A

Project Report
On
COMPARATIVE ANALYSIS OF CAPITAL STRUCTURE OF SMES AT NSIC

BY
VISHWAS CHATURVEDI

Submitted in partial fulfillment of the requirement

For the award of
MASTERS OF BUSINESS ADMINISTRATION

Under the guidance of

Mr. Ashish Kumar
Associate Professor

AMITY UNIVERSITY
(2015-2017)

DECLARATION

I hereby declare that project report on COMPARATIVE ANALYSIS OF CAPITAL

STRUCTURE OF SMES AT NSIC is an original and bonafide work under taken by me
impartial fulfillment for the award of (BACHEOLOR OF BUSINESS ADMINISTRATION,
Osmania University, Hyderabad)
 I also declare that this project is the result of my own efforts and has not been submitted to any
other university or institution for the award of any Degree/Diploma.

SRAVANI DV

H.T.NO: 217013683024

ACKNOWLEDGMENT

The satisfaction and euphoria after the completion of any work would be incomplete without the
mention of the people behind the successful completion of work.
I would like to express with much sincerity, my deep sense of gratitude to Dr. P.
CHAKRAVARTHI, PRINCIPAL, VVISM, for promoting excellent academic environment.
My heart full thanks to Mrs VANI KOTLA, company guide for her guidance in completing my
project work.
I also extend my thanks to Mr G.SUMANTH KUMAR, H.O.D, BBA for his assistance timely
suggestions, guidance and having provided all facilities to complete this project work successfully.
I would like to thank my project Guide and Faculty Mr CH.NARESH, for his valuable guidance.

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 Finally, I would like to express my sincere thanks to all our faculty and friends for their timely
suggestions and encouragement provided for the successful completion of this project.

SRAVANI DV

H.T.NO: 217013683024

LIST OF CONTENTS

S. No Topic Pg. no
Abstract 07
1. Chapter -1 08
Introduction 08
Objectives 11
Need for capital structure planning 11
Scope and coverage 12
Research and methodology 12
Limitations 13
2. Chapter-2
Literature review 14
3 Chapter-3
Company & Industry Profile 18,22 & 26
4 Chapter -4
Conceptual framework 30
3
 5 Chapter-5
Data analysis & interpretation 44
6 Chapter -6
Findings & suggestions 52 & 53
7 Chapter-7
Conclusion 54
Bibliography
Annexures-1,2

LIST OF TABLES

s.no Table no. Name Page No.

1 3.2.6 Company profile

2 5.1 Calculation of Debt-equity ratio 45
3 5.2 Calculation of Solvency ratio 47
4 5.3 Calculation of Interest coverage ratio 49
5 5.4 Calculation of Earnings per share ratio 50

LIST OF GRAPHS
s.no Graph Name Page No.
No.
1 5.1(a) Debt equity ratios between serwel and raghuvamsi companies 46

2 5.2(b) Solvency ratios between serwel and raghuvamsi electronics 48

3 5.3(c) Variations of EBIT ratio in serwel and raghuvamsi companies 49

4 5.4(d) EPS ratio of serwel and raghuvamsi companies 50

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5
 ABSTRACT

One of the most critical areas of the finance function is to make decisions about the firms capital
structure. Capital is required to finance investments in plant and machinery, inventory, accounts
receivable and so on. Capital structure is the part of financial structure, which represents long term
sources. It is the permanent financing of the company represented primarily by shareholders funds
and long term debt and excluding all short-term credit. To quote Walker, The term capital structure
is generally defined to include only long term debt and total stockholders investment (Walker).It
refers to the Capitalization of long term sources of funds such as debentures, preference share
capital, long term debt and equity share capital including reserves and surplus (retained earnings).
According to Bogen, The capital structure may consist of a single class of stock, or it may be
complicated by several issues of bonds and preferred stock, the characteristics of which may vary
considerably. In other words, capital structure refers to the composition of capitalization i.e., to the
proportion between debt and equity that make up capitalization (Philips).
Weston and Brigham have indicated the capital structure by the following equation (Weston):
Capital Structure = Long term debt Preferred stock + Net worth (or)
Capital Structure = Total Assets Current Liabilities.
In this Project, an attempt has been made to study the Pattern of Capital Structure in SME at
NSIC. An analysis of long-term solvency, assessment of debt-equity, debt to total fund and
justification for the use of debt through the application of ratio analysis and statistical test has
been undertaken. The time period considered for evaluating the study is four years.

