Captial Structure of Ultratech

ABSTRACT
The Project report of CAPITAL STRUCTURE Of ULTRA TECH

CEMENT. The research includes study and analysis of current market, identification of
the problem and its features. The work is basically concentrated on perception towards
performance, what will be its affect on the market. Which factors it should concentrate on
and what are the different servicing methods used to improve service quality.
The assets of a company can be financed either by increasing the owners claim or the
Creditors claim. The owners claims increase when the form raises funds by issuing
Ordinary Shares or by retaining the earnings, the creditors claims increase by borrowing
.The
Various Means of financing represents the financial structure of an enterprise .The
Financial Structure of an enterprise is shown by the left hand side (liabilities plus equity) of
The Balance sheet. Traditionally, short-term borrowings are excluded from the list of
Methods of Financing the firms capital expenditure, and therefore, the long term claims are
Said to form The capital structure of the enterprise .The capital structure is used to represent
The Proportionate relationship between debt and equity .Equity includes paid-up share
Capital, Share premium and reserves and surplus.
The financing or capital structure decision is a significant managerial decision .It influences
The shareholders returns and risk consequently; the market value of share may be affected
By the capital structure decision.
TABLE OF CONTENTS
Chapters
CONTENTS
PAGE Numbers
LIST OF TABLES
LIST OF FIGURES
II
INTRODUCTION
OBJECTIVES & RESEARCH

2
12
METHODOLOGY
INDUSTRY & COMPANY
3
21
PROFILES
DATA ANALYSIS &
4
29
INTERPRETATION
CONCLUSIONS &
5
60
RECOMMENDATIONS
BIBLIOGRAPHY
64
LIST OF TABLES I
Sno
Tables
Page Numbers
34
Ebit Levels
2
Eps analysis
ULTRA TECH CEMENT Industries

Ltd. The Funding Mix
36
40
Term Loans
41
Position of Mobilization and Development of

Funds
48
LIST OF FIGURES II
Sno
Figures
Page Numbers
35
Ebit Levels
Eps analysis
36
39
3
The forms of funds
Term Loans
47
Hyderabad Office: 503, Aditya Trade Centre,

Aditya Enclave Road, Ameerpet, Hyd-500002
Tel: 040 - 6643 0530 Fax: 040 - 6644 0440
___________________________________________________________________________________________________________
TO WHOM SOEVER IT MAY CONCERN

This is to certify that
Mr. ARSHAD AHMED bearing Hall Ticket No: 4171-10-672-009
Student of Nizam Institute of Engineering & Technology, Deshmukhi,Nalgonda., Opp. Police

Ground, Nizamabad. has undertaken project work titled
Capital Srtucture from 15/11/2011 to
29/12/2011 in partial fulfillment of the requirement for the award of Master of Business Administration and
submitted the report.
During the above training programme the student has been associated with various department and activity
contributed to experimental learning process.
Coordinated issued on
29-05-2011
(Rajesh Kumar. D)
(Manager)
____________________________________________________________________________________________________________
Registered office "B" Wing, 2nd floor, Ahura Centre, Andheri (East), Mumbai 400 093, India, Tel: 91-22-66917800,
www.ultratechcement.com
CHAPTER- I
INTRODUCTION
DEFINITION:
FINANCE is a branch of economic concerned with the resources allocation
as well as resources.Management,acquisition and investment .Simply financial
deals with matters related to money and the market.
Finance is often defined simply as the management of money or funds management.
[1]
Modern finance, however, is a family of business activity that includes the origination,
marketing, and management of cash and money surrogates through a variety of capital
accounts, instruments, and markets created for transacting and trading assets, liabilities, and
risks. Finance is conceptualized, structured, and regulated by a complex system of power
relations within political economies across state and global markets. Finance is both art
(e.g. product development) and science (e.g. measurement), although these activities
increasingly converge through the intense technical and institutional focus on measuring
and hedging risk-return relationships that underlie shareholder value. Networks of financial
businesses exist to create, negotiate, market, and trade in evermore-complex financial
products and services for their own as well as their clients accounts. Financial performance
measures assess the efficiency and profitability of investments, the safety of debtors claims
against assets, and the likelihood that derivative instruments will
protect investors against a variety of market risks.
INTRODUCTION
Financial management is that managerial activity which is concerned with planning and
controlling of firms financial resourses. It was branch of economics till 1890,and as a
seprate discipline,it is of recent origin. Still, it has know unique body of knowledge of its
own,and draws heavily on economic for its theoretical concepts event today.
The subject financial management is of immense interest in both academicians and
practicing managers. It is of great interest to academicians because the subject is still
developing, and there are still certain areas where controversies exit for which no
unanimous solutions have been reached as yet.practising managers are interested in this
subject because among the most crucial decisions of the firm are those which relate to
finance, and an understanding of the theory of financial management provides them with
conceptual and analytical insights to make those decisions skillfully.
Given the capital budgeting decision of a firm, it has to decide the way in which the capital
projects will be financed. Every time the firm makes an investment decision, it is at the
same time making a financing decision also. for example, a decision to build a new plant or
to buy a new machine implies specific way of financing that project.
CAPITAL STRUCTURE DEFINED:

The assets of a company can be financed either by increasing the owners claim or
the creditors claim. The owners claims increase when the form raises funds by issuing
ordinary shares or by retaining the earnings, the creditors claims increase by borrowing
.The various means of financing represents the financial structure of an enterprise .The
financial structure of an enterprise is shown by the left hand side (liabilities plus equity) of
the balance sheet. Traditionally, short-term borrowings are excluded from the list of
methods of financing the firms capital expenditure, and therefore, the long term claims are
said to form the capital structure of the enterprise .The capital structure is used to represent
the proportionate relationship between debt and equity .Equity includes paid-up share
capital, share premium and reserves and surplus.
The financing or capital structure decision is a significant managerial decision .It
influences the shareholders returns and risk consequently; the market value of share may be
affected by the capital structure decision. The company will have to plan its capital
structure initially at the time of its promotion.
FACTORS AFFECTING THE CAPITAL STRUCTURE:
LEVERAGE: The use of fixed charges of funds such as preference shares, debentures
and term-loans along with equity capital structure is described as financial leverage or
trading on. Equity. The term trading on equity is used because for raising debt.
DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term loans

insists that companies should generally have a debt equity ratio of 2:1 for medium and
large scale industries and 3:1 indicates that for every unit of equity the company has, it can
raise 2 units of debt. The debt-equity ratio indicates the relative proportions of capital
contribution by creditors and shareholders.
EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to

understand how sensitive is EPS (earnings per share) to change in EBIT (earnings
before interest and taxes) under different financing alternatives.
The other factors that should be considered whenever a capital structure decision is
taken are
Cost of capital
Cash flow projections of the company
Size of the company
Dilution of control
Floatation costs.
FEATURES OF AN OPTIMAL CAPITAL STRUCTURE

An optimal capital structure should have the following features,
PROFITABILITY: - The Company should make maximum use of leverages at a

minimum cost.
FLEXIBILITY: - The capital structure should be flexible to be able to meet the

changing conditions .The company should be able to raise funds whenever the need
arises and costly to continue with particular sources.
9
CONTROL: - The capital structure should involve minimum dilution of control of

the company.
SOLVENCY: - The use of excessive debt threatens the solvency of the company. In
a high interest rate environment, Indian companies are beginning to realize the
advantage of low debt.
CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth, the
key issue is: what is the relationship between capital structure and firm value?
Alternatively, what is the relationship between capital structure and cost of capital?
Remember that valuation and cost of capital are inversely related. Given a certain level of
earnings, the value of the firm is maximized when the cost of capital is minimized and vice
versa.
There are different views on how capital structure influences value. Some argue that
there is no relationship what so ever between capital structure and firm value; other believe
that financial leverage (i.e., the use of debt capital) has a positive effect on firm value up to
a point and negative effect thereafter; still others contend that, other things being equal,
greater the leverage, greater the value of the firm.
CAPITAL STRUCTURE AND PLANNING:

Capital structure refers to the mix of long-term sources of funds. Such as
debentures, long-term debt, preference share capital including reserves and surplus (i.e.,
retained earnings) The board of directors or the chief financial officer (CEO) of a company
should develop an appropriate capital structure, which are most factors to the company.
This can be done only when all those factors which are relevant to the companys capital
structure decision are properly analysed and balanced. The capital structure should be
planned generally keeping in view the interests of the equity shareholders, being the owners
of the company and the providers of risk capital (equity) would be concerned about the
10
ways of financing a companys operations. However, the interests of other groups, such as
employees, customers, creditors, society and government, should also be given reasonable
consideration. When the company lays down its objective in terms of the shareholders
wealth maximization (SWM), it is generally compatible with the interests of other groups.
Thus while developing an appropriate capital structure for its company, the financial
manager should inter alia aim at maximizing the long-term market price per share.
Theoretically, there may be a precise point or range within an industry there may be a range
of an appropriate capital structure with in which there would not be great differences in the
market value per share. One way to get an idea of this range is to observe the capital
structure patterns of companies vis--vis their market prices of shares. It may be found
empirically that there are not significant differences in the share values within a given
range. The management of a company may fix its capital structure near the top of this range
in order to make maximum use of favorable leverage, subject to other requirements such as
flexibility, solvency, control and norms set by the financial institutions, the security
exchange Board of India (SEBI) and stock exchanges.
FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE : The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the company. This
can be done only when all those factors, which are relevant to the companys capital
structure decision, are properly analyzed and balanced. The capital structure should be
planned generally keeping in view the interest of the equity shareholders and financial
requirements of the company. The equity shareholders being the shareholders of the
company and the providers of the risk capital (equity) would be concerned about the ways
of financing a companys operation. However, the interests of the other groups, such as
employees, customer, creditors, and government, should also be given reasonable
consideration. When the company lay down its objectives in terms of the shareholders
wealth maximizing (SWM), it is generally compatible with the interest of the other groups.
Thus, while developing an appropriate capital structure for it company, the financial
manager should inter alia aim at maximizing the long-term market price per share.
Theoretically there may be a precise point of range with in which the market value per
11
share is maximum. In practice for most companies with in an industry there may be a range
of appropriate capital structure with in which there would not be great differences in the
market value per share. One way to get an idea of this range is to observe the capital
structure patterns of companies Vis-a Vis their market prices of shares. It may be found
empirically that there is no significance in the differences in the share value with in a given
range. The management of the company may fit its capital structure near the top of its range
in order to make of maximum use of favorable leverage, subject to other requirement
(SEBI) and stock exchanges.
A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE

