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CHAPTER -1

INTRODUCTION TO INDUSTRY COMPANY PROFILE

INDUSTRY PROFILE
The tyre industry has evolved from the more basic cross ply to the more sophisticated radial tyres. Nylon cords that impart low weight and additional strength to the tyres have also replaced Cotton ply. This industry is strongly linked to the automobile sector. This industry is also driven by agricultural and infrastructural activity that takes place in the region, as these two have an impact on the transport sector. India Vs Global The global tyre market currently is estimated at USD 70 billion while the Indian market is around Rs. 100 million. The global market is dominated by Goodyear-Sumitomo with a share of 22%. On the other hand, the domestic industry is dominated by MRF Ltd. Several mergers and acquisitions have characterized the global market, in the recent past. This is essentially to acquire technology, gain wider access to markets and be competitive. Indian players are also reengineering their businesses and looking at strategic tie-ups in this segment. In terms of technology, radial tyre usage has been catching up at a quick pace in the global market. Almost all the automobile segments have shifted to radial tyres and the usage of cross ply is restricted to trucks and buses only. On the other hand, in the domestic market, the radial tyres are being used only in the passenger car segment while the rest of them still stick to the cross ply variety. This is because of the lower price of cross ply and its re-treadability. In addition, the poor quality of roads in India restricts the use of such tyres. CURRENT SCENARIO PRICING SCENARIO Pricing is influenced by the demand. Since the tyre demand has not significantly increased in the last one year, many of the tyre companies have surplus stocks. Hence in the last 2-3 months the

tyre companies are offering discounts between 20 to 40 percent to car manufacturers, but the car companies are trying to squeeze more discounts. The cheap imports of non-radial tyres from China are also adding to the present woos of these tyre manufacturers. EXIM SCENARIO The export market for India has been predominantly to the USA that accounts for nearly 30% of exports from the country. These are mostly of the cross ply variety. However, of late Indias share in the US market is being threatened by China and Japan. These two countries are able to offer prices that are lower than that offered by Indian manufacturers. In addition, these two nations are logistically better placed than India when it comes to exporting to the USA. Domestic tyre manufacturers are also facing threat from imports from China and South Korea. The landed cost of tyres from China is lower than the Indian price by 30%. In addition, tyres from South Korea are imported at 30% customs duty while from other countries the duty levied is 35%. Thus in both cases the domestic tyre manufacturers are feeling the heat. GOVERNMENT POLICIES The recent budget policy of the government has also not brought much relief to the tyre manufacturers. The major issues of concern are high import duty on raw materials, ban on import of used tyres, lack of exemption in import duty for steel and polyester tyre cords (currently being imported) and imports of tyres from South Korea at lower duty. CRYSTAL GAZING The future is expected to see many strategic alliances among the domestic and global players to enable them to have access to latest technology and expand their distribution network. A better distribution will also ensure easy availability. The introduction of newer auto models will significantly have a bearing on the tyres demand. The tyre companies will also be looking for tieups with the OEMs for better stability and long-term relationship. For instance, the international player Bridgestone has a tie-up with Tatas for supply of tyres for its model Indica. Bridgestone has entered the Indian market in association with Associated Cement Companies and has set up a manufacturing plant at Kheda in Madhya Pradesh. Hyundais associate tyre manufacturer is

reported to set up operations at Sriperumbudur, in Tamil Nadu.Other multinational tyre companies are also likely to enter the Indian market viz. Michelin with J.K.Tyres and Pirelli of Italy, with Birla Tyres.

Birla Tyres was first established in 1991, as part of Kesoram Industries Limited. It then collaborated with world-class tyre manufacturer Pirelli, in the production and development of its tyres. Since then, Birla Tyres has built a solid reputation for quality and is now recognised as one of the best tyre manufacturers around.

Kesoram Industries is a dynamic company with businesses in the fields of cement, rayon yarn, spun pipes and heavy chemicals. NETWORK EXPANSION We have over 170 sales depots to meet every customer's needs. Find our new office locations at Shankagiri, Panvel, Secunderabad, Daltongunge and Siwan. INFRASTRUCTURE We equip our production facilities with the latest technology to deliver the quality and reliability Birla Tyres is known for. Our factory at Laksar, Uttrakhand, has a production capacity of over 44 lakh truck per year.

CHAIRMAN'S MESSAGE We continue to operate in certain sectors where our customers trust our strategic vision. Cement and Tyres, the two significant businesses of Kesoram have seen a mixed year. To meet the challenges of these dynamic markets and to continue on our journey of success, we have necessary foresight, strategy and preparedness. "

Birla Tyres was first established in 1991, as part of Kesoram Industries Limited. It then collaborated with world-class tyre manufacturer Pirelli, in the production and development of its tyres. Since then, Birla Tyres has built a solid reputation for quality and is now recognised as one of the best tyre manufacturers around.

Kesoram Industries is a dynamic company with businesses in the fields of cement, rayon yarn, spun pipes and heavy chemicals.

NETWORK EXPANSION

We have over 170 sales depots to meet every customer's needs. Find our new office locations at Shankagiri, Panvel, Secunderabad, Daltongunge and Siwan. INFRASTRUCTURE We equip our production facilities with the latest technology to deliver the quality and reliability Birla Tyres is known for. Our factory at Laksar, Uttrakhand, has a production capacity of over 44 lakh truck per year. MILESTONES Like our products, Birla Tyres remains resilient and keeps forging ahead, always ready to explore the uncharted.

The first plant in Balasore was set up in collaboration with world-renowned tyre manufacturer Pirelli in 1991. The new high-tech factory at Laksar-Haridwar, Uttaranchal, was built in a record time of 10 months. This modern Rs. 2300 crore Haridwar factory today has a combined production capacity of over 44 lakh truck tyres per year.

The company enjoyed an increase in turnover of Rs. 1947.22 crore in 2008 to Rs. 2849.61 crores in 2009. We are now looking ahead to reach a target of Rs. 5500 crore. The Haridwar plant attained a total projected investment of Rs. 2300 crores. In 2009, our export turnover exceeded Rs. 375 crore. Birla Tyres now exports to over 50 countries. Our robust domestic network consists of 10 zonal offices. We have also grown our sales depots from 80 to more than 170 points to meet every customer demand. We have more than 170 new sales engineers at major locations to provide 24-hour claim settlements. With an expanding network of over 3200 dealers, Birla Tyres is growing from strength to strength. We are constantly working on new and attractive schemes to increase dealer benefits.

ACCREDITATIONS International experts have recognised how Birla Tyres' pursuit of quality has created positive impact for its stakeholders. Take a look below and see our progress in the areas of productivity, environmental impact, product quality and organizational change.

BIAS XPL Extra thick casing for superior load carrying capacity backed by additional warranty of crown concussion. Reinforced bead area to withstand toughest road conditions.

XET DLX Unique straight lug design for better traction and reinforced casing for more loading capacity.

SAMSON Unique straight-lug design & special tread compound for better road handling & mileage. Reinforced casing for extra load carrying capacity.

BT 112 PLATINUM

Specially designed tread pattern for high mileage & excellent traction on metalled and uninstalled roads. Heavy duty casing for multiple retreads.