Chapter-1
INTRODUCTION
1.1Introduction of capital structure
The financing decisions occupy a pivotal role in the overall finance function in a corporate firm
which mainly concerns itself with an efficient utilization of the funds provided by the owners or
obtained from external sources together with those retained or ploughed back out of surplus or
undistributed profits. These decisions are mainly in the nature of planning capital structure, working

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capital and mechanism through which funds can be raised from the capital market whenever
required. The financing decisions explains how to plan an appropriate mix with least count, how to
raise long term funds, and how to mobilize the funds for working capital within a short span of time.
Such a financing policy provides an appropriate backdrop for formulating effective policies for
investment of funds as well as management of earnings. It contributes to magnifying the earnings on
equity as profitability (expressed as return on equity), to a large extent, is dependent on the degree of
leverage in the capital structure. Besides, the valuation of the structure of physical assets depends
fundamentally on the financing mix. This makes it necessary for the management of a firm to pursue
a well thought out of financing policy, which ought to be framed initially, incorporating, among other
things, the proportion of the debt and equity, types of debts and own funds to be used and volume of
the funds to be raised from each source or combination of sources, to enable the firm to have a
proper capitalization. In the absence of this, the firm may face the problem of either over-
capitalization or under-capitalization impeding its smooth financial functioning.
It is obvious that functioning decisions are extremely important for corporate firms. Such decisions,
in management parlance, are termed as capital structure decisions. The term capital structure is used
to describe the combination of various sources of finance employed to raise funds. It implies, in other
words, that when a firm chooses to use a group of sources in certain proportions the resulting pattern
is referred to as capital structure of the firm. The sources of finance could be divided in terms of
ownership of funds and duration of funds. The former comprises owned and borrowed funds while
the latter includes long, medium and short term funds. Of the two, the duration-based classification is
useful for preparing a plan to meet long term as well as short term capital requirements while
ownership-based classification is useful for selection of specified sources, determining debt-equity
ratio and analyzing impact of capital structure decisions on the earnings on equity. As the ownership
based classification suggests that there are two types of sources of finance, namely owned and
borrowed funds, the capital structure represents the component relationship between owned and
borrowed funds. The owned funds which are also described as equity fund may be defined as funds
provided by or belonging to the share-holders. In the opinion Raj want Singh and Brij Kumar, the
capital structure is made up of the long term borrowings, the preferred stock and the common stock
equity including all related net worth accounts. Similarly Morarka.R observes that the capital
structure implies a degree of permanency and normally omits short term borrowings of less than one
year but would include other intermediate and long term borrowings. The financial institutions
consider only long term sources of finance for computing the debt-equity ratio of corporate firm.
1.2 Definition