THE FOLLOWING FEATURES:
1)
RETURN: the capital structure of the company should be most advantageous, subject to
the other considerations; it should generate maximum returns to the shareholders without
adding additional cost to them.
2)
RISK: the use of excessive debt threatens the solvency of the company. To the point
debt does not add significant risk it should be used other wise it uses should be avoided.
3)
FLEXIBILITY: the capital structure should be flexibility. It should be possible to the

company adopt its capital structure and cost and delay, if warranted by a changed situation.
It should also be possible for a company to provide funds whenever needed to finance its
profitable activities.
4)
CAPACITY: - The capital structure should be determined within the debt capacity of
the company and this capacity should not be exceeded. The debt capacity of the company
depends on its ability to generate future cash flows. It should have enough cash flows to
pay creditors, fixed charges and principal sum.
5)
CONTROL: The capital structure should involve minimum risk of loss of control of the
company. The owner of the closely held companys of particularly concerned about dilution
of the control.
APPROACHES TO ESTABLISH APPROPRIATE CAPITAL STRUCTURE:

12
The capital structure will be planned initially when a company is incorporated .The
initial capital structure should be designed very carefully. The management of the company
should set a target capital structure and the subsequent financing decision should be made
with the a view to achieve the target capital structure .The financial manager has also to deal
with an existing capital structure .The company needs funds to finance its activities
continuously. Every time when fund shave to be procured, the financial manager weighs the
pros and cons of various sources of finance and selects the most advantageous sources
keeping in the view the target capital structure. Thus, the capital structure decision is a
continues one and has to be taken whenever a firm needs additional Finances.
The following are the three most important approaches to decide about a firms capital
structure.
EBIT-EPS approach for analyzing the impact of debt on EPS.
Valuation approach for determining the impact of debt on the shareholders value.
Cash flow approached for analyzing the firms ability to service debt.
In addition to these approaches governing the capital structure decisions, many other factors
such as control, flexibility, or marketability are also considered in practice.
EBIT-EPS APPROACH:
We shall emphasize some of the main conclusions here .The use of fixed cost sources
of finance, such as debt and preference share capital to finance the assets of the company, is
know as financial leverage or trading on equity. If the assets financed with the use of debt
yield a return greater than the cost of debt, the earnings per share also increases without an
increase in the owners investment. The earnings per share also increase when the preference
share capital is used to acquire the assets. But the leverage impact is more pronounced in case
of debt because
(I)
The cost of debt is usually lower than the cost of performance share capital and
13
(II)
The interest paired on debt is tax deductible.

Because of its effect on the earnings per share, financial leverage is an important
consideration in planning the capital structure of a company. The companies with high level
of the earnings before interest and taxes (EBIT) can make profitable use of the high degree of
leverage to increase return on the shareholders equity. One common method of examining
the impact of leverage is to analyze the relation ship between EPS and various possible levels
of EBIT under alternative methods of financing.
The EBIT-EPS analysis is an important tool in the hands of financial manager to get an
insight into the firms capital structure management .He can considered the possible
fluctuations in EBIT and examine their impact on EPS under different financial plans of the
probability of earning a rate of return on the firms assets less than the cost of debt is
insignificant, a large amount of debt can be used by the firm to increase the earning for share.
This may have a favorable effect on the market value per share. On the other hand, if the
probability of earning a rate of return on the firms assets less than the cost of debt is very
high, the firm should refrain from employing debt capital .it may, thus, be concluded that the
greater the level of EBIT and lower the probability of down word fluctuation, the more
beneficial it is to employ debt in the capital structure However, it should be realized that the
EBIT EPS is a first step in deciding about a firms capital structure .It suffers from certain
limitations and doesnt provide unambiguous guide in determining the capital structure of a
firm in practice.
RATIO ANALYSIS: -
14
The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison. Therefore the
focus of financial analysis is always on the crucial information contained in the financial
statements. This depends on the objectives and purpose of such analysis. The purpose of
evaluating such financial statement is different form person to person depending on its
relationship. In other words even though the business unit itself and shareholders, debenture
holders, investors etc. all under take the financial analysis differs. For example, trade
creditors may be interested primarily in the liquidity of a firm because the ability of the
business unit to play their claims is best judged by means of a through analysis of its
l9iquidity. The shareholders and the potential investors may be interested in the present and
the future earnings per share, the stability of such earnings and comparison of these
earnings with other units in thee industry. Similarly the debenture holders and financial
institutions lending long-term loans maybe concerned with the cash flow ability of the
business unit to pay back the debts in the long run. The management of business unit, it
contrast, looks to the financial statements from various angles. These statements are
required not only for the managements own evaluation and decision making but also for
internal control and overall performance of the firm. Thus the scope extent and means of
any financial analysis vary as per the specific needs of the analyst. Financial statement
analysis is a part of the larger information processing system, which forms the very basis of
any decision making process.
The financial analyst always needs certain yardsticks to evaluate the
efficiency and performance of business unit. The one of the most frequently used yardsticks
is ratio analysis. Ratio analysis involves the use of various methods for calculating and
interpreting financial ratios to assess the performance and status of the business unit. It is a
tool of financial analysis, which studies the numerical or quantitative relationship between
with other variable and such ratio value is compared with standard or norms in order to
highlight the deviations made from those standards/norms. In other words, ratios are
relative figures reflecting the relationship between variables and enable the analysts to draw
conclusions regarding the financial operations.
However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion
15
as regards causes of such deviations from the norms. For instance, ABC Ltd. Introduced the
concept of ratio analysis by calculating the variety of ratios and comparing the same with
norms based on industry averages. While comparing the inventory ratio was 22.6 as
compared to industry average turnover ratio of 11.2. However on closer sell tiny due to
large variation from the norms, it was found that the business units inventory level during
the year was kept at extremely low level. This resulted in numerous production held sales
and lower profits. In other words, what was initially looking like an extremely efficient
inventory management, turned out to be a problem area with the help of ratio analysis? As a
matter of caution, it must however be added that a single ration or two cannot generally
provide that necessary details so as to analyze the overall performance of the business
unit.In order to arrive at the reasonable conclusion regarding overall performance of the
business unit, an analysis of the entire group of ratio is required.
Some times large
variations are due to unreliability of financial data or inaccuracies contained there in

therefore before taking any decision the basis of ration analysis, their reliability must be
ensured. Similarly, while doing the inter-firm comparison, the variations may be due to
different technologies or degree of risk in those units or items to be examined are in fact the
comparable only. It must be mentioned here that if ratios are used to evaluate operating
performance, these should exclude extra ordinary items because there are regarded as nonrecurring items that do not reflect normal performance.
Ratio analysis is the systematic process of determining and interpreting the
numerical relationship various pairs of items derived form the financial statements of a
business. Absolute figures do not convey much tangible meaning and is not meaningful
while comparing the performance of one business with the other.
It is very important that the base (or denominator) selected for each ratio is
relevant with the numerator. The two must be such that one is closely connected and is
influenced by the other.
CAPITAL STRUCTURE RATIOS:
16
Capital structure or leverage ratios are used to analyse the long-term solvency or
stability of a particular business unit. The short-term creditors are interested in current
financial position and use liquidity ratios. The long-term creditors world judge the
soundness of a business on the basis of the long-term financial strength measured in terms
of its ability to pay the interest regularly as well as repay the installment on due dates. This
long-term solvency can be judged by using leverage or structural ratios.
There are two aspects of the long-term solvency of a firm:(i) Ability to repay the principal when due, and
(ii) Regular payment of interest, there are thus two different but mutually dependent and
interrelated types of leverage ratio such as:
(a)
Ratios based on the relationship between borrowed funds and
owners capital,
computed form balance sheet eg: debt-equity ratio, dividend coverage ratio, debt service
coverage ratio etc.,
NEED FOR STUDY:

The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream. The rate used to discount earnings stream its the firms required rate
of return or the cost of capital. Thus, the capital structure decision can affect the value of
the firm either by changing the expected earnings of the firm, but it can affect the reside
earnings of the shareholders. The effect of leverage on the cost of capital is not very clear.
Conflicting opinions have been expressed on this issue. In fact, this issue is one of the most
continuous areas in the theory of finance, and perhaps more theoretical and empirical work
has been done on this subject than any other.
If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the total
value of the firm or minimizes the weighted average cost of capital. The question of the
existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the
following words.
17
Given that a firm has certain structure of assets, which offers net operating earnings
of given size and quality, and given a certain structure of rates in the capital markets, is
there some specific degree of financial leverage at which the market value of the firms
securities will be higher than at other degrees of leverage?
The existence of an optimum capital structure is not accepted by all. These exist two
extreme views and middle position. David Durand identified the two extreme views the net
income and net operating approaches.
18
CHAPTER - II
OBJECTIVES
&
RESEARCH
METHODOLOGY
OBJECTIVES:
19
The project is an attempt to seek an insight into the aspects that are involved in the
capital structuring and financial decisions of the company. This project endeavors to
achieve the following objectives.
To Study the capital structure of ULTRATECH CEMENTS through EBIT-EPS

analysis
Study effectiveness of financing decision on EPS and EBIT of the firm.
Examining leverage analysis of ULTRATECH CEMENTS.
Examining the financing trends in the ULTRATECH CEMENTS. for the

period of 2006-10.
Study debt/equity ratio of ULTRATECH CEMENTS for 2006-10.
SCOPE:
A study of the capital structure involves an examination of long term as well as
short term sources that a company taps in order to meet its requirements of finance. The
scope of the study is confined to the sources that ULTRATECH CEMENTS tapped over
the years under study i.e. 2006-10
RESEARCH METHODOLOGY AND DATA ANALYSIS