BT 112 PLUS Unique cross lug designs and extra pattern depth. Special tread compound for better mileage. Reinforced clinch area for better torque resistance. Premium casing for additional retreads.

BT 339 PLATINUM

Extra deep tread and increased rubber volume for better traction and mileage. Ribs stabilised with high tie-bars to reduce tread movement and rib sinking. Optimised foot-print and higher OD to reduced ground pressure. Excellent casing for multiple retreads. Trouble free service.

ZETA + DLX Supreme tread mileage due to extra pattern depth and super abrasion resistant tread compound. Wider sidewall protection to prevent sidewall damage. Premium casing for additional retreads.

ROADMILER Extra deep premium tyre for extra mileage, state-of the- art sinusoidal pattern for uniform wear, anti- rib sinking and excellent steering control. Additional advantage for power steering application. Very attractive and effective buttress design for cooler running. Premium casing for additional retreads.

BT 339 +

ZYNO DLX Premium depth tread pattern for extra mileage and improved casing for additional retreads.

ULTRA PLUS Extra strong casing for wide range of load applications. Extra deep tread for more mileage.

BT ULTRA

BT 112 GOLD Specially treated casing for more retreads. Rear fitment lug design suitable for long haulage. Higher tread depth for extra mileage.

TARZAN DLX

High mileage straight lug tyre for rear fitment. Suitable for long hauls. Special tread compound to resist lug chipping. Specially treated casing for more retreads.

BT 111 High mileage lug tyre for rear fitment. Deep tread pattern provides excellent traction and long service. Strong casing for more retreads.

BT 112

Deep tread pattern provides excellent traction and longer life. Special tread compound designed against chipping & chunking. Reinforced nylon casing offers durability & multiple retreads.

RAFTAR

TISON DLX

Proven cross lug design with reinforced casing ensures excellent cost per km.

BT 339 Premium depth five rib design. Rugged shoulder for resisitance to damage due to road hazards. Abrasion resistant tread compound for more mileage.

BT 339 N

BT 339*

TIRIB DLX

Proven fine rib tread patterns for optimum mileage and steering control.

BT 336 Five rib universal 'Z' design. Special tread compound for high abrasion resistance.

BT 334

Five rib premium depth tyre for front fitment. Specially designed 'Z' tread pattern for superb steering control and excellent mileage.

RUSTOM Deep tread pattern provides excellent traction and longer life. Special tread compound designed against chipping & chunking. Reinforced nylon casting offers durability & multiple retreads.

BT 334 *

Five rib premium depth tyre for front fitment. Specially designed 'Z' tread pattern for superb steering control and excellent mileage.

BT-MAX High mileage cross lug tyre for normal load application (upto 12 mt) with multiple retreads.

ZING

Premium depth Tyre with low cost per km for normal load application specially built for dummy axle.

ZINA Optimised tread design for easy steering and even wear. Excellent road holding and steering capability. Reinforced casing for impact & multiple retreads.

SUPER BT

Higher depth for longer life and more mileage. Special cut resistance compound, better tractions, less slippage & self cleaning, robust tread design for on and off the road usage.

Passenger Car Bias BT 339 Premium depth five rib design. Rugged shoulder for resisitance to damage due to road hazards. Abrasion resistant tread compound for more mileage.

BT 444

Specially designed tread pattern for extra grip and steering control.

BT 446 Extra deep tread for better mileage.

THUNDER

Motor Cycle Bias ROADMAXX BT R-41 Rear tread pattern and uniform tread groves for excellent grip

ROADMAXX BT F-21

Longest life and high speed stability

ROADMAXX BT F-81 Specially made for powerful braking and wet grip

ROADMAXX BT R-42

Rear tread pattern supported with large tread blocks for excellent grip and stability

ROADMAXX BT R-81 Longest mileage and Heavy duty casing

ROADMAXX BT R-82

Specially designed for high speed stability and wet grip

INTRODUCTION TO CAPITAL STRUCTURE


CAPITAL: Capital the dictionary meaning of the term capital is wealth capital is the total
account invested in business the capital of a business is the claim of the owner to the business is the claim of the owner to the business. It basicall y refers to total funds invested in any business.

CAPITALSTRUCTURE: It is the QUALITY OF FUNDS in the business. In this we


determine the proportion in which funds should be raised from different sources as securities. In this way CAPITAL STRUCTURE decisions are related to the mutual ratio of long term sources of CAPITAL.

LONG TERM SOURCES: These are the sources from which capital can be made
available for more than three years which can be OWNED & BORROWED funds.

TYPE OF LONG TERM SOURCES:


1. OWNED FUNDS: These are owned by the ,firm Which includes SHARE CAPITAL & RESERVE &SURPLUS.

2. BORROWED FUNDS: These are the debts taken by the firm on which the firm has to
pay Interest at a fixed rate which includes DEBENTURES & LONG TERM LOANS from Financial Institutions.

SHARE CAPITAL: The whole CAPITAL is divided in to SHARE of small values. Such as
the whole capital of Re.1000000 is divided in to 10000 shares of Re.100 each.

SHAREHOLDERS: These are the parties who invest in the shares. DIVIDEND: This is that part of NET PROFIT which is to be distributed to the Shareholders. TYPES OF SHARES: There are two types of Share EQUITY &PREFERENCE

EQUITY SHARES: These shares are the shares on which Dividend is paid after meeting all
obligations to other parties are repaid only at the time of Winding Up of the company after meeting the Liability towards all other parties. Equity Shareholders are the Real Owners of the company. They have Voting Rights & Right to participate directly in the decision making process of company. Dividend paid is not fixed & company is not bound to pay Dividend.

PREFERENCE SHARES: These shares are like the Debenture because Dividend is paid at
a fixed rate & these shareholders are given Priority over Equity Shareholders (7). But they dont have Voting Right but in some special cases right can be given. They are also given priority over the assets at the time of Winding Up.

RESERVE &SURPLUS: This is the UNDISTRIBUTED PROFITS remained for some


specific purpose or for meeting uncertainties. These are the INTERNAL SOURCES of providing FUNDS.

DEBENTURES: These are the like the Certificate which are basically the
ACKNOWLEDGEMENT OF DEBT issued in the favour of Debenture holder .These can be SECURED OR UNSECURED. They are paid INTEREST at a fixed rate .It is a kind of agreement in which all terms & conditions are decided in advance such as lifetime of Debentures, Rate of Interest etc.

LOANS FROM FINANCIAL INSTITUTES: These are the loans in which Financial
Institutes get interest on decided rate. In this an agreement is set up in advance.

COST OF CAPITAL: This is the minimum Rate of Return the company has to pay to
various suppliers of funds. As Dividend to Shareholders & Interest to Debt providers.

OPTIMAL CAPITAL STRUCTURE: A capital Structure is said to be optimal where


the VALUE OF FIRM can be MAXIMISED(4) & COST OF CAPITAL can be MINIMISED.

