt 62135.43

B.

Equity Capital: a)Equity share capital b)Reserves and surplus

4574.1637030.84


C.Total Value: a) Capital Employed b) Value Added

103740.48


103740.48

D.Debt/Equity Ratio 1.45

47


particulars 2005-06(Rs. In Lakhs)EBITLess: Interest

11368.293275.37


8092.923400.00122.00

Profit After Tax 4570.92Proposed/Interim Dividend & Tax

1564.76


[(4570.92/4574.3318)X10]=9.99

Overall cost of=EBIT/value of the companyX100 Ko=11368.29/103740.48X100

Ko=10.95%

Cost of debt=Interest/Market value DebtX100 Kd= 3275.37/62135.43X100 Kd=5.27%

3. Ratios 2005-06

Return on capital employed 17.04%Return on Net worth 10.98%Current ratio 2.8Debt/Equity ratio 1.45

48

Interpretation:

i) Total debt value of KESORAM INDUSTRIES LIMITED was increased in the year 2005-06 from 50455.24 to 62135.45.

ii) Equity capital of the KESORAM INDUSTRIES LIMITED was same as the previous year. The value is 4574.16 Lakhs.

iii) Debt/Equity ratio was recorded as 0.99 in the year 2005-06.iv) Net worth of the company 10.98% in the financial year. 2005-06.

v) Earnings per share of the company were Rs.9.99.

SOURCE OF FINANCE






BONDS

FULLY PAIDSHARES


49



A.Debt: a)Secured loans b)Un secured loans

26051.3624403.87

Total debt 50455.23

B.Equity Capital: a)Equity share capital b)Reserves and surplus

4574.1633140.44


C.Total Value: a)Capital Employed

88169.82


88169.82


50


particulars 2004-05(Rs. In Lakhs)EBITLess: Interest

7116.022764.74


4351.281000 -


1303.97


[(3351.28/4574.3318)X10]=7.33

Overall cost of=EBIT/value of the companyX100 Ko=7116.02/88169.82 X 100

KO=8.07%

Cost of debt=Interest/Market value DebtX100 KD= 2764.74/50455.23X100 KD=5.47%

3. Ratios 2005-06


51

Interpretation:



iii) Debt Equity ratio was recorded as 0.69 in the year 2004-05. iv) Net worth of the company 8.88% in the financial year 2004-05. v) Earnings per share of the company was Rs.7.33.

SOURCE OF FINANCE






BONDS

FULLY PAIDSHARES


52

2003-04 FINANCIAL YEARS CAPITAL STRUCTURE ANALYSIS

1. Capitalization Information

Particulars Rs. In lakhsA. Debt:

a)Secured loans b)Un secured loans

30768.0913895.63

Total debt 44663.73B. Equity Capital:

a)Equity share capital b)Reserves and surplus

4574.1630274.12


C. Total Value:a)Capital Employed

79512.00

Total Value of the Company 79512.00

D.Debt/Equity Ratio 1.28

53


Particulars 2003-04(Rs. In Lakhs)EBITLess: Interest

8642.853432.28


8299.572000.00 -


1290.11


[(6299.57/45743.31)X10]=13.77

Overall cost of=EBIT/value of the companyX100 Ko=8642.85/79512X100

Ko=10.86%

Cost of debt=Interest/Market value DebtX100 Kd= 3432.28/44663.73X100 Kd=7.86%

3. Ratios 2003-04

Return on capital employed 17.55%Return on Net worth 18.07%Current ratio 2.51%Debt/Equity ratio 1.28%

54

Interpretation:



iii) Debt Equity ratio was recorded as 0.88 in the year 2003-04.iv) Net worth of the company 18.07% in financial year 2003-04.

V) Earnings per share of the company was Rs.13.77.

SOURCE OF FINANCE






BONDS

FULLY PAIDSHARES


55


Particulars Rs. In lakhsA. Debt:

a)Secured loans b)Un secured loans

38007.026083.18

Total debt 44090.20

B. Equity Capital: a)Equity share capital b)Reserves and surplus

4592.6629285.74


C. Total Value: a)Capital Employed

77966.60


77966.6


56


Particulars 2002-03(Rs. In Lakhs)EBITLess: Interest

78992.574659.58


3239.37425.00 -


1036.26


[(2814.67/45926.06)X10]=6.04

Overall cost of=EBIT/value of the companyX100 Ko=7899.57/77960X100

Ko=10.13% Cost of debt=Interest/Market value DebtX100 Kd= 4659.58/44090.20X100 Kd=10.5%

3. Ratios 2005-06


57

Interpretation:

i) Total debt valve of KESORAM INDUSTRIES LIMITED was 44090.21 Lakhs.

ii) Equity Capital of the KESORAM INDUSTRIES LIMITED was 4592.66 Lakhs.

iii) Debt Equity Ratio was recorded as 1.12 in the financial year 2002-03.

iv) Net Worth of the company was 8.03% in the year 2002-03.

v) Earning per share of the company was Rs.6.04 Lakhs.

58

CHAPTER-VI

CONCLUSIONS & SUGGESSTIONS

59

CONCLUSION:

After analyzing the financial position of KESORAM INDUSTRIES LIMITED and evaluating its Capital Structure Analysis in respect of Ratio Analysis and source and utilization of founds. The following conclusions are drawn from the project preparation.

The progress of KESORAM INDUSTRIES LIMITED shows that Equity Capital to Rs.41605.00 Lakhs from during the year 2007-08 and the Net worth of the Company 39.04%.

Regarding Capital Structure Analysis Equity Capital was decreased from 2002-03 to 2007-08 and t0otal Debt Valve increased from 87289.00 to 121481.00 Lakhs during the year.

Regarding Capital Structure Analysis Turn Over was increased and decreased in the year 2006-07 and profit after tax was increased during the year 2007-08.

Regarding Capital Structure Analysis Equity Ratio was decreased from 1.23 to 1.33 and current ratio decreased from 2.8to 2.39.

From the above study can be said that the KESORAM INDUSTRIES LIMITED financial position on Capital Structure Analysis is quite satisfactory.

60

SUGGESTIONS

The KESORAM INDUSTRIES LIMITED is one of the private sector cement Company in India. It is a profitable Company.

Now-a-days the cement industry playing a major and important role in the construction field, these are for construct Homes, Flyovers, Industries etc. Now-a-days cement industry facing of challenge like

Regional requirements

Regional cement demands

Lack of resources

With all the above problems cement industry has to produce the Cement with profits.

I want to express my views with few points, they are

1) KESORAM INDUSTRIES LIMITED has been maintaining Constant Equity Share Capital Since 2004, this has to improve.

2) Offer additional shares to investors from profits instead of giving Dividend. With this, there is a chance to increase reserves and surplus.

3) Debt/Equity Ratio in KESORAM INDUSTRIES LIMITED is 0.98% this is more than the idle ratio of debt. But if the proportion of Debt! Equity (0.5 and not less than 0.5) will decrease from 0.98 to 0.5. It would decrease the responsibility. Investments through Equity from rural people i.e. rural investments are important.

61

CHAPTER-VII

BIBILOGRAPHY

62

BIBLIOGRAPHYReference Books:

I.M.Pandey -Financial Management M.Y.Khan & P.K.Jain - Financial Management

Journals: Finance India Journals

Web Site: www.kaa-kesoram3sancharnet.in [email protected]@kesoramcement.com

63

captial structure analsysis in kesoram industries project

Documents

theories of capital

capital structure decisions

capital structure introdution

invested capital

study b

long term sources of

corporate performance

required funds