Data relating to ULTRATECH CEMENTS. has been collected through
PRIMARY SOURCES:
Discussions with the Finance manager and other members of the Finance
department.
SECONDARY SOURCES:
Published annual reports of the company for the year 2006-10.
20
TECHNOLOICAL CHANGE
Cement industry has made tremendous strides in technological up gradation and
assimilation of latest technology. At present ninety three per cent of the total capacity
in the industry is based on modern and environment-friendly dry process technology
and only seven per cent of the capacity is based on old wet and semi-dry process
technology. There is tremendous scope for waste heat recovery in cement plants and
thereby reduction in emission level. One project for co-generation of power utilizing
waste heat in an Indian cement plant is being implemented with Japanese assistance
under Green Aid Plan. The induction of advanced technology has helped the industry
immensely to conserve energy and fuel and to save materials substantially. Indian is
also producing different varieties of cement like Ordinary Portland Cement (OPC),
Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil
Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement,
White Cement etc. Production of these varieties of cement conform to the BIS
Specifications. It is worth mentioning that some cement plants have set up dedicated
jetties for promoting bulk transportation and export.
THE CAPITAL STRUCTURE CONTROVERSY:

The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream. The rate used to discount earnings stream its the firms required rate
of return or the cost of capital. Thus, the capital structure decision can affect the value of
the firm either by changing the expected earnings of the firm, but it can affect the reside
earnings of the shareholders. The effect of leverage on the cost of capital is not very clear.
Conflicting opinions have been expressed on this issue. In fact, this issue is one of the most
continuous areas in the theory of finance, and perhaps more theoretical and empirical work
has been done on this subject than any other.
21
If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the total
value of the firm or minimizes the weighted average cost of capital. The question of the
existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the
following words.
Given that a firm has certain structure of assets, which offers net operating earnings
of given size and quality, and given a certain structure of rates in the capital markets, is
there some specific degree of financial leverage at which the market value of the firms
securities will be higher than at other degrees of leverage?
The existence of an optimum capital structure is not accepted by all. These exist two
extreme views and middle position. David Durand identified the two extreme views the net
income and net operating approaches.
1.NET INCOME APPROACH:

Under the net income approach (NI), the cost of debt and cost of equity are assumed
to be independent to the capital structure. The weighted average cost of capital declines and
the total value of the firm rise with increased use of leverage.
2. NET OPERATING INCOME APPROACH:

Under the net operating income (NOI) approach, the cost of equity is assumed to
increase linearly with average. As a result, the weighted average cost of capital remains
constant and the total value of the firm also remains constant as leverage is changed.
3. TRADITIONAL APPROACH:
22
According to this approach, the cost of capital declines and the value of the
firm increases with leverage up to a prudent debt level and after reaching the optimum
point, coverage cause the cost of capital to increase and the value of the firm to decline.
Thus, if NI approach is valid, leverage is significant variable and financing decisions
have an important effect on the value of the firm. On the other hand, if the NOI approach is
correct then the financing decisions should not be a great concern to the financing manager,
as it does not matter in the valuation of the firm.
Modigliani and Miller (MM) support the NOI approach by providing
logically consistent behavioral justifications in its favor. They deny the existence of an
optimum capital structure between the two extreme views; we have the middle position or
intermediate version advocated by the traditional writers. Thus these exists an optimum
capital structure at which the cost of capital is minimum. The logic of this view is not very
sound. The MM position changes when corporate taxes are assumed. The interest tax shield
resulting from the use of debt adds to the value of the firm. This advantage reduces the
when personal income taxes are considered.
CAPITAL STRUCTURE MATTERS:

THE NET INCOME APPROACH:
The essence of the net income (NI) approach is that the firm can increase its value or
lower the overall cost of capital by increasing the proportion of debt in the capital structure.
The crucial assumptions of this approach are:
1)
The use of debt does not change the risk perception of investors; as a result, the
equity capitalization rate, kc and the debt capitalization rate, kd, remain constant with
changes in leverage.
2)
The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)
3)
The corporate income taxes do not exist.

The first assumption implies that, if k e and kd are constant increased use by debt by
magnifying the shareholders earnings will result in higher value of the firm via higher value
23
of equity consequently the overall or the weighted average cost of capital k o, will decrease.
The overall cost of capital is measured by equation: (1)
It is obvious from equation 1 that, with constant annual net operating income (NOI), the
overall cost of capital would decrease as the value of the firm v increases. The overall cost
of capital ko can also be measured by
KO = Ke - (Ke - Kd) D/V
As per the assumptions of the NI approach Ke and Kd are constant and Kd is
less than Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that the
overall cost of capital Ko will be equal to Ke if the form does not employ any debt (i.e. D/V
=0), and that Ko will approach Kd as D/V approaches one.
NET OPERATING INCOME APPROACH:

According to the met operating income approach the overall capitalization rate and the cost
of debt remain constant for all degree of leverage.
rA and rD are constant for all degree of leverage. Given this, the cost of equity can be
expressed as.
The critical premise of this approach is that the market capitalizes the firm as a
whole at discount rate, which is independent of the firms debt-equity ratio. As a
consequence, the decision between debt and equity is irrelevant. An increase in the use of
debt funds which are apparently cheaper or offset by an increase in the equity
capitalization rate. This happens because equity investors seek higher compensation as they
are exposed to greater risk arising from increase in the degree of leverages. They raise the
capitalization rate rE (lower the price earnings ratio, as the degree of leverage increases.
24
The net operating income position has been \advocated eloquently by David
Durand. He argued that the market value of a firm depends on its net operating income and
business risk. The change in the financial leverage employed by a firm cannot change these
underlying factors. It merely changes the distribution of income and risk between debt and
equity, without affecting the total income and risk which influence the market value (or
equivalently the average cost of capital) of the firm. Arguing in a similar vein, Modigliani
and Miller, in a seminal contribution made in 1958, forcefully advanced the proposition that
the cost of capital of a firm is independent of its capital structure.
COST OF CAPITAL AND VALUATION APPROACH:

The cost of a source of finance is the minimum return expected by its
suppliers. The expected return depends on the degree of risk assumed by investors. A high
degree of risk is assumed by shareholders than debt-holders. In the case of debt-holders, the
rate of interest is fixed and the company is legally bound to pay dividends even if the
profits are made by the company. The loan of debt-holders is returned within a prescribed
period, while shareholders will have to share the residue only when the company is wound
up. This leads one to conclude that debt is cheaper source of funds than equity. This is
generally the case even when taxes are not considered. The tax deductibility of interest
charges further reduces the cost of debt. The preference share capital is also cheaper than
equity capital, but not as cheap as debt. Thus, using the component, or specific, cost of
capital as criterion for financing decisions and ignoring risk, a firm would always like to
employ debt since it is the cheapest source of funds.
25
CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed charges
created by the use of debt or preference capital in the capital structure and the firms ability
to generate cash to meet these fixed charges. In practice, the question of the optimum
(appropriate) debt equity mix boils down to the firs ability to service debt without any
threat of insolvency and operating inflexibility. A firm is considered prudently financed if it
is able to service its fixed charges under any reasonably predictable adverse conditions.
The fixed charges of a company include payment of interest, preference
dividend and principal, and they depend on both the amount of loan securities and the terms
of payment. The amount of fixed charges will be high if the company employs a large
amount of debt or preference capital with short-term maturity. Whenever a company thinks
of raising additional debt, it should analyse its expected future cash flows to meet the fixed
charges. It is mandatory to pay interest and return the principal amount of debt of a
company not able to generate enough cash to meet its fixed obligation, it may have to face
financial insolvency. The companies expecting larger and stable cash inflows in to employ
fixed charge sources of finance by those companies whose cash inflows are unstable and
unpredictable. It is possible for high growth, profitable company to suffer from cash
shortage if the liquidity (working capital) management is poor. We have examples of
companies like BHEL, NTPC, etc., whose debtors are very sticky and they continuously
face liquidity problem in spite of being profitability servicing debt is very burdensome for
them.
One important ratio which should be examined at the time of planning the
capital structure is the ration of net cash inflows to fixed changes (debt saving ratio). It
indicates the number of times the fixed financial obligation are covered by the net cash
inflows generated by the company.
EPS VARIABILITY AND FINANCIAL RISK: 26
The EPS variability resulting form the use of leverage is called financial risk.
Financial risk is added with the use of debt because of
(a) The increased variability in the shareholders earnings and
(b) The threat of insolvency. A firm can avid financial risk altogether if it does not
employ any debt in its capital structure. But then the shareholders will be deprived of the
benefit of the financial risk perceived by the shareholders, which does not exceed the
benefit of increase EPS. As we have seen, if a company increase its debt beyond a point the
expected EPS will continue to increase but the value of the company increases its debt
beyond a point, the expected EPS will continue to increase, but the value of the company
will fall because of the greater exposure of shareholders to financial risk in the form of
financial distress. The EPS criterion does not consider the long-term perspectives of
financing decisions. It fails to deal with the risk return trade-off. A long term view of the
effects of the financing decisions, will lead one to a criterion of the wealth maximization
rather that EPS maximization. The EPS criterion is an important performance measure but
not a decision criterion.
Given limitations, should the EPS criterion be ignored in making financing
decision? Remember that it is an important index of the firms performance and that
investors rely heavily on it for their investment decisions. Investors do not have information
in the projected earnings and cash flows and base their evaluation and historical data. In
choosing between alternative financial plans, management should start with the evaluation
of the impact of each alternative on near-term EPS. But managements ultimate decision
making should be guided by the best interests of shareholders. Therefore, a long-term view
of the effect of the alternative financial plans on the value of the shares should be taken, o
management opts for a financial plan which will maximize value in the long run but has an
adverse impact in near-term EPS, and the reasons must be communicated to investors. A
careful communication to market will be helpful in reducing the misunderstanding between
management and Investors.
27
DATA ANALYSIS:
The collected data has been processed using the tools of
Ratio analysis
Graphical analysis
Year-year analysis
These tools access in the interpretation and understanding of the Existing scenario of the
Capital Structure.
LIMITATION:
EPS is one of the mostly widely used measures of the companys
performance in practice. As a result of this, in choosing between debt and equity in practice,
sometimes too much attention is paid on EPS, which however, has serious limitations as a
financing-decision criterion.
The major short coming of the EPS as a financing-decision criterion is that it
does not consider risk; it ignores variability about the expected value of EPS. The belief
that investors would be just concerned with the expected EPS is not well founded. Investors
in valuing the shares of the company consider both expected value and variability.
28
CHAPTER III
INDUSTRTY
&
COMPANY PROFILE
CEMENT INDUSTRY
INTRODUCTION
29
Cement is a key infrastructure industry. It has been decontrolled from price and
distribution n 1st March 1989 and delicensed on 25th July 1991.
However, the
performance of the industry and prices of cement are monitored regularly.
The
constraints faced by the industry are reviewed in the Infrastructure coordination

committee meetings held in the cabinet secretariat under the chairmanship of secretary
(coordination).
Its performance is also reviewed by the cabinet committee n
infrastructure.
CAPACITY AND PRODUCTION:

India is the second largest producer of cement in the world after china. The cement
Industry comprises of 128 large cement plants with an installed capacity of 148.28
million tones and more than 300 mini cement plant with an estimated capacity of 11.10
million tones per annum. The cement corporation of India, which is central public
sector undertaking, has 10 units. There are 10 large cement plants owned by various
state Governments. The total installed capacity in the country as a whole is 159.38
million tones. Actual cement production in 2007-07 was 116.35 million tones as
against a production of 106.90 million tones in 2006-06, registering a growth rate of
8.84%.
Keeping in view the trend of growth of the industry in previous years, a
production Target of 126 million tones has fixed for the year 2008-08. During the
period April-June 2008, a production (provisional) was 31.30 million tones. The
industry has achieved a growth rate of 4.86 per cent during this period.
EXPORTS:
Apart from meeting the entire domestic demand, the industry is also exporting
cement and clinker. The export of cement during 2006-06 and 2008-08 was 5.14
30
million tones and 6.92 million tones respectively. Export during April-May, 2008 was
1.35 million tones. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd.
COMPOSITION AND OBSERVATION:

The sources tapped by ZUARI CEMENT Industries Ltd. Can be classified into:
Shareholders funds resources
Loan fund resources.
SHAREHOLDER FUND RESOURCES:

Shareholders fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP:

1.
From 1995, the Authorised capital is Rs.450 lacs of equity shares at Rs.10 each. The
issued equity capital is RS.1622.93 lacs at Rs.10 each for the period 2004-2011 and
subscribed and paid-up capital is Rs. 1622.93 lacs at Rs.10 each for the period of 20062011.
2.
In 2006-2011the calls in arrears added to equity is Rs.0.55 lacs and in 2001 there are
no calls in arrears.
3.
There is an increase of 1.38% in the equity from 2006-2011.
RETAINED EARNINGS COMPOSITION:
This includes
31
Capital Reserve
Share Premium Account
General Reserve
Contingency Reserve
Debentures Redemption Reserve
Investment Allowance Reserve
Profit & Loss Account
1.
The profit levels, company dividend policy and growth plans determined. The
amounts transferred from P&L A/c to General Reserve. Contingency Reserve and
Investment Allowance Reserve.
2.
The Investment Allowance Reserve is created for replacement of long term leased
assets and this reserve was removed from books because assets pertaining to such reserves
ceased to exist. The account was transferred to investment allowance utilized.
COMPANY PROFILE
32
UltraTech Cement Limited has an annual capacity of 18.2 million tonnes. It manufactures
and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland
Pozzalana Cement. It also manufactures ready mix concrete (RMC).
UltraTech Cement Limited has five integrated plants, six grinding units and three terminals
two in India and one in Sri Lanka.
UltraTech Cement is the countrys largest exporter of cement clinker. The export markets
span countries around the Indian Ocean, Africa, Europe and the Middle East.
UltraTechs subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P) Limited.
Details of UltraTech's production capacities

Location of units
Capacity
A Composite plants
18.2 million tpa
Tadipatri (Andhra Pradesh)
Hirmi (Chhattisgarh)
Jafrabad (Gujarat)
Kovaya (Gujarat)
Awarpur (Maharashtra)
B Grinding units
Magdalla(Gujarat)
Ginigera (Karnataka)
Ratnagiri (Maharashtra)
Jharsuguda (Orissa)
Arakkonam (Tamil Nadu)
Durgapur (West Bengal)
C Bulk terminals
Navi Mumbai (Maharashtra)
Mangalore (Karnataka)
Colombo (Sri Lanka)
As part of the eighth biggest cement manufacturer in the world, UltraTech Cement has five
integrated plants, five grinding units as well as three terminals of its own (one overseas, in
Colombo, Sri Lanka). These facilities gradually came up over the years, as indicated below:
2011
33
:: Narmada Cement Company Limited amalgamated with UltraTech pursuant to a Scheme

of Amalgamation being approved by the Board for Industrial & Financial
Reconstruction (BIFR) in terms of the provision of Sick Industrial Companies Act
(Special Provisions)
2009
:: Completion of the implementation process to demerge the cement business of L&T and
completion of open offer by Grasim, with the latter acquiring controlling stake in the
newly formed company UltraTech
2006
:: The board of Larsen & Toubro Ltd (L&T) decides to demerge its cement business into a
separate cement company (CemCo). Grasim decides to acquire an 8.5 per cent equity
stake from L&T and then make an open offer for 30 per cent of the equity of CemCo, to
acquire management control of the company.
2003
:: The Grasim Board approves an open offer for purchase of up to 20 per cent of the equity
shares of Larsen & Toubro Ltd (L&T), in accordance with the provisions and guidelines
issued by the Securities & Exchange Board of India (SEBI) Regulations, 1997.
:: Grasim increases its stake in L&T to 14.15 per cent
:: Arakkonam grinding unit
2002
:: Grasim acquires 10 per cent stake in L&T. Subsequently increases stake to 15.3 per cent
by October 2003
:: Durgapur grinding unit
1998-2001
:: Bulk cement terminals at Mangalore, Navi Mumbai and Colombo
2000
:: Narmada Cement Company Limited acquired
:: Ratnagiri Cement Works
1998
:: Gujarat Cement Works Plant II
:: Andhra Pradesh Cement Works
1996
:: Gujarat Cement Works Plant I
1994
:: Hirmi Cement Works
34
1993
:: Jharsuguda grinding unit
1987
:: Awarpur Cement Works Plant II
1983
:: Awarpur Cement Works Plant I
Board of Directors
::
::
::
::
::
::
::
::
::
::
::
Mr. Kumar Mangalam Birla, Chairman

Mrs. Rajashree Birla
Mr. R. C. Bhargava
Mr. G. M. Dave
Mr. N. J. Jhaveri
Mr. S. B. Mathur
Mr. V. T. Moorthy
Mr. O. P. Puranmalka
Mr. S. Rajgopal
Mr. D. D. Rathi
Mr. S. Misra, Managing Director
Executive President & Chief Financial Officer

:: Mr. K. C. Birla
Chief Manufacturing Officer

:: R.K. Shah
Chief Marketing Officer
::
Mr. O. P. Puranmalka
Company Secretary
::
Mr. S. K. Chatterjee
UltraTech is India's largest exporter of cement clinker. The company's production facilities
are spread across five integrated plants, five grinding units, and three terminals two in
India and one in Sri Lanka. All the plants have ISO 9001 certification, and all but one have
ISO 14001 certification. While two of the plants have already received OHSAS 18001
certification, the process is underway for the remaining three. The company exports over
2.5 million tonnes per annum, which is about 30 per cent of the country's total exports. The
export market comprises of countries around the Indian Ocean, Africa, Europe and the
Middle East. Export is a thrust area in the company's strategy for growth.UltraTech's
35
products include Ordinary Portland cement, Portland Pozzolana cement and Portland blast
furnace slag cement.
Ordinary Portland cement

Ordinary portland cement is the most commonly used cement for a wide range of
applications. These applications cover dry-lean mixes, general-purpose ready-mixes,
and even high strength pre-cast and pre-stressed concrete.
Portland blast furnace slag cement

Portland blast-furnace slag cement contains up to 70 per cent of finely ground,
granulated blast-furnace slag, a nonmetallic product consisting essentially of
silicates and alumino-silicates of calcium. Slag brings with it the advantage of the
energy invested in the slag making. Grinding slag for cement replacement takes only
25 per cent of the energy needed to manufacture portland cement. Using slag
cement to replace a portion of portland cement in a concrete mixture is a useful
method to make concrete better and more consistent. Portland blast-furnace slag
cement has a lighter colour, better concrete workability, easier finishability, higher
compressive and flexural strength, lower permeability, improved resistance to
aggressive chemicals and more consistent plastic and hardened consistency.
Portland Pozzolana cement

Portland pozzolana cement is ordinary portland cement blended with pozzolanic
materials (power-station fly ash, burnt clays, ash from burnt plant material or
silicious earths), either together or separately. Portland clinker is ground with
gypsum and pozzolanic materials which, though they do not have cementing
properties in themselves, combine chemically with portland cement in the presence
of water to form extra strong cementing material which resists wet cracking, thermal
cracking and has a high degree of cohesion and workability in concrete and mortar.
36
37
CHAPTER IV
DATA ANALYSIS
&
INTERPRETATION
RETURN ON ASSETS:
In this case profits are related to assets as follows
Return on assets =
Net profit after tax

Total assets
Particulars
ROA =
2006
2007
2008
2009
2010
2011
PAT
290.77
274.5
104.12
128.57
252.19
340.78
TOTAL ASSETS
9044.41
3.21
8916.51
3.08
8632.11
1.21
8985.5
1.43
9283.86
2.72
1017.32
3.34
38
b). RETURN ON CAPITAL EMPLOYED:

Here return is compared to the total capital employed. A comparison of this ratio with that
of other units in the industry will indicate how efficiently the funds of the business have
been employed. The higher the ratio the more efficient is the use of capital employed.
Return on capital employed
Net profit after taxes & Interest

Total capital employed
(Total capital employed = Fixed assets + Current assetsCurrent liabilities)
particulars
2006
2007
2008
2009
2010
290.77
274.5
104.12 128.57
252.19
340.78
ROCE =
PAT
Total Capital Emp
9994.02
7111.40
7112.91
6827.97
= 4.08
= 3.85
=1.52
6993.93
=1.83
2011
7079.20
=3.56
=3.40
YEAR 2005-2006
Performance of company (Amount in Rs.000s)
Gross Revenue
Profit (Loss) before tax
Earnings per share Rs.
773919
30577
1.79
Total Expenditure
Profit after tax
Dividend ratio
743342
29077
10%
YEAR 2006-2007
Performance of company (Amount in Rs.000s)
Gross Revenue
PERFORMANCE
742200
30279
1.69
Total Expenditure
Profit after tax
Dividend ratio
711921
27450
10%
YEAR 2007-2008
OF COMPANY (AMOUNT IN RS.000S)
Gross Revenue
726774 Total Expenditure
Profit (Loss) before 11218
Profit after tax
tax
Earnings per share 0.64
Dividend ratio
715556
10412
5%
39
Rs.
YEAR 2008-2009
PERFORMANCE
OF COMPANY (AMOUNT IN RS.000S)
Gross Revenue
PERFORMANCE
YEAR 2009-2010
OF COMPANY (AMOUNT
Gross Revenue
PERFORMANCE

11218
Profit after tax
0.64
Dividend ratio

RS.000S)

51802
Profit after tax
1.55
Dividend ratio
YEAR 2010-2011
OF COMPANY (AMOUNT
Gross Revenue
IN
IN
715556
10412
5%
872511
25219
10%
RS.000S)

3
71313
Profit after tax
2.10
Dividend ratio
1203680
34078
15%
PERFORMANCE ANALYSIS OF 2005-2006

There has been an increase of over 25% sales, where compared to previous year there
by contributing to increase in Gross Profit which increases over 45% because of increase in
sales and decrease in cost of sales which in due to reduction in royalty for mining and other
overheads reduction. In this year the companys operating profit is around 165 lacs as
compared to a heavy loss of over 365 lacs in previous year cost reduction also contributed
to the alone. A dividend of Rs.178 lacs was declared for the year including Tax.
40

There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.1375 lacs as against around 1300 lacs in last year. Because of
decrease in Non-Operating expenses to the time of 130 lacs the Net profit has increased. It
stood at 293 lacs in current year against 165 lacs in previous year because of redemption of
debenture and cost reduction. A dividend of Rs.162 lacs was declared during the year at
10% on equity.

1.
The production and Sales has increased by 23%
2.
Cement turn over has increased by 6% as against fall in Sales realization by 15% last
year.
3.
Cement Boards Division has contributed 18% more than the previous year to the
PBDIT.
4.
Perform Division realization has increased by 4% even the Turn over have came down
to 845 lacs from 1189lacs in last year.
5.
The profit After Tax has came down from 302 lacs to 112lacs in Current year because of
slope in Cement Industry.
6.
The Interest cost has come down by 24% due to reduction in Interest rates by
Commercial Banks & Public Deposits.

The Cement Industry has a successful year because of Govt. policies such as
infrastructure Development a Rural housing. There has been a small reduction in Gross
Sales and with the performance of prefab Division the Gross Profit gap has narrowed and
contributing to the EBIT. The Gross Profit has increased considerably from 1014 lacs in
41
Last year to 1259 lacs in Current year. The interest payment has increased by 14 lacs in the
Current year and the Profit before Tax at 331 lacs when compared to 112 lacs in Last year.
The Net profit also increased from 104 lacs in Last year to 128.57 lacs in Current year.
The Director has recommended a 7.5% Dividend and in Last year it was at 5%.

In 2006-05 the company has performed well in all decisions because of high
demand and realizations. The Gross Profit Increased considerably and the interest payments
have decreased at about 140 lacs because of loans taken from the bank at a lesser rate of
interest and payment of loan funds for which the company is paying higher rate of interest.
In the previous year, the cash credit granted by UCO bank to the tune of Rs.594 lacs and
losing of loan funds borrowed from Vijaya Bank and Canara Bank factors, which can
tribute to increase in the Profit before Tax to the tune of Rs.190 lacs the company declared a
dividend of 10% on its equity to its shareholders when compared to 7.5% in the previous
year. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to increase
the production activity and to meet the increase in the demand.

Company is operating in 3 segments, out of which cement contributes about 55% of
turnover while the Boards and prefab segments contribute about 45%. Huge investment in
the industrial sector over the next 3 years is expected to lead to higher cement off take on
the back of strong GDP growth across the country. It is expected that the domestic cement
consumption would grow at a CAGR of 8% for the next 5 ears. By FY 2006 the domestic
consumption is expected to grow to 199 million Tons from 136 million Tons consumption
42
FY2009. During the year 2010-10 your companys Gross sales increased by about 38% to
Rs.12708 Lacks from Rs.9224 Lacks in FY
2009-09. Net sales increased by about 39% to
Rs.10337 Lacks from Rs.7448 Lacks in FY 2009-09. Improved sales from all the tree
divisions particularly from prefab division contributed for increased turnover.
EBIT LEVELS
Particulars
2006
2007
2008
2009
2010
2011
1096.15
969.61
618.76
803
861.16
1235.69
Change
126.54
477.39
294.2
234.99
374.53
% Change
11.50%
43.55%
26.83%
21.44%
30.30%
Earnings Before
Interest & Tax
DEGREE OF FINANCIAL LEVERAGE:
The higher the quotient of DEL,

the greater the leverage. In NCL
Industries case it is increasing because of decrease in EBIT levels from 2005-2006, to 20102011.
The EBIT level is in a decreasing trend because of drastic decline in prices in Cement
Industry during above period.
In the year 2010 and 2011 the EBIT level has increased substantially because of Raise inn
Cement prices because of demand and the policies of Govt. such as rural housing and
irrigation project taken up.
43
EBIT LEVELS
EBIT
1400
1200
1000
800
600
400
200
0
2006 2007 2008 2009 2010 2011
YEARS
INTERPRETATION
The EBIT level in 2006 is at 1096.15 lacs and is decreasing every year till 2008. Because of
slump in the Cement Industry less realisation. The EBIT levels in 2009 again started
growing and reached to 802.46 lacs and in 2010 were at 861.16 lakhs and in 2011 were at
861.16, because of the sale price increase per bag and increase in demand. The
infrastructure program taken up by the A.P. Govt. in the field s of rural housing irrigation
projects created demand and whole Cement Industries are making profits
PERFORMANCE
EPS ANALYSIS
Particulars
Profit After Tax
Less: Preference
Dividend
Amount of Equity share
holder
No. OF equity share of
Rs.10/- each
EPS
2006
29077000
2007
2745000
2008
10412001
2009
30569000
2010
32806000
2011
34078000
29077000
27450000
10412001
12857000
25219000
34093133
16234825
1.79
16234825
1.69
16234825
0.64
16234825
0.79
16234825
1.55
16234825
2.1
44
EPS LEVELS
2.5
EPS
2
1.5
1
0.5
0
2006
2007
2008
2009
2010
2011
YEARS
INTERPRETATION
The PAT is in an increasing trend from 2008-2009 because of increase in sale prices and
also decreases in the cost of manufacturing. In 2010 and 2011 even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has increased
considerably, which leads to higher EPS, which is at 9.36 in 2011.
EBIT EPS CHART

One convenient and useful way showing the relationship between EBIT and
EPS for the alternative financial plans is to prepare the EBIT-EPS chart. The chart is easy to
prepare since for any given level of financial leverage, EPS is linearly related to EBIT. As
noted earlier, the formula for calculating EPS is
EPS = (EBIT - INT) (1 T)
N
(EBIT - INT) (1 T)
N
45
We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore in
equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT
increases and fall if EBIT declines. Can also be written as follows
Under the assumption made, the first part of is a constant and can be represented by an
EBIT is a random variable since it can assume a value more or less than expected. The term
(1 T)/N are also a constant and can be shown as b. Thus, the EPS, formula can be written
as:
EPS = a + bEBIT
Clearly indicates that EPS is a linear function of EBIT.
FINANCING DECISION:
Financing strategy forms a key element for the smooth running of
any organization where flow, as a rare commodity, has to be obtained at
the optimum cost and put into the wheels of business at the right time
and if not, it would lead intensely to the shut down of the business.
Financing strategies basically consists of the following components:
Mobilization
Costing
Timing/Availability
Business interests
Therefore,
the
strategy
is
to
always
keep
sufficient
availability of finance at the optimum cost at the right time to protect

the business interest of the company.
46
STRATEGIES IN FINANCE MOBILIZATION:

There are many options for the fund raising program of any company
and it is quite pertinent to note that these options will have to be
evaluated by the finance manager mainly in terms of:
Cost of funds
Mode of repayment
Timing and time lag involved in mobilization
Assets security
Stock options
Cournands in terms of participative management and
Other terms and conditions.