TWO BASIC PURPOSE: Further two are the basic aims considered while deciding the
ratio: MAXIMUM VALUE OF FIRM MINIMUM COST OF CAPITAL

QUALITIES OF A SOUND OR OPTIMUM CAPITAL STRUCTURE


Following are the FEATURES of an OPTIMAL Capital Structure: 1. SIMPLICITY: So far as possible, the Capital Structure of the firm should be simple. It means that, there must be minimum number of securities to be issued. If it becomes complicated in beginning, it can be difficult to maintain in future. 2. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be changed 7as & when needed. As New sources can be added to Capital Structure at the time of expansion & can be repaid easily at the time of reduction. 3. MINIMUM COST OF CAPITAL : As described earlier that this is One of the ultimate aims of the Financial Manager. The Cost of Capital Is In the form of Interest & Dividend. Thus the combination should be the Cheapest as possible and Average cost of capital is to be considered. 4. ADEQUATE LIQUIDITY: The term Liquidity refers to the firms Ability to meet

itsSHORT term OBLIGATIONS & DAY TO DAY working. There is an inverse relation between LIQUIDITY & PROFITABILITY. So a manager should be able to set up that Ratio which balances the both. 5. MINIMUM RISK: Risk is one of the most important factors to be considered. As the more use of Borrowed Funds will increase the Risk As they have to be paid before the claims of shareholders. So Risk & Return must be balanced(15). 6. LEGAL REQUIREMENTS: Capital Structure should be maintained in Conformity with the Legal Requirements of the country. As under the Capital Issue Control Act, the ratio of Debt to Equity must be 2:1 in any firm(5). Similarly, related to Interest Rate on Debentures. Thus all such

kinds of Rules to be studied well. 7. MAXIMUM RETURN : Capital Structure must facilitate maximum return to the Investors. and always Return on Capital must be greate than Cost of capital. Only than any firm can survive. 8. CONTROL: The Control of the firm lies in the hands of the Shareholders because they are having the voting rights in the meetings of the Companies. But in some special cases, Preference Shareholders & Debenture holder may also get these rights (13) .So it should be considered that control must lie in few hands for Better control. In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc. The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it assumes away many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. Some other reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm.

CAPITAL STRUCTURE IN A PERFECT MARKET:Assume a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under these conditions. Their first 'proposition' was that the value of a company is independent of its capital structure. Their second 'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of equity for an unleveraged firm, plus an added premium for financial risk. That is, as leverage increases, while the burden of individual risks is shifted between different investor classes, total risk is conserved and hence no extra value created. Their analysis was extended to include the effect of taxes and risky debt. Under a classical tax system, the tax deductibility of interest makes debt financing valuable; that is, the cost of capital decreases as the proportion of debt in the capital structure increases. The optimal structure, then would be to have virtually no equity at all.

CAPITAL STRUCTURE IN THE REAL WORLD


If capital structure is irrelevant in a perfect market, then imperfections which exist in the real world must be the cause of its relevance. The theories below try to address some of these imperfections, by relaxing assumptions made in the M&M model. TRADE-OFF THEORY Trade-off theory allows the bankruptcy cost to exist. It states that there is an advantage to financing with debt (namely, the tax benefit of debts) and that there is a cost of financing with debt (the bankruptcy costs of debt). The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing. Empirically, this theory may explain differences in D/E ratios between industries, but it doesn't explain differences within the same industry.

PECKING ORDER THEORY Pecking Order theory tries to capture the costs of asymmetric information. It states that companies prioritize their sources of financing (from internal financing to equity) according to the law of least effort, or of least resistance, preferring to raise equity as a financing means of last resort. Hence: internal financing is used first; when that is depleted, then debt is issued; and when it is no longer sensible to issue any more debt, equity is issued. This theory maintains that businesses adhere to a hierarchy of financing sources and prefer internal financing when available, and debt is preferred over equity if external financing is required (equity would mean issuring shares which meant 'bringing external ownership' into the company. Thus, the form of debt a firm chooses can act as a signal of its need for external finance. The pecking order theory is popularized by Myers (1984)[1] when he argues that equity is a less preferred means to raise capital because when managers (who are assumed to know better about true condition of the firm than investors) issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over-valuation. As a result, investors will place a lower value to the new equity issuance..

AGENCY COSTS
There are three types of agency costs which can help explain the relevance of capital structure.

Asset substitution effect: As D/E increases, management has an increased incentive to undertake risky (even negative NPV) projects. This is because if the project is successful, share holders get all the upside, whereas if it is unsuccessful, debt holders get all the downside. If the projects are undertaken, there is a chance of firm value decreasing and a wealth transfer from debt holders to share holders.

Underinvestment problem: If debt is risky (e.g., in a growth company), the gain from the project will accrue to debtholders rather than shareholders. Thus, management have an incentive to reject positive NPV projects, even though they have the potential to increase firm value.

Free cash flow: unless free cash flow is given back to investors, management has an incentive to destroy firm value through empire building and perks etc. Increasing leverage imposes financial discipline on management.

OTHER

The neutral mutation hypothesisfirms fall into various habits of financing, which do not impact on value. Market timing hypothesiscapital structure is the outcome of the historical cumulative timing of the market by managers. Accelerated investment effecteven in absence of agency costs, levered firms use to invest faster because of the existence of default risk.

ARBITRAGE
Similar questions are also the concern of a variety of speculator known as a capital-structure arbitrageur, see arbitrage. A capital-structure arbitrageur seeks opportunities created by differential pricing of various instruments issued by one corporation. Consider, for example, traditional bonds and convertible bonds. The latter are bonds that are, under contracted-for conditions, convertible into shares of equity. The stock-option component of a convertible bond has a calculable value in itself. The value of the whole instrument should be the value of the traditional bonds plus the extra value of the option feature. If the spread (the difference between the convertible and the non-convertible bonds) grows excessively, then the capital-structure arbitrageur will bet that it will converge.

FACTORS AFFECTING CAPITAL STRUCTURE


Initially, at the time of promotion of the company, capital structure plan is to be prepared very carefully. First of all, the objective of the capital structure should be determined & then the financing decisions should be taken accordingly. Company has to arrange for funds for its activities continuously. Therefore, capital structure decisions have to be taken on continuous basis. Following factors must be taken in to consideration while taken decisions regarding the capital structure: .

1. SIZE OF BUSINESS: Small business has to face great difficulty in raising long Term
finance. If, it is all able to get Long Term Loan, it has to accept unreasonable conditions & has to pay high interest. Therefore, While preparing capital structure plan, company should make proper use of its size.

2.FORM OF BUSINESS ORGANISATION: CONTROL is much significant in the


case of private companies, sole traders & partnership firms because in such businesses , ownership is widely spread. Therefore, control cant be restricted.

3. STABILITY OF EARNINGS: The sale & stability of income affects the quantum of
leverage. The companies which have stability in income sales can use more of debt in their capital structure. The industries producing consumer goods face more fluctuations but in the case of public utility institutions are safer. Thus stability is a good factor for deciding the ratio of funds.

4. DEGREE OF COMPETITION: If in an industry, the degree for competition is high;


such companies in the industry should use greater degree of share capital as compared to debt capital.

5. STAGE OF LIFE CYCLE: Stage of life cycle of a firm is also an important factor. As
if a firm is in the initial stage then there are more chances of failure so share capital is a good option.

6. CORPORATION TAX: Due to the current provision of tax, the use of debt is cheaper
as compared to share capital. On the other hand, if the shareholders fall in low income tax bracket, they will like to get high dividend & in such case the company will meet its financial requirement from external source.