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A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity,
the capital structure is how a firm finances its overall operations and growth by using different
sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure
1.3 Theories of capital structure
Different kinds of theories have been propounded by different authors to explain the relationship
between capital structure, cost of capital and the value of the firm. The main contributors to the
theories are Durand, Ezra, Solomon, Modigliani and Miller.
The important theories are discussed below:
Net Income Approach
Net Operating Income Approach.
The Traditional Approach.
Modigliani and Miller Approach.
1. Net Income Approach. According to this approach, a firm can minimize the weighted
average cost of capital and increase the value of the firm as well as market price of equity
shares by using debt financing to the maximum possible extent. The theory propounds that a
company can increase its value and decrease the overall cost of capital by increasing the
proportion of debt in its capital structure. This approach is based upon the following
assumptions:
The cost of debt is less than the cost of equity.
There are no taxes.
The risk perception of investors is not changed by the use of debt.
2. Net Operating Income Approach. This theory as suggested by Durand is another extreme of
the effect of leverage on the value of the firm. It is diametrically opposite to the net income
approach. According to this approach, change in the capital structure if a company does not
affect the market value of the firm and the overall cost of capital remains constant
irrespective of the method of financing. It implies that the overall cost of capital remains the
same whether the debt- equity mix is 50:50 or 20:80 or 0:100. Thus, there is nothing as an
optimal capital structure and every capital structure is the optimum capital structure. This
theory presumes that:
The market capitalizes the value of the firm as a whole.
The business risk remains constant at every level of debt equity mix;
There are no corporate taxes.
3. The Traditional Approach. The traditional approach, also known as intermediate approach,
is a compromise between extremes of net income approach and net operating income
approach. According to this theory, the value of the firm can be increased initially or the cost
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 of capital can be decreased by using more debt as the debt is a cheaper source of funds than
equity. Thus, optimum capital structure can be reached by a proper debt-equity mix. Beyond
a particular point, the cost of equity increases because increased debt increases the financial
risk of the equity shareholders. The advantage of cheaper debt at this point of capital structure
is offset by increased cost of equity. After this there comes a stage, when the increased cost of
equity cannot be offset by the advantage of low-cost debt. Thus, overall cost of capital,
according to this theory, decreases up to a certain point, remains more or less unchanged for
moderate increase in debt thereafter; and increases or rises beyond a certain point. Even the
cost of debt may increase at this stage due to increased financial risk.
1.4 Objectives
The present study aims at endeavoring the following objectives:
To analyze the pattern of capital structure;
To assess of long-term solvency; and
To ascertain the justification for the use of debt.
Capital structure means the mixture of share capital and other long term liabilities. In capital
structure, we include equity share capital, preference share capital, debenture and long term debt.
Some of companies want to become smart. They slowly decrease equity share capital and increases
loan excessively which may be very risky because these company has to pay fixed cost of interest
and has to manage repayment of loan after some time. Some mistake in it, may be risky for its
solvency. So, decision relating to capital structure is very important for company
1.5 Need for capital structure
For the real growth of the company the financial manager of the company should plan an optimum
capital for the company. The optimum capital structure is one that maximizes the market value of the
firm. There are significant variations among industries and companies within an industry in terms of
capital structure. Since a number of factors influence the capital structure decision of a company, the
judgment of the person making the capital structure decisions play a crucial part. A totally theoretical
model cant adequately handle all those factors, which affects the capital structure decision in
practice. These factors are highly psychological, complex and qualitative and do not always follow
accepted theory, since capital markets are not perfect and decision has to be taken under imperfect
knowledge and risk.
An appropriate capital structure or target capital structure can be developed only when all those
factors, which are relevant to the companys capital structure decision, are properly analyzed and
balanced. The capital structure should be planed generally keeping in view the interest of the equity
shareholders and financial requirements of the company. The equity shareholders being the owner of
the company and the providers of risk capital (equity), would be concerned about the ways of

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financing a companys operations. However, the interest of other groups, such as employee,
customers, creditors, society and government, should be given reasonable consideration when the
company lays down its objective in terms of the shareholders wealth maximization, it is generally
compatible with the interest of other groups. The management of companies 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.
1.6 Scope and coverage
The present study is confined to SME. This study is restricted to assess the pattern of capital
structure in SME with the help of the ratio analysis. The time period considered for evaluating the
study is four years
1.7 Research methodology
Research Methodology is a systematic and objective process of identifying and formulating the
problem by setting objectives and methods for collecting, editing, calculating, evaluating, analyzing,
interpreting and presenting data in order to find justified solutions.

Research design:
The Descriptive research design has been using in this study. Descriptive research studies, which are
concerned with describing the characteristics of a particular individual or of a group or a situation.
Studies concerned with specific predictions, with narration of facts and characteristics concerning
individual, group or a situation are examples of descriptive research studies.in this project, income
and balance statements are evaluated to know the state of affairs as it existed during the years 2010-
2015. This helps to know the performance of the schemes.
Sources of Data:
There are two sources of data namely:
1. Primary data
2. Secondary data
Primary Data:
Primary data are those which are collected for the first time and so are in crude form. They are
original in character. If an individual or an office collects the data to study a problem, the data are the
raw material of the enquiry. Primary data are always collected from the source. It is collected either
by the investigator himself or through his agents.