Strategies of finance mobilization can be through two sectors, that is,
owners resources and the debt resources. Each of the above category
can also be split into: Securitized resources; and non-securities
resources. Securitized resources are those who instrument of title can be
traded in the money market and non-securities resources and those,
which cannot be traded in the market
47
THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A

CHART:
FUNDING MIX - SOURCES
OWNERS FUND
BORROWED
FUND
EQUITY
RETAINED
CONVENTIONAL
CAPITAL
EARNINGS
PREFERENCE
CONVENTIONAL
CAPITAL
SOURCES
NON-
SOURCES
FINANCIAL
SUPPLIERS
CREDIT
INSTITUTION
BANK
SHORT TERM
BANK
BORROWINGS
CASH CREDIT
PURCHASE
HIRE
DEBENTURES
FIXED DEPOSITS
ICD
ULTRA TECH CEMENT INDUSTRIES LTD. THE FUNDING

MIX
Particulars
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Source of funds
48
Share holders funds

a) Share capital
1622.93
1622.93
1622.93
1622.93
1622.93
2179.97
b) Reserves and surplus
1502.87
796.48
890.21
881.46
948.59
937.65
c)Deferred tax
TOTAL (A)
Loan Funds
3125.8
778.62
3198.03
787.99
3301.13
2504.39
2571.52
3117.62
a) Secured Loans
1724.9
1372.53
1413.17
1167.82
1783.66
4015.28
b) Unsecured Loans
2299.16
2588.22
2161.95
2404.33
1711.95
1954.07
TOTAL (B)
TOTAL (A+B)
% of S H in total C.E
% of Loan Fund in
total C.E
4024.06
7154.86
43.72
3960.75
7158.78
44.67
3575.12
6876.24
48
3572.15
6075.92
41.22
3495.61
6067.13
42.38
5969.35
9086.97
34.3
56.28
55.33
52
58.78
57.62
65.69
INTERPRETATION
The shareholder fund is at 3125.8 constitutes 43.72% in total C.E and loan funds
constitute 56.28% in 2005-06. The Funding Mix on an average for 6 years will be
45% of shareholders Fund and 55% of Loan Funds there by the company is trying to
maintain a good Funding Mix. The leverage or trading on equity is also good
because the company affectively utilizing the Loan Funds in the Capital Structure.
So that it leads to higher profit increase of EPS in 2006 at 0.79 to 2009 1.55
LOANS
2005-2006
TERM
Particulars
Rs. (in Lakhs)
TERM LOANS
49
IDBI
0.00
IFCI
0.00
0.00
HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd
0.00
0.00
Haritha Finance Ltd
0.00
0.00
Funded interest
0.00
0.00
Non Convertible Debentures
1027.98
CASH
CREDIT
Particulars
Rs. (in Lakhs)
Global Trust
Bank LOANS
TERM
641.33
Vijaya
IDBI Bank
55.59
0.00
IFCI
0.00
696.92
1,724.90
0.00
UNSECURED
LOANS
HIRE
PURCHASE
LOANS
Deposits
from public
TVS Lakshmi
Credit Ltd
0.00
727.76
0.00
Lease
/Hire
purchases
Haritha
Finance
Ltd
0.00
0.34
0.00
IFST
Loan
from Govt. of AP
Funded
interest
0.00
0.00
0.00
Deferred
sales tax Debentures
loan
Non Convertible
1.60
677.75
Deposits from stockiest & others
1,566.21
Inter corporate
deposits
CASH
CREDIT
3.25
TOTAL
Global Trust Bank
638.21
Vijaya Bank
56.57
2,299.16
694.78
1,372.53
TERM
2006-
UNSECURED LOANS
Deposits from public
602.15
Lease /Hire purchases
4.64
IFST Loan from Govt. of AP
0.00
Deferred sales tax loan
0.00
1730.39
Inter corporate deposits
50.00
Others
201.04
TOTAL
LOANS
2007
2588.22
50
TERM LOANS
2007-2008
Particulars
TERM LOANS
Indian Renewable Energy
Rs. (in Lakhs)

255.00
51
development agency ltd.

Non convertible debentures
509.61
HIRE PURCHASE LOANS

0.00
0.00
Haritha Finance Ltd
0.00
0.00
Funded interest
0.00
0.00
CASH CREDIT
Global Trust Bank
583.41
Vijaya Bank
65.15
648.56
1,413.17
UNSECURED LOANS
600.54
Lease /Hire purchases
21.25
Canara Bank factors ltd.
100.09
Deferred sales tax loan
0.00

Inter corporate deposits
1,239.02
0.00
Others
201.04
TOTAL
2161.94
TERM LOANS
2008-2009
Particulars
TERM LOANS
Rs. (in Lakhs)
207.00
52
0.00
HIRE PURCHASE LOANS

0.00
0.00
Haritha Finance Ltd
0.00
0.00
Funded interest
0.00
0.00
CASH CREDIT
Global Trust Bank
627.10
Vijaya Bank
174.12
Canara Bank Factors
158.98
960.20
1167.20
UNSECURED LOANS
592.31
1600.68
Lease/Hire purchase
10.30
Others
201.04
TOTAL
3571.53
TERM LOANS
2009-2010
Particulars
Rs. (in Lakhs)
TERM LOANS
53

779.17
0.00
HIRE PURCHASE LOANS

0.00
0.00
Haritha Finance Ltd
0.00
0.00
Funded interest
0.00
0.00
CASH CREDIT
Oriental Bank of Commerce
410.15
UCO Bank
594.34
Canara Bank Factors
0.00
1004.49
1167.20
UNSECURED LOANS
399.69
1053.83
Lease/Hire purchase
57.39
Others
201.04
TOTAL
3495.64
54
TERM LOANS
2010-2011
Particulars
Rs. (in Lakhs)
TERM LOANS
2532.14
0.00
HIRE PURCHASE LOANS

0.00
0.00
Haritha Finance Ltd
0.00
0.00
Funded interest
0.00
0.00
CASH CREDIT
Oriental Bank of Commerce
561.32
UCO Bank
Canara Bank Factors
UTI Bank Ltd
306.54
403.46
211.82
1483.14
4015.28
UNSECURED LOANS
Interest free from sales tax
deferment loan
162.40
919.26
Lease/Hire purchase
54.25
Others
201.29
TOTAL
5969.35
616.87
55
TERMS LOANS
7,000.00
6,000.00
5,000.00
4,000.00
3,000.00
2,000.00
1,000.00
0.00
2007
R
s.
IN
L
A
K
H
S
2006
2008
2009
2010
2011
YEARS
INTERPRETATION
The Non-convertible debentures are being redeemed from 2006 and 2007 financial year
onwards and were completely repaid by 2010-2011. The cash credit assistance was
provided by Global Trust Bank and Vijaya Bank to the tune of Rs.696 lacs and Canara bank
factors to the tune Rs.158 lacs was completely repaid by taking cash credit facility from
Oriental Bank of Commerce and UCO Bank to the tune of Rs.1000 lacs. The company is
paying of deposits from public every year.
Deposits from public were stood at 727.76 lacs in 2005-2006 and in 2010-2011 it
came down to 399.69 lacs. The IRIDA has granted Rs.255 lacs term loan for installation of
energy saving equipment and the loan was again increased to 779.17 lacs in 2010-2011.
56
YEAR 2005- 2006
Position of mobilization and development of funds

(Amount in Rs.000s)
Total liabilities
Sources of funds
Paid u capital
714986
Total assets
714986
162293
150287
Secured Loans
Application of
funds
Net fixed assets
Net current assets
Accumulated losses
172496
Reserves &
surplus
Unsecured loans
522854
182009
Investments
Misc. Expenditure
6278
3846
229916
YEAR 2006 - 2007

Position of Mobilization and Development of funds
(Amount in RS. 000s)
Total liabilities
Sources of funds
Paid u capital
715878
Total assets
715878
162293
79648
Secured Loans
Application of
funds
Net fixed assets
Net current assets
Accumulated losses
137253
Reserves &
surplus
Unsecured loans
554677
150891
Investments
Misc. Expenditure
5723
4587
258822
57
YEAR 2007 2008

Total liabilities
Sources of funds
Paid u capital
687624
Total assets
687624
162293
Secured Loans
Application of funds
Net fixed assets
Net current assets
Accumulated losses
141317
Reserves & surplus

Deferred tax
Unsecured loans
89021
78799
216194
Investments
Misc. Expenditure
5019
4827
517233
160545
Nil
Financial leverage results from the presence of fixed financial charges in the
firm income stream. These fixed charges dont vary with EBIT availability post payment
balances belong to equity holders.
Financial leverage is concerned with the effect of charges in the EBIT on the
earnings available to shareholders.
YEAR 2008-2009
Total liabilities
Sources of funds
Paid u capital
703225
Total assets
703225
162293
Secured Loans
Net fixed assets
Net current assets
Accumulated losses
116720
Reserves & surplus

Deferred tax
Unsecured loans
88146
78799
240433
Investments
Misc. Expenditure
10000
4827
477931
211462
Nil
58
YEAR 2009- 2010

Position of Mobilization and Development of funds (Amount in RS. 000s)
Total liabilities
Sources of funds
Paid u capital
Secured Loans
Net fixed assets
Net current assets
Accumulated losses
928386 Total assets
928386
1622.93 Reserves & surplus

Deferred tax
178366 Unsecured loans
94859
1041.93
171195
481100 Investments
213820 Misc. Expenditure
Nil
13000
2986
YEAR 2010 2011

Total liabilities
Sources of funds
Paid u capital
1017320
Total assets
1017320
1623.48
Secured Loans
Net fixed assets
Net current assets
Accumulated losses
4015.28
Reserves & surplus

Deferred tax
Unsecured loans
93765
1086.23
195407
Investments
Misc. Expenditure
13000
4910
7055.88
2938.22
Nil
59
FINANCIAL LEVERAGE
INTRODUCTION:
Leverage, a very general concept, represents influence or power. In financial
analysis leverage represents the influence of a financial variable over same
other related financial variable.
Financial leverage is related to the financing activities of a firm. The sources from
which funds can be raised by a firm, from the viewpoint of the cost can be categorized into:
Those, which carry a fixed finance charge.
Those, which do not carry a fixed charge.