7. STATE REGULATION: Capital Structure should be maintained in Conformity with the Legal Requirements of the country(32). As under the Capital Issue Control Act, the ratio of Debt to Equity must be 2:1 in any firm. Similarly, related to Interest Rate on Debentures. Thus all such kinds of Rules to be studied well.

8.STATE OF CAPITAL MARKET: Capital Structure decisions of the company are also
affected by the state of capital Market. Sometimes Company wants to issue ordinary shares but investors are not ready to invest due to high risk (34) .In such a situation, company should issue other securities for raising the funds, but not the ordinary share. 9.ATTITUDE OF MANAGEMENT: The Attitude of management towards the factors affecting the capital structure also affects the Capital Structure. Some managers do not want to bear risk. In such case ordinary share capital should be used in place of debt & if managers are not in a situation to bear risk then borrowed funds should be more. 10.TRADING ON EQUITY: To arrange funds for acquiring companys assets, the use of Fixed Cost sources like Preference share capital & debt funds is called as Trading On Equity or Financial Leverage. If the return on assets acquired from the debt funds is greater than the cost of debt, Earning per Share will increase. Therefore, a company should use such sources of funds which will lead to increase in EPS. 11. LEVERAGE RATIO OF OTHER FIRMS IN THE INDUSTRY : While taking capital structure decisions, debt-equity ratio of other firms in the industry should be compared. Debt-

equity ratio of the industry acts as a standard. If debt-equity ratio of the firm is not similar to the debt-equity ratio of the Industry, its reasons should be ascertained. 12. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be changed as & when needed. As New sources can be added to Capital Structure at the time of expansion & can be repaid easily at the time of reduction.

13. CONTROL : The Control of the firm lies in the hands of the Shareholders because they are
having the voting rights in the meetings of the Companies. But in some special cases, Preference Shareholders & Debenture holder may also get these rights .So it should be considered that control must lie in few hands for Better control. 14. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be changed as & when needed. As New sources can be added to Capital Structure at the time of expansion & can be repaid easily at the time of reduction. Flexibility in the capital structure depends upon the following: (1) Flexibility in the Fixed Assets (2) Restrictive conditions in the debt agreement (3) Terms of redemption (4) Debt Capacity

15.FLOATATION COST: These are the costs incurred at the time of issue of the securities .
These costs include commission, stationary & other expenses. Normally the cost of debt is less than the cost of shares. Therefore, the companies are attracted towards the borrowed funds. If the amount of issue is increased, the percentage of floatation costs can decrease.

CAPITAL STRUCTURE THEORIES

NET INCOME APPROACH (NI)


According to this approach, the cost of debt and the cost of equity do not change with a change in the leverage ratio. As a result the average cost of capital declines as the leverage ratio increases. This is because when the leverage ratio increases, the cost of debt, which is lower than the cost of equity, gets a higher weightage in the calculation of the cost of capital. The formula to calculate the average cost of capital is as follows: Ko = Kd (B/ (B+S)) + Ke (S/(B+S)) Where: Ko is the average cost of capital Kd is the cost of debt B is the market value of debt S is the market value of equity Ke is the cost of equity Net Operating income Approach (NOI)(9) According to this approach:

The overall capitalisation rate remains constant for all levels of financial leverage The cost of debt also remains constant for all levels of financial leverage The cost of equity increases linearly with financial leverage

The formula to calculate the cost of capital is Ko=Kd(B/(B+S))+Ke(S/(B+S)) Ko and Kd are constant for all levels of leverage. Given this, the cost of equity can be expressed as follows:

Ke =Ko+(Ko-Kd)(B/S)

TRADITIONAL OR INTERMEDIATE APPROACH


This approach is midway between the NI and the NOI approach. The main propositions of this approach are: The cost of debt remains almost constant up to a certain degree of leverage but rises thereafter at an increasing rate.

The cost of equity remains more or less constant or rises gradually up to a certain degree of leverage and rises sharply thereafter. The cost of capital due to the behaviour of the cost of debt and cost of equity
o o o

Decreases up to a certain point Remains more or less constant for moderate increases in leverage thereafter Rises beyond that level at an increasing rate.

MM APPROACH
According to this approach, the capital structure decision of a firm is irrelevant. This approach supports the NOI approach and provides a behavioural justification for it Additional assumptions of this approach include(10):

Capital markets are perfect. All information is freely available and there are no transaction costs All investors are rational Firms can be grouped into Equivalent risk classes on the basis of their business risk There are no taxes

This approach indicates that the capital structure is irrelevant because of the arbitrage process which will correct any imbalance i.e. expectations will change and a stage will be reached where further arbitrage is not possible.

EVALUATING ORGANIZATIONAL (Birla Tyres) CAPITAL STRUCTURE

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an important consideration for investing in a company's stock. The strength of a Birla Tyres balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy, asset performance and capital structure. In this article, we'll look at evaluating balance sheet strength based on the composition of a company's capital structure. Birla Tyres capitalization (not to be confused with market capitalization) describes the composition of a company's permanent or long-term capital, which consists of a combination of debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a company's capital structure is an indication of financial fitness.

CLARIFYING CAPITAL STRUCTURE RELATED TERMINOLOGY


The equity part of the debt-equity relationship is the easiest to define. In Birla Tyres capital structure, equity consists of a company's common and preferred stock plus retained earnings, which are summed up in the shareholders' equity account on a balance sheet. This invested capital and debt, generally of the long-term variety, comprises a company's capitalization, i.e. a permanent type of funding to support a company's growth and related assets. A discussion of debt is less straightforward. Investment literature often equates a company's debt with its liabilities. Investors should understand that there is a difference between operational and debt liabilities - it is the latter that forms the debt component of a company's capitalization but that's not the end of the debt story. Among financial analysts and investment research services, there is no universal agreement as to what constitutes a debt liability. For many analysts, the debt component in a company's capitalization is simply a balance sheet's long-term debt. This definition is too simplistic. Investors should stick to a stricter interpretation of debt where the debt component of a company's capitalization should consist of the following: short-term borrowings (notes payable), the current portion of long-term debt, long-term debt, two-thirds (rule of thumb) of the principal amount of operating leases and redeemable preferred stock. Using a comprehensive total debt figure is a prudent analytical tool for stock investors.

It's worth noting here that both international and U.S. financial accounting standards boards are proposing rule changes that would treat operating leases and pension "projected-benefits" as balance sheet liabilities. The new proposed rules certainly alert investors to the true nature of these off-balance sheet obligations that have all the earmarks of debt.

IS THERE AN OPTIMAL DEBT-EQUITY RELATIONSHIP?


In financial terms, debt is a good example of the proverbial two-edged sword. Astute use of leverage (debt) increases the amount of financial resources available to a company for growth and expansion. The assumption is that management can earn more on borrowed funds than it pays in interest expense and fees on these funds. However, as successful as this formula may seem, it does require that a company maintain a solid record of complying with its various borrowing commitments. A company considered too highly leveraged (too much debt versus equity) may find its freedom of action restricted by its creditors and/or may have its profitability hurt as a result of paying high interest costs. Of course, the worst-case scenario would be having trouble meeting operating and debt liabilities during periods of adverse economic conditions. Lastly, a company in a highly competitive business, if hobbled by high debt, may find its competitors taking advantage of its problems to grab more market share. Unfortunately, there is no magic proportion of debt that a company can take on. The debt-equity relationship varies according to industries involved, a company's line of business and its stage of development. However, because investors are better off putting their money into companies with strong balance sheets, common sense tells us that these companies should have, generally speaking, lower debt and higher equity levels.