Secondary Data:
Secondary data are those which have already been collected by someone for the purpose and are
available for the present study. The choice to a large extent depends on the preliminaries to data
collection some of the commonly used methods are discussed below;
In this research, the various sources of secondary data, which are used, are:
Literature Reviews
Journals
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 Magazines
Balance sheets
1.8 Tools of analysis
The present study is confined to SME. This study is restricted to assess the pattern of capital
structure in SME with the help of the ratio analysis. The time period considered for evaluating the
study is four years
1.9 Limitations
It requires a small business to make regular monthly payments of principal and interest.
Availability is often limited to established businesses.
Since lenders primarily seek security for their funds, it can be difficult for unproven
businesses to obtain loans.
Very complicate and expensive to administer.

Chapter-2
REVIEW OF LITERATURE
Study on capital structure has become one of the most significant subjects of interest in modern
finance. It has acquired lot of recognition from researchers during recent years. There exists a vast
body of literature that has examined the determinants of the capital structure of companies in
developed economies. Empirical works based on theories of capital structure has been previously
conducted for Australia (Cassar and Holmes, 2003; Johnsen and McMahon, 2005), Spain (Sorgorb,
2005), UK (Hall et al., 2000) and the US (Gregory et al., 2005). However studies on capital structure
have been extended to the developing economy contexts only in recent past. The level of
development of a countrys legal and financial systems has been shown to influence the capital
structure of its enterprises (Fan et al., 2006). In economies with relatively weak investor protection,
enterprises are more likely to employ short-term debt than long-term debt in their capital structure.
This is in contrast to enterprises in economies with active stock markets and large banking sectors
which have more long-term debts (Demirguc-Kunt and Maksimovic (1999). Despite of the growing
volume of literature on the determinants of capital structure in the developing economy context is
available, there has been limited work conducted on SMEs in these countries. One possible reason
for this discrepancy is that SME data is often scarce and sometimes not reliable, since these firms are
not officially required to disclose detailed information or to have their reports audited. Some
preliminary work has been carried out for Poland (Klapper et al., 2006), Vietnam (Nguyen and
Ramachandran, 2006), and Ghana (Abor and Biekpe, 2007). All these studies implies to the fact that

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the that theories of capital structure developed to explain the financing decisions of SMEs in
developed economies are not equally applicable in developing economies, due to their institutional
and organizational differences. Many authors suggested the firm size as a potential determinant of
capital structure decision.

Determinants of capital structure of Chinese-listed companies.

Jean J. Chen in this paper develops a preliminary study to explore the determinants of capital structure of
Chinese-listed companies using firm-level panel data. The findings reflect the transitional nature of the
Chinese corporate environment. They suggest that some of the insights from modern finance theory of
capital structure are portable to China in that certain firm-specific factors that are relevant for explaining
capital structure in developed economies are also relevant in China. However, neither the trade-off model
nor the Pecking order hypothesis derived from the Western settings provides convincing explanations for the
capital choices of the Chinese firms. The capital choice decision of Chinese firms seems to follow a new
Pecking orderretained profit, equity, and long-term debt. This is because the fundamental institutional
assumptions underpinning the Western models are not valid in China. These significant institutional
differences and financial constraints in the banking sector in China are the factors influencing firms' leverage
decision and they are at least as important as the firm-specific factors. The study has laid some groundwork
upon which a more detailed evaluation of Chinese firms' capital structure could be based.

Determinants of capital structure of Chinese-listed companies, December 2004

-Jean J. Chen

Small and medium-size enterprises: Access to finance as a growth constraints

Thorsten Beck in this paper presents recent research on access to finance by small and medium-
size enterprises (SMEs). SMEs form a large part of private sector in many developed and developing
countries. While cross-country research sheds doubt on a causal link between SMEs and economic
development, there is substantial evidence that small firms face larger growth constraints and have
less access to formal sources of external finance, potentially explaining the lack of SMEs
contribution to growth. Financial and institutional development helps alleviate SMEs growth
constraints and increase their access to external finance and thus levels the playing field between
firms of different sizes. Specific financing tools such as leasing and factoring can be useful in

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facilitating greater access to finance even in the absence of well-developed institutions, as can
systems of credit information sharing and a more competitive banking structure.