The sources of funds in the first category consists of various types of long
term debt including loans, bonds, debentures, preference share etc., these long-term debts
carry a fixed rate of interest which is a contractual obligation for the company except in the
case of preference shares. The equity holders are entitled to the remainder of operating
profits if any.
Financial leverage results from presence of fixed financial charges in eh firms income
stream. These fixed charges dont vary with EBIT or operating profits. They have to be paid
regardless of EBIT availability. Past payment balances belong to equity holders.
Financial leverage is concerned with the effect of changes I the EBIT on the
earnings available to shareholders.
60
DEFINITION:
Financial leverage is the ability of the firm to use fixed financial charges to
magnify the effects of changes in EBIT on EPS i.e., financial leverage involves the use of
funds obtained at fixed cost in the hope of increasing the return to shareholder.
The favorable leverage occurs when the Firm earns more on the assets
purchase with the funds than the fixed costs of their use. The adverse business conditions,
this fixed charge could be a burden and pulled down the companies wealth
MEANING OF FINANCIAL LEVERAGE:

As stated earlier a company can finance its investments by debt/equity. The
company may also use preference capital. The rate of interest on debt is fixed, irrespective
of the companys rate of return on assets. The company has a legal banding to pay interest
on debt .The rate of preference dividend is also fixed, but preference dividend are paid
when company earns profits. The ordinary shareholders are entitled to the residual income.
That is, earnings after interest and taxes belong to them. The rate of equity dividend is not
fixed and depends on the dividend policy of a company.
The use of the fixed charges, sources of funds such as debt and preference
capital along with owners equity in the capital structure, is described as financial
leverages or gearing or trading or equity. The use of a term trading on equity is
derived from the fact that it is the owners equity that is used as a basis to raise debt, that is,
the equity that is traded upon the supplier of the debt has limited participation in the
companies profit and therefore, he will insists on protection in earnings and protection in
values represented by owners equitys.
61
FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

Financial leverage magnifies the shareholders earnings we also find that the
variability of EBIT causes EPS to fluctuate within wider ranges with debt in the capital
structure that is with more debt EPS raises and falls faster than the rise and fall in EBIT.
Thus financial leverage not only magnifies EPS but also increases its variability.
The variability of EBIT and EPs distinguish between two types of riskoperating risk and financial risk. The distinction between operating and financial risk was
long ago recognized by Marshall in the following words.
OPERATING RISK: Operating risk can be defined as the variability of EBIT (or return on total assets).
The environment internal and external in which a firm operates determines the variability of
EBIT. So long as the environment is given to the firm, operating risk is an unavoidable risk.
A firm is better placed to face such risk if it can predict it with a fair degree of accuracy.
THE VARIABILITY OF EBIT HAS TWO COMPONENTS

1.
Variability of sales
2.
Variability of expenses
1. VARIABILITY OF SALES:
The variability of sales revenue is in fact a major determinant of operating
risk. Sales of a company may fluctuate because of three reasons. First the changes in
general economic conditions may affect the level of business activity. Business cycle is an
economic phenomenon, which affects sales of all companies. Second certain events affect
sales of company belongings to a particular industry for example the general economic
62
condition may be good but a particular industry may be hit by recession, other factors may
include the availability of raw materials, technological changes, action of competitors,
industrial relations, shifts in consumer preferences and so on. Third sales may also be
affected by the factors, which are internal to the company. The change in management the
product market decision of the company and its investment policy or strike in the company
has a great influence on the companys sales.
2. VARIABILITY OF EXPENSES: Given the variability of sales the variability of EBIT is further affected by the
composition of fixed and variable expenses. Higher the proportion of fixed expenses
relative to variable expenses, higher the degree of operating leverage. The operating
leverage affects EBIT. High operating leverage leads to faster increase in EBIT when sales
are rising. In bad times when sales are falling high operating leverage becomes a nuisance;
EBIT declines at a greater rate than fall in sales. Operating leverage causes wide
fluctuations in EBIT with varying sales. Operating expenses may also vary on account of
changes in input prices and may also contribute to the variability of EBIT.
FINANCIAL RISK: For a given degree of variability of EBIT the variability of EPS and ROE increases
with more financial leverage. The variability of EPS caused by the use of financial leverage
is called financial risk. Firms exposed to same degree of operating risk can differ with
respect to financial risk when they finance their assets differently. A totally equity financed
firm will have no financial risk. But when debt is used the firm adds financial risk.
Financial risk is this avoidable risk if the firm decides not to use any debt in its capital
structure.
MEASURES OF FINANCIAL LEVERAGE: The most commonly used measured of financial leverage are:
63
1)
Debt ratio: the ratio of debt to total capital, i.e.,
Where, D is value of debt, S is value of equity and V is value of total capital

D and S may be measured in terms of book value or market value. The book value of equity
is called not worth.
2)
1)
Debt-equity ratio: The ratio of debt to equity, i.e.,
Interest coverage: the ration of net operating income

charges, i.e.,
(or EBIT) to interest
The first two measures of financial leverage can be expressed in terms of book or
market values. The market value to financial leverage is the erotically more appropriate
because market values reflect the current altitude of investors. But, it is difficult to get
reliable information on market values in practice. The market values of securities fluctuate
quite frequently.
There is no difference between the first two measures of financial leverage in
operational terms. They are related to each other in the following manner.
These relationships indicate that both these measures of financial leverage will rank
companies in the same order. However, the first measure (i.e., D/V) is more specific as its
value ranges between zeros to one. The value of the second measure (i.e., D/S) may vary
from zero to any large number. The debt-equity ratio, as a measure of financial leverage, is
more popular in practice. There is usually an accepted industry standard to which the
companys debt-equity ratio is compared. The company will be considered risky if its debtequity ratio exceeds the industry-standard. Financial institutions and banks in India also
focus on debt-equity ratio in their lending decisions.
64
The first two measures of financial leverage are also measures of capital gearing.
They are static in nature as they show the borrowing position of the company at a point of
time. These measures thus fail to reflect the level of financial risk, which inherent in the
possible failure of the company to pay interest repay debt.
The third measure of financial leverage, commonly known as coverage ratio,
indicates the capacity of the company to meet fixed financial charges. The reciprocal of
interest coverage that is interest divided by EBIT is a measure of the firms incoming
gearing. Again by comparing the companys coverage ratio with an accepted industry
standard, the investors, can get an idea of financial risk .how ever, this measure suffers from
certain limitations. First, to determine the companys ability to meet fixed financial
obligations, it is the cash flow information, which is relevant, not the reported earnings.
During recessional economic conditions, there can be wide disparity between the earnings
and the net cash flows generated from operations. Second, this ratio, when calculated on
past earnings, does not provide any guide regarding the future risky ness of the company.
Third, it is only a measure of short-term liquidity than of leverage.
FINANCIAL LEVERAGE AND THE SHARE HOLDERS RETURN:

The primary motive of a company in using financial leverage is to magnify the
shareholders return under favorable economic conditions. The role of financial leverage in
magnifying the return of the shareholders is based under assumption that the fixed charges
funds (such as the loan from financial institutions and other sources or debentures) can be
obtained at a cost lower than the firms rate of return on net assets. Thus, when the
difference between the earnings generalized by assets financed by the fixed charges funds
and cost of these funds is distributed to the shareholders, the earnings per share (EPS) or
return on equity increase. However, EPS or ROE will fall if the company obtains the fixed
charges funds at a cost higher than the rate of return on the firms assets. It should, there
fore, be clear that EPS, ROE and ROI are the important figures for analyzing the impact of
financial leverage.
65
COMBINED EFFECT OF OPERATING AND FINANCIAL LEVERAGES:

Operating and financial leverages together cause wide fluctuations in EPS
for a given change in sales. If a company employs a high level of operating and financial
leverage, even a small change in the level of sales will have dramatic effect on EPS. A
company with cyclical sales will have a fluctuating EPS; but the swings in EPS will be
more pronounced if the company also uses a high amount of operating and financial
leverage.
The degree of operating and financial leverage can be combined to see the
effect of total leverage on EPS associated with a given change in sales. The degree of
combined leverage (DCL) is given by the following equation:
Yet another way of expressing the degree of combined leverage is as

follows:
Since Q (S-V) is contribution and Q (S-V)-F-INT is the profit after interest

but before taxes, Equation 2 can also be written as follows:
RATIO ANALYSIS: The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison. Therefore the
focus of financial analysis is always on the crucial information contained in the financial
statements. This depends on the objectives and purpose of such analysis. The purpose of
evaluating such financial statement is different form person to person depending on its
relationship. In other words even though the business unit itself and shareholders, debenture
holders, investors etc. all under take the financial analysis differs. For example, trade
66
creditors may be interested primarily in the liquidity of a firm because the ability of the
business unit to play their claims is best judged by means of a through analysis of its
l9iquidity. The shareholders and the potential investors may be interested in the present and
the future earnings per share, the stability of such earnings and comparison of these
earnings with other units in thee industry. Similarly the debenture holders and financial
institutions lending long-term loans maybe concerned with the cash flow ability of the
business unit to pay back the debts in the long run. The management of business unit, it
contrast, looks to the financial statements from various angles. These statements are
required not only for the managements own evaluation and decision making but also for
internal control and overall performance of the firm. Thus the scope extent and means of
any financial analysis vary as per the specific needs of the analyst. Financial statement
analysis is a part of the larger information processing system, which forms the very basis of
any decision making process.
The financial analyst always needs certain yardsticks to evaluate the
efficiency and performance of business unit. The one of the most frequently used yardsticks
is ratio analysis. Ratio analysis involves the use of various methods for calculating and
interpreting financial ratios to assess the performance and status of the business unit. It is a
tool of financial analysis, which studies the numerical or quantitative relationship between
with other variable and such ratio value is compared with standard or norms in order to
highlight the deviations made from those standards/norms. In other words, ratios are
relative figures reflecting the relationship between variables and enable the analysts to draw
conclusions regarding the financial operations.
However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion
as regards causes of such deviations from the norms. For instance, ABC Ltd. Introduced the
concept of ratio analysis by calculating the variety of ratios and comparing the same with
norms based on industry averages. While comparing the inventory ratio was 22.6 as
compared to industry average turnover ratio of 11.2. However on closer sell tiny due to
large variation from the norms, it was found that the business units inventory level during
the year was kept at extremely low level. This resulted in numerous production held sales
67
and lower profits. In other words, what was initially looking like an extremely efficient
inventory management, turned out to be a problem area with the help of ratio analysis? As a
matter of caution, it must however be added that a single ration or two cannot generally
provide that necessary details so as to analyze the overall performance of the business unit.
In order to arrive at the reasonable conclusion regarding overall performance of the