CAPITAL RATIOS AND INDICATORS


In general, analysts use three different ratios to assess the financial strength of a company's capitalization structure. The first two, the so-called debt and debt/equity ratios, are popular

measurements; however, it's the capitalization ratio that delivers the key insights to evaluating a company's capital position. The debt ratio compares total liabilities to total assets. Obviously, more of the former means less equity and, therefore, indicates a more leveraged position. The problem with this measurement is that it is too broad in scope, which, as a consequence, gives equal weight to operational and debt liabilities. The same criticism can be applied to the debt/equity ratio, which compares total liabilities to total shareholders' equity. Current and non-current operational liabilities, particularly the latter, represent obligations that will be with the company forever. Also, unlike debt, there are no fixed payments of principal or interest attached to operational liabilities. The capitalization ratio (total debt/total capitalization) compares the debt component of a company's capital structure (the sum of obligations categorized as debt + total shareholders' equity) to the equity component. Expressed as a percentage, a low number is indicative of a healthy equity cushion, which is always more desirable than a high percentage of debt.

ADDITIONAL EVALUATIVE DEBT-EQUITY CONSIDERATIONS


Companies in an aggressive acquisition mode can rack up a large amount of purchased goodwill in their balance sheets. Investors need to be alert to the impact of intangibles on the equity component of a company's ( Birla Tyres ) capitalization. A material amount of intangible assets need to be considered carefully for its potential negative effect as a deduction (or impairment) of equity, which, as a consequence, will adversely affect the capitalization ratio. Funded debt is the technical term applied to the portion of a company's long-term debt that is made up of bonds and other similar long-term, fixed-maturity types of borrowings. No matter how problematic a company's financial condition may be, the holders of these obligations cannot demand payment as long the company pays the interest on its funded debt. In contrast, bank debt is usually subject to acceleration clauses and/or covenants that allow the lender to call its loan. From the investor's perspective, the greater the percentage of funded debt to total debt disclosed in the debt note in the notes to financial statements, the better. Funded debt gives a company more wiggle room.

Lastly, credit ratings are formal risk evaluations by credit-rating agencies - Moody's, Standard & Poor's, Duff & Phelps and Fitch of a company's ability to repay principal and interest on debt obligations, principally bonds and commercial paper. Here again, this information should appear in the footnotes. Obviously, investors should be glad to see high-quality rankings on the debt of companies they are considering as investment opportunities and be wary of the reverse. A company's ( Birla Tyres ) reasonable, proportional use of debt and equity to support its assets is a key indicator of balance sheet strength. A healthy capital structure of the star paper mill that reflects a low level of debt and a corresponding high level of equity is a very positive sign of investment quality.

NEED OF THE STUDY

Tyre Industry is growing at a very fast speed. Now it is becoming the main part of growth of Indian economy. Different companies are entered in Tyre industry. The sources of income of these companies is to sell Tyres at National and international platform . I did my training in Birla Tyre , So I want to know about the Birla Tyres and to analysis about the Capital structure of Ratio analysis is the best source. It tells about the ability of payment of liability of company. Some parameters which I have taken for the research study such as different ratios for analysis & interpreter for results .

LITERATURE REVIEW

Literature Review is the way to express background of ideas that come to mind during the research formulation. I asked various employees of the company about the new technological initiative taken by the company. The project being conducted was "Financial Leverage of Mindarika Pvt. Ltd on the basis of Debt-Equity Structure & their Impact on Shareholder Wealth & Profitability. Once the problem is formulated, the researcher undertakes an extensive literature review connected with the problem.

CONCEPTUAL LITERATURE:Conceptual literature is that which relates with concepts and theories. Help from different books should be taken for different concepts and theories. 1.Malcolm stephens,2004 examines the causes of the reduction in trade finance in South East Asia countries post-1997 with a particular focus on the role of export credit agencies.It concludes that while such agencies did not cause or prolong the problem they did not contribute significantly to a solution.The paper also suggests some implications from events in South East Asia for both traditional debt-relief mechanisms and for the architecture of the international financial system. 2.Koven Levit,2004 examines the arrangement is a non-binding, international agreement,it nonetheless engenders unswerving compliance. This Article unfolds by empirically establishing sustaind and pervasive compliance among industrialized ECAs. Having documented compliance,the article then explores why the arrangement breeds such compliance,focusing on three categories of compliance factors:state interests,international systemic linkages,and the Arrangements architecture.While all factors are undoubtedly part of the compliance puzzle,the arrangement itself-the nitty gritty of its substsntive and procedural rules-emerges as the integral piece. 3.Jean-Pierre Chauffour 2005 export insurance and guarantees suggest that publicly Backed export credit agencies have played a role to prevent a complete drying up of trade finance markets during the current financial crisis. Given that export credit agencies are mainly located in advanced and emerging economies, the question arises whether developing countries that are not equipped with these agencies should establish their own agencies to support exporting firms and avoid trade finance shortages in times of crisis. 4.Christian Saborowski examines a number of issues requiring attention in the decision whether to establish such specialized financial institutions. It concludes that developing countries

should consider export credit agencies only when certain pre-requirements in termsof financial capacity,institutional capability,governance at met. 5.Ahmet I.Soylemezoglu 2006 The arrangement on officially supported Export credits(the arrangement) is an informal,gentelmens agreementamong industrialized countries export credit agencies (ECAs).ECAs are officialy supported governmental institutions that provide financing in support of nationals exports.The arrangement sets specific, highly technical parameters on the type of financing packages that ECAs may offer to promote national exports, with the goal of eliminating competition among ECAs and thereby leveling the playing field for exporters. 6.Jun Du examines a rich panel data set, we provide a rigorous analysis of the relationship between access to external finance, foreign direct investment and the exports of private enterprises in china. We conclude that, in order to foster the exports of indigenous enterprises, the elimination of financial discrimination against private firms is likely to be a more effective policy tool than the reliance on spillovers from multinational firms. 7.Sourafel Girma The export business in India is growing ,whether it is related to goods or services. The India is a growing consumer hubas well. The contemporary international financial issues, namely US sub-prime lending, appreciation of Indian currency; growing export and flow of FIIs investment in India are changing the equation for exporters, bankers, investors and therefore ECGC. The research study aims at determining how ECGC will be able to fulfill its objective in the current scenario. 8.Daniele Giovannueei examines increasing participation of relatively inexperienced enterprises in international trade calls for a concise and jargon-free, general reference to the many ways by which traders can arrange for payments to be made and the relative merits, of each from a risk standpoint. The most common methods i.e. letters of credit, are covered in some detail including examples. 9.Vrajlal K.Sapovadia examines research study aims at determining how ECGC will be able to fulfill its objective in the current scenario. The research will address studying present level of ECGC performance and to compare with their counterparts, and to evaluate performance on various measurable parameters. What shall be the impact of current trend if it continues on spread sheet and its impact on stakeholders and ECGC ? And finally, to suggest what additional