Small and medium-size enterprises: Access to finance as a growth constraints, June 2006

-Thorsten Beck

The Determinants of Capital Structure Choice

Sheridan Titamin and Robert wessels in this paper analyzes the explanatory power of some of the
recent theories of optimal capital structure. The study extends empirical work on capital structure
theory in three ways. First, it examines a much broader set of capital structure theories, many of
which have not previously been analyzed empirically. Second, since the theories have different
empirical implications in regard to different types of debt instruments, the authors analyze measures
of short-term, long-term, and convertible debt rather than an aggregate measure of total debt. Third,
the study uses a factor-analytic technique that mitigates the measurement problems encountered
when working with proxy variables.

Determinants of Capital Structure Choice, March 1998

By Sheridan Titamin and Robert wessels

SME Capital Structure: The Dominance of Demand Factors

In this study, Kenny Bell and Ed Vos has described SME capital structure behavior is found typically
to follow pecking order behavior. However, the theoretical underpinnings of the pecking order theory
are doubted in the case of SMEs as SME managers highly value financial freedom, independence,
and control while the pecking order theory assumes firms desire financial wealth and suffer from
severe adverse selection costs in accessing external finance. Alternatively, the contentment
hypothesis of Vos, et al (2007) contends the reason SMEs exhibit pecking order behavior is the
aversion to loss of control to outside financiers and the preference for financial freedom. This paper
develops the capital structure predictions of the contentment hypothesis, reviews the predictions of
the tradeoff and pecking order theories for relevant variables, reviews the findings of existing SME
capital structure studies, and provides original empirical support for the contentment hypothesis
using a survey of over 2,000 firms from Germany, Greece, Ireland, South Korea, Portugal, Spain,
and Vietnam.

SME Capital Structure: The Dominance of Demand Factors, August 2009

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 - By Kenny Bell and Ed Vos

Impact of Capital Structure on Firm Performance: Evidence from Manufacturing Sector

SMEs in UK

D K Y Abeywardhana states in his study is to investigate empirically the impact of capital structure
on firm performance. This study examined the impact of capital structure on firm performance of
manufacturing sector SMEs in UK for the period of 1998-2008. The authors hypothesize that there is
a negative relationship between capital structure and firm performance. To examine the association,
the authors run a Pearson correlation and multiple regression analysis. Results of this study reveals
that there is a significant negative relationship between leverage and firm performance (ROA,
ROCE), strong negative relationship between liquidity and firm performance and highly significant
positive relationship between size and the firm performance. This study concluded that firms which
perform well do not rely on debt capital and they finance their operations from retained earnings and
specially SMEs have less access to external finance and face difficulties in borrowing funds. It is
recommended that firm should establish the point at which the weighted average cost of capital is
minimized and to maintain the optimal capital structure and thereby maximize the shareholders
wealth.

Impact of Capital Structure on Firm Performance: Evidence from Manufacturing Sector SMEs in
UK, November 2015
-D K Y Abheywardhana

Chapter-3
COMPANY &INDUSTRIAL PROFILE

3.1

An ISO 9001:2008 Company

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3.1.1 Industry profile
To collect and disseminate both domestic as well as international marketing intelligence
benefits of MSMEs. This cell, in addition to spreading awareness about various
programmers/schemes for MSMEs, will specifically maintain database and disseminate information
on the following.
National small industries corporation (NSIC), AN ISO 9001: 2008 certified company and a
govt. of India enterprise has been working to fulfill its mission of promoting, aiding and fostering the
growth of micro, small & medium enterprises in the country. Over a period of five decades of
transition, growth and development, NSIC has proved its strength within the country and abroad by
promoting modernization, up gradation of technology, quality consciousness, strengthening linking
with large and medium enterprises and enhancing exports-projects from small industries.
NSIC operation through country wide network of 123 offices and technical centres in the
country. In addition, NSIC has 48 training cum incubation centers & with a large professional
manpower; NSIC provides a package of services as per the needs of MSME sectors. To manage
operations in African countries, NSIC operates from its office in Johannesburg, South Africa.
This cell provides a single point contact to collect database relating to bulk buyers in
government, public and private sectors, the detail of exporters, international buyers and technology
suppliers. Besides, the information on trade leads and products wise buyers and sellers as well as
database relating to DGS & D suppliers with prices of their products, shall also be provided by this
NSIC marketing intelligence cell to help MSMEs in getting appropriate information at one place and
at the right time which will enable MSMEs in enhancing their ability to gauge and be at par with the
global demand.
MSMEs need to be provided with market related information, new avenues for their products,
new business practices, both domestically as well as overseas. MSMEs are handicapped because of
non availability of information pertaining to central government / state government policies and
programs, the support schemes and services of central /state PSUs availability of new technologies,
international and national tenders, opportunities available in various countries for products and
project exports. The NSIC marketing intelligence cell will integrate the available information at one
strengthen their efforts in focused manner.