business unit, an analysis of the entire group of ratio is required. However, ration analysis
should not be considered as ultimate objective test but it may be carried further based on the
outcome and revelations about the causes of variations. Sometimes large variations are due
to unreliability of financial data or inaccuracies contained therein therefore before taking
any decision the basis of ration analysis, their reliability must be ensured. Similarly, while
doing the inter-firm comparison, the variations may be due to different technologies or
degree of risk in those units or items to be examined are in fact the comparable only. It must
be mentioned here that if ratios are used to evaluate operating performance, these should
exclude extra ordinary items because there are regarded as non-recurring items that do not
reflect normal performance.
Ratio analysis is the systematic process of determining and interpreting the
numerical relationship various pairs of items derived from the financial statements of a
business. Absolute figures do not convey much tangible meaning and is not meaningful
while comparing the performance of one business with the other.
68
FINDINGS:
1. Sales in 2008-2009 is at 7267.74 and in 2009-2011 12752.43 lakhs those in a decreasing
trend to the extent of 20% every year. On the other hand manufacturing expenses are at
8725.11 lakhs from 2009-2010. There has been significant increase in cost of production
during 2009-2010 because of increase in Royalty.
2.The interest charges were 492.21 in 2009 and 357.07in 2010 and 522.56 respectively
shows that the company redeemed fixed interest bearing funds from time to time out of
profit from 2008-2009.Debantures were partly redeemed with the help of debenture
redemption reserve and other references.
3. The PAT (Profit after Tax) in 2010-2011 is at 340.78 lakhs. The PAT has increased in
prices in whole Cement industry during the above period. The profit has increased almost
15% during the period 2008-2011.
4. Debentures were redeemed by transfers to D.R.R. in 2009-2010.
5. A steady transfer for dividend during 2008-2009 from P&L appropriation but in 2008
there is no adequate dividend equity Shareholders.
6. The share capital of the company remained in charge during the three-year period
because of no public issues made by the company.
7. The secured loans have decreased consistently from 2008-2009 and slight increase in
2011.
8. The ensured loans have increased from 2010-2011. All the secured and an insecure loan
obtained by the company to optimize the leverage financially has some set books. Because
of non-payment of dividends to share holders. Because of less profit made during the period
69
CHAPTER V
CONCLUSIONS
&
RECOMMENDATIONS
70
CONCLUSIONS
1)
Sales in 2008-2009 are at 7267.74 and in 2009-2011 12752.43 lakhs those in a

decreasing trend to the extent of 20% every year. On the other hand manufacturing
expenses are at 8725.11 lakhs from 2009-2010. There has been significant increase in
cost of production during 2009-2010 because of increase in Royalty.
2)
The interest charges were 492.21 in 2009 and 357.07in 2010 and 522.56 respectively
shows that the company redeemed fixed interest bearing funds from time to time out of
profit from 2008-2009.Debantures were partly redeemed with the help of debenture
redemption reserve and other references.
3)
The PAT (Profit After Tax) in 2010-2011 is at 340.78 lakhs. The PAT has increased in
prices in whole Cement industry during the above period. The profit has increased almost
15% during the period 2008-2011.
4)
Debentures were redeemed by transfers to D.R.R. in 2009-2010.
5)
A steady transfer for dividend during 2008-2009 from P&L appropriation but in 2008
there is no adequate dividend equity Shareholders.
6)
The share capital of the company remained in charge during the three-year period
because of no public issues made by the company.
7)
The secured loans have decreased consistently from 2008-2009 and slight increase in
2011.
8)
The unsured loans have increased from 2010-2011. All the secured and an insecure loan
obtained by the company to optimize the leverage financially has some set books. Because
71
of non-payment of dividends to share holders. Because of less profit made during the
period.
9)
The reserves of the company steadily increase from 2008 to 2011. Because of less
transfer in P&L appropriation A/C and transfer to differed Tax. Thus marginalizing the
equity interest net worth of the company.
10)
The current ratio of the company in 2008-09 is at 2.08 and in 2009-10 at 1.98 and in
2010-11 at 1.95, which is as per the norms of the manufacturing Industry. The current Ratio
shows that the companys liquidity or short-term solvency is in a better position to pay off
the current liabilities as and when payable.
The quick ratio is also increased considerably during the period.
72
RECOMMENDATIONS
For the development of the cement industry Working Group on cement
Industry was constituted by the planning commission for the formulation of X Five
Year Plan. The working Group has projected a growth rate of 10% for the cement
industry during the plan period and has projected creation of additional capacity of 4062 million tones mainly through expansion of existing plants. The working Group has
identified following thrust areas for improving demand for cement;
Further push to housing development programmes;
Promotion of concrete Highways and roads; and
Use of ready-mix concrete in large infrastructure project.
Further, in order to improve global competitiveness of the Indian Cement Industry, the
Department of Industrial policy & promotion commissioned a study on the global
competitiveness of the Indian industry through an organization of international repute,
viz. KPMG Consultancy Pvt. Ltd. The report submitted by the organization has made
several recommendations for making the Indian Cement Industry more competitive in
the international market. The recommendations are under consideration.
73
SUGGESTIONS
1.The company has to maintain the optimal capital structure and leverage so that in coming
years it can contribute to the wealth of the shareholders.
2.The mining loyalty contracts should be revised so that it will decrease the direct in the
production
3.The company has to exercise control over its out side purchases and overheads which
have effect on the profitability of the company.
4.As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of interest as in
the case of UCO Bank.
5.Efficiency and competency in managing the affairs of the company should be maintained.
6. The reserves of the company steadily increase from 2008 to 2011. Because of less
transfer in P&L appropriation A/C and transfer to differed Tax. Thus marginalizing the
equity interest net worth of the company.
7. The current ratio of the company in 2008-09 is at 2.08 and in 2009-10 at 1.98 and in
2010-11 at 1.95, which is as per the norms of the manufacturing Industry. The current Ratio
shows that the companys liquidity or short-term solvency is in a better position to pay off
the current liabilities as and when payable.
8.The quick ratio is also increased considerably during the period.
74
REFERENCE SECTION
BIBILIOGRAPHY
SI.NO.
AUTHOR
YEAR
BOOK NAME
PUBLISHER
EDITION
1.
T. Ravi
2008
Asset &
Vision Books
Second
Liability
New Delhi
Edition
Financial
Tata MC
Third
Management
Graw Hill
Edition
Kumar
Management
2.
MY
1992
Khan, PK
Jain
3.
DP SN
New Delhi
2004
Maheshw
Financial
Sultan Chand
Ninth
Management
& Sons
Edition
Financial
Tata
Forth
Management
McGraw-Hill
Edition
ari
4.
Prasanna
Chandra
2007
New Delhi
World Wide Web
:
:
nclindustries.com
www.ultratech.com
75
www.google.com
WWW.GOOGLE.COM
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ABSTRACT

The Project report of CAPITAL STRUCTURE Of ULTRA TECH

OBJECTIVES & RESEARCH

ULTRA TECH CEMENT Industries

Position of Mobilization and Development of

The forms of funds

Hyderabad Office: 503, Aditya Trade Centre,

TO WHOM SOEVER IT MAY CONCERN

Mr. ARSHAD AHMED bearing Hall Ticket No: 4171-10-672-009

Student of Nizam Institute of Engineering & Technology, Deshmukhi,Nalgonda., Opp. Police

Capital Srtucture from 15/11/2011 to

CAPITAL STRUCTURE DEFINED:

FACTORS AFFECTING THE CAPITAL STRUCTURE:

DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term loans

EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to

Cash flow projections of the company

Size of the company

FEATURES OF AN OPTIMAL CAPITAL STRUCTURE

PROFITABILITY: - The Company should make maximum use of leverages at a

FLEXIBILITY: - The capital structure should be flexible to be able to meet the

CONTROL: - The capital structure should involve minimum dilution of control of

CAPITAL STRUCTURE AND FIRM VALUE:

CAPITAL STRUCTURE AND PLANNING:

A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE

FLEXIBILITY: the capital structure should be flexibility. It should be possible to the

APPROACHES TO ESTABLISH APPROPRIATE CAPITAL STRUCTURE:

EBIT-EPS approach for analyzing the impact of debt on EPS.

The interest paired on debt is tax deductible.

Some times large

variations are due to unreliability of financial data or inaccuracies contained there in

CAPITAL STRUCTURE RATIOS:

Ratios based on the relationship between borrowed funds and

NEED FOR STUDY:

To Study the capital structure of ULTRATECH CEMENTS through EBIT-EPS

Study effectiveness of financing decision on EPS and EBIT of the firm.

Examining leverage analysis of ULTRATECH CEMENTS.

Examining the financing trends in the ULTRATECH CEMENTS. for the

Study debt/equity ratio of ULTRATECH CEMENTS for 2006-10.

RESEARCH METHODOLOGY AND DATA ANALYSIS

THE CAPITAL STRUCTURE CONTROVERSY:

1.NET INCOME APPROACH:

2. NET OPERATING INCOME APPROACH:

CAPITAL STRUCTURE MATTERS:

The corporate income taxes do not exist.

NET OPERATING INCOME APPROACH:

COST OF CAPITAL AND VALUATION APPROACH:

CASH FLOW APPROACH:

EPS VARIABILITY AND FINANCIAL RISK: 26

performance of the industry and prices of cement are monitored regularly.

constraints faced by the industry are reviewed in the Infrastructure coordination

Its performance is also reviewed by the cabinet committee n

CAPACITY AND PRODUCTION:

COMPOSITION AND OBSERVATION:

Shareholders funds resources

Loan fund resources.

SHAREHOLDER FUND RESOURCES:

EQUITY CAPITAL BUILD-UP:

There is an increase of 1.38% in the equity from 2006-2011.

RETAINED EARNINGS COMPOSITION:

Share Premium Account

Debentures Redemption Reserve

Investment Allowance Reserve

Profit & Loss Account