measure ECGC should take to perform in adversity. The study envisages critical analysis of various schemes of ECGC vis--vis financial performance. 10.Mare Auboin examines the paper discusses the efforts deployed in 2008 and 2009 by various players, governments, multilateral financial institutions, regional development banks, export credit agencies, to mobilize greater flows of trade finance to offset some of the pull-back by commercial institutions in the period of acute crisis that has characterized the financial sector in the past two years. Given that 80 to 90% of trade transactions involve some form of credit, insurance or guarantee one can reasonably say that supply-side driven shortages of trade finance have a potential to inflict further damages to international trade. As an institution geared towards the balanced expansion of world trade, the WTO had been concerned with occurrences of market tightening throughout this period. 11.Mare Auboin examines efforts deployed by various players, mainly multilateral financial institutions ,regional development banks, export credit agencies, to mobalize greater flows of trade finance for developing countries, with a view to help them integrate in world trade. As an institution geared towards the balanced expansion of world trade, the WTO is in the business of making trade possible. Its various functions include reducing trade barriers, negotiating and implementing global trade rules and settling disputes on the basis of the rule of law. 12.Dominic Coppens examines the degree of policy space the WTO leaves its members to support export credits for non-agricultural goods. In the light of existing case law, it illustrates that export credit support offered by export credit agencies that aims at complementing the private trade finance market would in principle be prohibited under the SCM Agreement 13.Ernst Baltecensperger examines this paper endeavors to uncover in how far public export insurance schemes foster international trade. Based on a gravity equation augmented with contingency that firms contract defaulting foreign buyers, empirical results suggest that OECD countries issuing trade credits with generous state guarantees did, during the 1999 to 2005 period, not witness more exports towards politically and commercially more unstable low income countries. Rather, publically indemnified trade finance has promoted exports, to a modest degree, towards high and middle income countries, where financial intermediaries and markets provide practicable alternatives to hedge against payment risks. 14.Andrei A. Levehenko This paper points out the reverse link: financial development is influenced by comparative advantage. The authors illustrate this idea using a model in which a

countrys financial systems is an equilibrium outcome of the economys productive structure: financial systems are more developed in countries with large financially intensive sectors. After trade opening demand for external finance and therefore financial development, are higher in a country that specializes in financially intensive goods. By contrast, financial development is lower in countries that primarily export goods which do not rely on external finance. 15.Quy Toan Do external finance need of exports and relate it to the level of financial development. In order to overcome the simultaneity problem, they adopt a strategy in the spirit of Frankel and Romer (1999). The authors exploit sector-level bilateral trade data to construct, for each country and time period ,a predicted value of external finance need of exports based on the estimated effect of geography variables on trade volumes across sectors. Their results indicate that financial development is an equilibrium outcome that depends strongly on a countrys trade pattern. 16.Mare Auboin The paper discusses a number of issues related to the treatment of trade credit internationally, a priori and a posteriori and creditors in the case of default which are currently of interest to the trade finance community, in particular the traditional providers of trade credit and guarantees, such as banks, export credit agencies, regional development banks and multilateral agencies. The paper does not deal with the specific issue of regulation of official insured export credit, under the OECD arrangement, which is a specific matter left out of this analysis. 18.Nils Herger examines this contribution demonstrates that export credit support in accordance with the safe haven might still be counter available and actionable. Finally, it is argued that an exception which can be modified by a subgroup of WTO members, like the safe haven, can do longer be accepted. 19.Mohd Arif examines an understanding of international financial management is crucial to not only large MNCs with numerous foreign subsidiaries, but also to the small business engaged in exporting or importing 75% of the 43300 US. Firms that export have less than 100 employees. International business is even important to companies that have no intention of engaging in international business. 20.Yoon Je Cho examines as directed credit programs should be small, narrowly focused and of limited duration. They should be financed by long term funds to prevent inflation and macroeconomic instability. Directed credit programs were a major tool of development in the 1960s and 1970s.In the 1980s,

EMPIRICAL LITERATURE:Empirical literature consists of study made by other in the same field. The published data in newspapers books & magazines available for discussion with people of organization.

BOOKS:
Kothari, C.R Quantitative Techniques: Knowledge about the quantitative techniques of scaling the data & different types of research and different types of research designs. Kothari C.R. Research Methodology & Techniques: Knowledge about research process, sample design, research design etc. The information regarding the basics of research and research methodology, what are the different types of research designs, problem statement, sources of data collection and methods of data collection are given in this section.6. Gupta S.K Management Accounting: Page20.1-20.20,Knowledge about leverages meaning and type, Financial Leverage or Trading on equity, Impact of financial Leverage, Gupta S.K Management Accounting: Degree of Financial Leverage, significance of Financial leverage, Limitation of Financial Leverage/Trading on Equity. Gupta S.P., Business Statistics: From here researcher found the information regarding correlation , trend and statistical tools. Goel D.K Management Accounting and Financial Management 5 : In this researcher found the different types of ratios and there formulas and about thumb rule and all basic concept. Pandey , I.)Financial Management: How to prepare comparative balance sheet and how can we evaluate. Maheshwari ,S.N Advanced Accounting7: It explains ratio analysis as a tool to analyze the financial statements of organization. Different ratios depict the position of firm in market. Mittal R.K , Management Accounting& Financial Management8 from this researcher took information about how to prepare comparative balance sheet and how to interpret it.

Bhalla, V.K, Financial Management and Policy: Knowlegde about Financial Leverage and the rate of EPS and Financial Breakeven Point. Beri G.CMarketing Research tell about the data collection, methods of data collection. Gupta S.P., Business Statistics revealed the information about the correlation, its type and its importance. Hooda R.P(., Statistics for Business and Economics : It explains ratio analysis as a tool to analyze the financial statements of organization. Different ratios depict the position of firm in market. Schaum,Statistical outline :-The information regarding the statistical tools and their limitations in different fields the research is given in this section.

JOURNALS:Kumar Santanu, Finance India:- Information about Optimality in Firms Capital Structure has been taken from this jornal.
Kaur Kuldip Finance India :-From this articles researcher have taken the meaning of

efficiency and different types of efficiency regarding determinants of debt-equity mix.. Veni P. Management Accountant:- It is a case study regarding leverage, Capital structure, dividend policy and practices. Sufi Amir ,The Journal of Finance:- It gives information about optimal debt contract which will allocate certain right to creditors. Axelson Ulf The Journal of Finance:- From these pages researcher read theory about financial structure of private equity funds and also about levered buyouts. Vinayak Ravindar,The Indian Journal of Commerce :- This paper attempts to develop and test a theory on capital structure of corporate giants of india which helped researcher in the project. Whited Toni The Journal of Finance:-Researcher has taken information about estimated financing friction are higher for low dividend firms. Sharma J.P., The Indian Journal of Commerce:-This paper has reveal information

regarding much wider regarding activities than purely start up situations are undertaken by venture capital.