3.1.2 Schemes of NSIC:

The national small industries corporation limited an ISO 9001: 2008 certified company established in
1955, has been working to fulfill its mission of promoting, aiding and fostering the growth of micro
and small enterprises in the country.

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NSIC carries forward its mission to assist micro and small enterprises with a set of specially tailored
schemes designed to put them in a competitive and advantageous position. The scheme comprises of
facilitating marketing support, credit support, technology support and other support services.
Marketing is a strategic tool for business development and survival of the enterprises in todays
Competitive era. NSIC acts as a facilitator to promote micro and small enterprises products and has
devised a number of schemes to support in their marketing efforts both in the outside the country.
Some of the schemes are briefly described an under.
3.1.3 Single point registration for government purchase:
Government is the largest buyer of product from micro and small enterprises. In order to
meet its requirement of purchase, NSIC operation a single point registration scheme under the
government purchase program, where in NSIC issue registration to eligible micro and small
enterprises for the purpose of suppliers to the government departments. The registration is par with
DGS & D, the unit registration under this gets the following facilities.
Issue of tender sets free of cost
Exemption from payment of earnest money
Waiver of security deposit up to the money limit for which the unit is registered
Issue of competency certificate in case the value of an order exceeds the monetary limit,
after due verification.
3.1.4 Infomediary services:
Information plays a vital role in the success if any business. Keeping in mind the information
needs to micro and small enterprises. NSIC has launched its infomediary services. A one stop, one
window bouquet for aids that will provide information on business, technology, finance and also
exhibit the core competence of Indian micro and small enterprises in terms of price and quality
internationally as well as domestically.
3.1.5 Some important services provided are:
Tender information in your e-mail box and web based browsing
Banner display on NSICC website
Accesses to wide range of technologies from India and abroad
Joint venture opportunities and information on of trade and events
Comprehensive information on government policies rules, regulations, schemes and
incentives.
3.1.6 Raw material assistance:
NSIC extends short term financial assistance to micro and small enterprises for procurement of raw
material on need basis.
The salient features
Financial assistance for procurement of raw material up to 90 days
MOU with NALCO, HCL, SAIL, RINL FOR supply of bulk materials
Easy and quick disbursement
Flexibility of repayment
3.1.7 Tender marketing:

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The corporation participates in bulk global tender enquiries and local tenders of central & state
government and public sector enterprises on behalf of micro and small enterprises.
It is aimed to assist micro and small enterprises with ability to manufacture quality products with
brand equity & credibility or have limited financial capabilities.
3.1.8Benefits:
NSIC will provide all financial support depending upon the units individual requirements like
purchase of raw materials and financing of sale bill. Enhance business volume helps micro and small
enterprises to achieve maximum capability utilization. Micro and small enterprises are exempted
from depositing earnest money. It ensures fair margin to micro and small enterprises for their
production.

3.1.9Performance and credit rating scheme for micro and small enterprises:
To ensure micro and small enterprises to ascertain the strength and weakness of their existing
operation and to take corrective measures to enhance their organization strength, NSIC is operating
performance and credit rating scheme through empanelled agencies like ICRA; ONICRA, DUN &
BRAD STREET, CRISIL, FITCH, CARE and SNERA. Micro and small enterprises has the liberty
to choose among any of the rating agencies empanelled with NSIC. The rating agencies will charge
the credit rating fee according to their policies. The benefits to small enterprises are as follows.
An in dependent trusted third party opinion on capabilities and credit-worthiness of micro
and small enterprises
Availability of credit at attractive interest
Recognition in global trade
Prompt sanctions of credit from banks financial institutions.
3.1.10 Facilitation of credit support through banks:
Any kind of financial assistance i.e., terms loan, working capital loan, bill discounting
facility and export finance can be arrange through united bank of India, UCO bank, oriental bank of
commerce, central bank of India, bank of Maharashtra, YES bank and HSDC at the most competitive
interest rates. The terms and condition of finance shall be of individual bank. NSIC will undertake
the follow up the proposals with the bank selected by the unit for obtaining finance shall ensure
timely disposal. Application forms of the individual banks can be had from the office of the NSIC.