MAGAZINES: Tibrewala Shalini, Buisness World:- This paper has given information regarding bonds that look good both in short and long terms. Dungore Parizad, Icfai Reader:- The stock prices outpace market initially and investors are drawn to acquiring firm attracted by their rapid growth in earning. Biswas Joydeep, Icfai Reader:- The Indian corporate sector became more and more dependent among others to the external borrowings trade use and other current liabilities. Shah Rashesh, Business World:-Researcher expect liquidity to be a neutral factor as a cash flow into equities, Dubey Rajeev, Buisness World:- In this researcher has taken idea about shareholders have been left wondering if company is morphing itself into a conglomerate. Seth Meera, Business World:-Private equity investors who offered to buy the debt , converted into the equity and then served a diktat about targets. Sinha Paritosh, Icfai Reader:- It gives the information regarding the return on equity addresses. The same question in term of the percentage return earned after meeting the fund invested by the shareholder.

Annual Report:-Balance Sheet & P/L account of the year 2007 & 2010.

WEBSITES:www.capitaline.com:- This provide researcher information any every financial aspect of different companies. It also provided me knowledge about management and history of different companies.

www.investopedia.com:- This site help to get data for debt to equity ratio & market capitalization Private equity investors who offered to buy the debt , converted into the equity and then served a diktat about targets..

www.economywatch.com/business: This site explains about the overview of ongoing developments.

business,

http://www.investorwords.com/1952/financial_leverage.html: This site explain The degree to which an investor or business is utilizing borrowed money. Companies. http://www.12manage.com/description_financial_leverage.html: This site explain Investments and Leverage and risk, Accounting leverage is total assets divided by total assets
http://autonews.indiacar.com/news/n12234.htm: Mindarika's second plant to

be functional by August-end Mindarika Pvt Ltd, part of the Rs 300 crore plus Minda Group, www.moneycontrol.com:- This site helped in providing various data regarding status of industry.
www.minda/group/mindarika/annualreport :- This site reveals the information

regarding company profile and balance sheet.

STATEMENT OF THE OBJECTIVES

MAIN OBJECTIVE: The project is designed to show the Capital structure of the BIRLA TYRES .

SUB OBJECTIVE
1. The basic objective of studying the ratios of the company is to know the financial position of the company. 2. Another reason is to study that the companys profit trends. 3. To know the borrowings of the company as well as the liquidity position of the company. 4. To know the solvency of the business and the capacity to give interest to the long-term loan 5. To study the balance of cash and credit in the organization.

RESEARCH METHODOLOGY
Research is a systematic and continuous method of defining a problem, collecting the facts and analyzing them, reaching conclusion forming generalizations. Research methodology is a way to systematically solve the problem. It may be understood as a science of studying how research is done scientifically. In it we study the various Steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. The scope of research methodology is wider than that of research method (. Thus when we talk of research methodology we not only talk of research methods but also consider the logic behind the method we use in the context of our research study and explain why we are using a particular method. So we should consider the following steps in research methodology: Meaning of research Problem statement Research design Sample design Data collection Analysis and Interpretation of data

MEANING OF RESEARCH
Research is defined as a scientific & systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research is a systemized effort to gain new knowledge. It is a careful inquiry especially through search for new facts in any branch of knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research.

RESEARCH DESIGN:Research design involves a series of rational decision making benefits at each point from such sophisticated design to ensure accuracy, confidence and commensurate with large investment of resources.

The research design is formulated for the above problem is descriptive. The information is obtained from the primary as well as secondary sources. Primary sources are the working staff of the company and secondary sources are the information contained in the files of Company (Birla Tyres )and other subject related books and journals. The time period available for the research of is 40 days.

Research design

Descriptive

NATURE OF RESEARCH:-

The research methodology adopted during the project is descriptive in nature. A characteristic in research studies in business management in their reliance on secondary data source in particular and primary data in general. What is study about Why is study being made Where will the study be carried out What type of data are required What will be the sample design How will the data be collected How will the data be analyzed?

DATA COLLECTION
The task of data collection is begins after a research problem has been defined and research designed/ plan chalked out. Data collection is to gather the data from the population. The data can be collected of two types:

PRIMARY DATA:
The Primary data are those, which are collected afresh and for the first time, and thus happened to be original in character. Methods of collection of Primary data are as follows:

o Interview o Observation Method

SECONDARY DATA:The Secondary data are those which have already been collected by some one else and which have already been passed through the statistical tool. Methods of collection of Secondary data are: Journals, Websites balance sheet profit & loss

NOTE : In this the researcher has used the secondary data for the research study.
SAMPLING DESIGN:
A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to the technique or the procedure that is adopted in selecting the sampling units from which inferences about the population is drawn. Sampling design is determined before the collection of the data. Several decisions have to be taken in context to the decision about the appropriate sample selection so that accurate data is obtained and efficient results are draw I chose descriptive research in my research because I use more secondary data. In this I take data from internet, books, and journals primary data is very less so it is the reason to chose the descriptive research SAMPLING SIZE

The sample of the project report is; Annual reports, Balance sheets , internet , Books & Journals, Company Manual .

SAMPLING UNIT : BIRLA TYRE SAMPLING AREA : BIRLA TYRE FINANCIALS SAMPLING PERIOD : The time period of the study _______________ to _____________ ( 45 days ) .

LIMITATION OF THE STUDY

In spite of best efforts of the investigator the study was subjected to following limitations:STUDY OF INTERIM REPORTS: it is only the study of interim reports and secondary data present on different websites so not much reliable as primary data. Analysis is based only on monetary information and not on non monetary factors. CHANGES IN ACCOUNTING PROCEDURE by a firm may often make financial statements misleading. MINOR PLAYER: I have studied only a single firm of the industry. So, I got knowledge about just a minor player in the team. TIME PERIOD: The time period given to me for the completion of the project was short in such a short span of time it is difficult to complete any project in detail. SECRECY OF INTERNAL DATA: Manager some time denied disclosing some important financial matters, which can be helpful in this study.

RATIO ANALYSIS
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statement so that the strength & the weakness of a Railway workshop standard as well as historical performances & current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables.

SIGNIFICANCE OF RATIO ANALYSIS


i) ii) iii) iv) Helps in decision making Helps in communicating Helps in co-ordination Helps in Control

OBJECTIVE OF USING RATIO ANALYSIS:


Helpful in analyzing financial statement Simplification of accounting data Helpful in comparative study

Helpful in locating the weak spots of business To estimate the trend of the business Fixation of ideal standards Effective control

LEVERAGE RATIOS :
CURRENT RATIO :
The current ratio is measure of the firms short term solvency . It indicates the availability of current assets in rupees for every one rupees of current liability . Current ratio 2:1 or more are considered satisfactory . Table 4.1 Particulars Current assets Current Liabilities CURRENT Ratio
0.98 0.96 0.94 0.92 0.9 0.88 0.86 2009 2010 2011 2012 2013 0.9

2009 393.19 805.11 0.95

2010 460.97 674.24 0.94

2011 369.77 670.27 0.90


0.98

2012 273.69 532.06 0.92

2013 161.28 480.15 0.98

0.95 0.94 0.92 Series1

Graph 4.1 The current ratio of the company between the year 2009-2013 is mostly similar . There is no major fluctuation in these years. This shows the liquidity of the company is good .

QUICK RATIO : It is also called as Acid test ratio or Liquid ratio . With the help of this ratio, the capacity of the firm to pay its current liabilities immediately is measured. This is ratio is calculated by dividing liquid assets by current liabilities.

QUICK RATIO : = QUICK ASSETS/CURRENT LIABILITIES Table 4.2 Particulars Quick Ratio 2009 0.80 2010 1.00 2011 0.96 2012 0.93 2013 0.90

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2009 0.8

0.96

0.93

0.9

Series1

2010

2011

2012

2013

Graph 4.2

The quick ratio of the company is 0.80 in the year of 2009then it has increasing to 1.00 in the year of 2010. Then it has decreasing to 0.96 in the year of 2011 but in the year of 2012 it has again decreasing to 0.93. In the year 2013 it has again decreasing from the last year which is 0.90 . Company quick ratio is no balanced in these years .it slightly increasing & decreasing every year .

LONG TERM SOLVENCY RATIOS:-

DEBT EQUITY RATIO: The relationship between borrowed funds and owners capital is a
popular measure of long term financial solvency of a firm. The relationship is shown by the debt equity ratio. This ratio reflects the relative claims of creditors & shareholders against the assets of the firm. Alternatively this ratio indicates the relative proportion of debt and equity in financial the assets of a firm. One approach is to express the debt equity ratio in terms of the relative proportion of long term debt and shareholders equity.

Debt Equity Ratio = Long Term Debt Shareholder's Fund

DEBT-EQUITY RATIO
Table 4.3 Particulars Debt. Equity Ratio 2009 0.48 2010 0.50 2011 0.46 2012 0.36 2013 0.18

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

0.48

0.5 0.46

0.36

Series1 0.18

2009

2010

2011

2012

2013

Graph 4.3

The debt equity ratio is increasing which means that the companys dependence on the external debt is increasing. In the year 2012,13 it has decreased from the last years . This shows greater inflexibility in the companys operation.

INTEREST COVERAGE RATIO :


This ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period: INTEREST COVERAGE RATIO Table 4.4 = NET PROFIT BEFORE INTEREST AND TAXES FIXED INTEREST CHARGES

YEAR INTEREST COVERAGE RATIO


30 25

2009 6.41

2010 4.04

2011 8.00

2012 28.35

2013 20.68

28.35

20.68 20 15 10 6.41 5 0 2009 2010 2011 2012 2013 4.04

Series1 8

Graph 4.4 The interest coverage ratio first decreasing from 6.41 to 4.04 between the year 20092010 but it increased in the year 2011 to 8 . Then it increases in the year 2012,13 from 28.35,20.68 .

A low ratio indicates excessive use of debt and high ratio indicates retaining.

PROFITABILITY RATIOS:

NET PROFIT RATIO:Net profit ratio establishes a relationship between net profit (after tax) and sales, and indicates the efficiency of the management, selling, administrative and other activities of the firm. This ratio is the overall measure of firms profitability and is calculated as:

Net profit ratio

Net profit *100 Net sales

Table 4.5

YEAR NET PROFIT RATIO

2009 9.88

2010 10.03

2011 14.25

2012 24.90

2013 17.68

25

24.9

20

17.68 14.25 10.03 Series1

15 9.88

10

0 2009 2010 2011 2012 2013

Graph 4.5

The net profit ratio is 9.88 in the year 2009 then it increases from 10.03 to 14.25 from the year 2009-2011 . In the year 2012 it is on the peak i.e 24.90 .. This reveals that the efficiency in manufacturing, administering and selling the products is increasing between the year 2011-13 .

OPERATING RATIO :
Operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations. Phrased more simply, it is the return achieved from standard operations and does not include unique or one time transactions. Terms used to describe operating profit margin ratios this include operating margin, operating income margin, operating profit margin or return on sales (ROS). OPERATING PROFIT RATIO = OPERATING PROFIT X 100 SALES Table 4.6

YEAR OPERATING PROFIT RATIO

2009 15.09

2010 18.27

2011 20.88

2012 33.31

2013 24.71

35 30 25 20.88 20 15 10 5 0 2009 2010 2011 15.09 18.27

33.31

24.71

Series1

2012

2013

Graph 4.7

The operating profit is increasing from 15.09 to 33.31 in the year 2009-2012 , then it decreases in the year 2013 which is 24.71. This shows that the operating cost of the company has balanced from 2011-13.

FINDINGS

After above all the of study various aspects have come in the picture. These are as follows.

After analyzing the current ratio I found liquidity of the company is not good . Company quick ratio is no balanced in these years .it slightly increasing & decreasing every year .

The debt equity ratio is increasing which means that the companys dependence on the external debt is increasing. In the year 2010 it has decreased from the last years . This shows greater inflexibility in the companys operation.

Interest coverage ratio indicates Company not excessive use of debt.

After analyzing Profitability ratio I found efficiency in manufacturing, administering and selling the products is increasing between the year 2009-12 but it slightly decrease in the year 2011.

Operating ratio shows that the operating cost of the company has increased from 200912.

SUGGESTIONS
BIRLA TYRES should use debt in limited amount to reduce the financial risk. As I have found that company is much more dependent on the debt and equity is being constant from last five years so at time of contingencies there will be more burdens on the shoulders of the shareholders. So, company should reduce its dependency on the debt. BIRLA TYRES should limit its debts to that extent that the liquidity position of the firm cannot be impacted and this does not create any hindrance. They should be a careful decision upon a range of manufacturers and enter into firms contract between them. Debt collection period is 45 days which shows lenient debt policy. Debt policy should make strict to reduce the risk of bad debts.

CONCLUSION
In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The Star Paper Mill standard ratio of debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc..
A perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions.

While there is a general belief that the world economy has stablised after the global economic recession, revival is expected to take sometime. Paper demand and price both have shown an improvement in the later part of the financial year. However continuous rise in raw material and power & fuel costs are a cause of concern. Your company will continue to strive for better operational and financial performance in the year to come.

BIBLIOGRAPHY
BOOKS & JOURNALS :
1. Kothari, C.R Quantitative Techniques Second Edition, Himalayan Publishing House, New Delhi, PP-40-45 2. Kothari C.R. Research Methodology & Techniques Second Edition, New Age International Publishers, New Delhi, PP-85-98, 110-115 3. Gupta S.K. Management Accounting 8th Edition. PP-20.1-20.20 4. Gupta S.K. Management Accounting 5th Edition PP-80.1-80.5 5. Gupta S.P., Business Statistics Current Edition, Arya Publications, Agra. PP- 56-78 6. Goel D.K. Management Accounting and Financial Management 7th Edition, Vinay Publications, New Delhi, PP-87-89 7. Pandey , I.M Financial Management Surya Publications, New Delhi. PP-49-86 8. Maheshwari ,S.N Advanced Accounting 1st Edition ,Mcmillan India Ltd., New Delhi, PP-42-43

WEB- SITES:
www.irailway.com www.capitaline.com www.investopedia.com
www.economywatch.com/business http://www.investorwords.com/1952/financial_leverage.html.

http://www.12manage.com/description_financial_leverage.html http://autonews.indiacar.com/news/n12234.htm
www.moneycontrol.com

http://en.wikipedia.org/wiki/Capital_structure