3.2 Company profile - About serwel electronics ltd.

Serwel Electronics was established in 1996 with a vision to provide Power Solutions. Sewell is
committed to excellence in the areas of Designing, Manufacturing and Development of all types of
power products which is a Power and Distribution Transformers, Servo Voltage Stabilizers, UPS,
Variac's etc. Sewell products are appreciated for its Efficient Performance, Long Service Life,
Reliability, Sturdy Construction and Dimensional Accuracy.

3.2.1 Infrastructure Set Up and Our Team

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Sewell products are manufactured on state-of-the-art machines with latest technology, we deliver
zero defect power products. This is achieved through team of experts and streamlined production
process. With synchronous approach, we strive to deliver quality proven power products meeting our
customers expectations. Our plants are well equipped with most modern Machinery & Testing
Equipments to conduct tests as per IS: 5142 with an installed capacity of 100000 units per annum.
Serwel operations includes 3 manufacturing facilities, two facilities located in Hyderabad and one in
Bangalore. We provide sales and support services from marketing offices spread across pan India.

3.2.2 Quality
Sewell is an ISO 9001:2000 certified company with a commitment of well defined quality systems
that ensures quality products and services are delivered to our customers. R & D is a continuous
process in Sewell and we are committed to introduce new products which can be customized as per
customers request and configurations. All products are tested on various parameters like safety,
electricity consumption, durability, maintainability, etc. The stringent quality check imbibed by us
assures conformance of products in relation to international quality standards.

3.2.3 Products
Electronic voltage stabilizers.
Power & Distribution Transformers.
Automatic power Factor.
LT panel boards.
Energy saver.
UPS.

3.2.4 Infrastructure
We possess a state-of-the-art manufacturing units, which are facilitated with the latest machinery,
equipment and technology. With these facilities, we are able to meet the bulk requirements of our
clients. We make sure that we upgrade our machinery from time to time for the smooth functioning
of our manufacturing process.

3.2.5 Profile
Serwell is one of the leading manufacturers of Servo Stabilizers, Distribution and Power
Transformers, Ultra Isolation Transformers, APFC Panels, Auto Transformers and Power Savers.
Sewell constantly adds new products every year to existing product line and is in business to address
electrical needs of customers from more than 16 years.

3.2.6 Company Profile

Basic Information

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 Business Type
Supplier
Manufacturer
Service provider

Ownership & Capital

Year of Establishment 1996
Ownership Type Public Limited Company

Trade & Market

Annual Turnover Rs. 50 - 100 Cr (or US$ 10 million - 20 million Approx).
Export Percentage 20-40%

Quality & Certification

Trade Memberships Enclosed

Team & Staff

Total Number of Employees 101 to 500 People

Company USP
Experienced R&D Good financial position
Primary competitive
Department &TQM
advantage

Large production Provide customized

capacity solutions

Statutory Profile
PAN No. AAECS3499J
Registration Authority Hyderabad
Registration No. AAECS3499JXM003
TIN No. / VAT No. 28250204177V
Packaging/Payment and Shipment Details
Payment Mode Cheque Credit card

DD LC

Shipment mode By air By cargo

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 By road By sea

3.2.7 Core Value

Sewell Electronics Limited values its customers and enjoys working side-by-side with them in
delivering solid business value. We believe in respecting our customers, listening to their requests
and understanding their expectations. We strive to exceed their expectations in affordability, quality
and on-time delivery.
For our employees, we treat them with respect and trust, and lead through competence, creativity and
teamwork

3.2.8 Our Infrastructure

Sewell Electronics Limited processes modernized and sophisticated infrastructure that spread across
a widespread land area. To accomplish bulk demands with utmost ease, we have segregated our
infrastructure into a number of specialized departments. These departments are well-equipped with
modernized machines and requisite tools to timely execute our work processes with utmost precision.
Our manufacturing cum designing department is installed with hi-tech machines and sophisticated
equipment and designing patterns to ensure that dimensionally accurate and robust range of products
in the market
Quality Policy / Processes
Premier aim of our organization is to offer quality-assured range of products to our worldwide
customers. To manufacture our exclusive product range, we make use of finest grade components
and material that are sourced from trusted sources. Besides the product development is carried under
strict surveillance of experienced quality inspectors. These professionals ensure that the product
range is developed as per the agreed demands and regulatory specifications. Not only this, our ardent
quality inspectors have proper arrangement to cautiously check these products on the basis of varied
quality checks. Owing to robust and never failing quality control, we are able to offer internationally
acclaimed range of products to our customers.

3.2.9 Production Capacity

With installed modernized machines and sophisticated tools and equipment, we are able to furnish
bulk demands of our customers with utmost ease and within the constraints of time. Besides,
machines installed aids in conduction of thorough testing as per IS: 5142 norms. Owing to the use of
modernized machines and tools, we are able to produce around 35000 units per year. Our
manufactured products are safely stored in our capacious warehousing facility. Owing to proper
segregation into various sections, our warehouse aids in storing range as per proper nomenclature

20
and labeling, thereby ensuring quick retrieval and timed dispatch. minimum turnover as of the
eligibility criteria for MSE's.

3.3 RaghuVamsi Machine Tools Pvt Ltd

3.4 Company Profile

3.3.1About the company

Incorporated in 1992 RaghuVamsi Machine Tools Pvt. Ltd have created an enviable niche in industry
for our products excellence in all across the nation. The company is engaged in manufacturing,
exporting and supplying a wide assortment of Aero Engine Components, Aero structure Components,
Avionic Components, Defense Components, Oil & Gas Components and Power Transmission
Components. Our company has earned a dignified position by efficiently serving to its valuable
clients with qualitative products. We develop products incorporating advanced technologies and
better quality material, which have enabled us making best products available to the customers. The
material, we use in the production process, is sourced from trustworthy vendors, whom we have
chosen conducting stringent surveys of industry. We work in close proximity with the customers, in
order to comprehend their aspirations and offer products accordingly. As a result, we have acquired
the trust of maximum customers and expanded our base of satisfied clients from all across the
country.
Our company possesses team of extremely dedicated and talented professionals, who dedicatedly
perform the whole task and ensure accomplishing the specific targets successfully. They cordially
perform the whole operations and ensure to achieve the predetermined objectives of a company
successfully.
Mr. G.Vamshi Vikas is the managing director of our organization, who have helped us growing and
achieving a desired niche in industry. All these are just because of his sound managerial qualities,
business acumen, foresightedness, industrial experience and sincere business approach.
3.3.2 Company Mission
21
To create value and make a difference in the field of Precision Manufacturing by using world class
machine shop, best quality methods, up to date technology - achieving consistent delivery and zero-
defect parts to our customers at competitive prices.

3.3.3 Company Core Values

Reliability: To be Reliable towards Quality and Delivery to enhance customer satisfaction
Integrity: Our Integrity towards Work, Values & Customers
Social Responsibility: Responsible towards society - Primary focus on Education & Environment.

3.3.4 Company Management

Raghu Vamsis Management Team is comprised of Professional & Highly experienced leaders from
a variety of industry backgrounds. They have a comprehensive vision of the aerospace industry and
understand the strategic business needs of our customers. Together they continue to drive our
integrated vision of growth.
Vamshi Vikas Ganesula - Managing Director
Vamshi vikas Ganesula is managing director of raghuvamsi reporting to the board of directors
provides leadership to ensure the organization achieves its mission and vision while meeting the
expectation of all stakeholders. He heads the strategy &business development of the company.
A business graduate from IIM-C took over the business in 2004 at an age of 23 after the sudden
death of the founder. In spam of 8 years company grew from 15 employees to 200 entering important
sectors of Aerospace, Defense and oil &gas.
Reporting to the Managing Director, Mr.Subba rao heads the Sales & Coordination Team. He ensures
the customer requirements are met and bridges the customer with the company to ensure 100%
quality & on time delivery.
A Masters graduate in Mechanical Engineering from MIT, Chennai joined Raghu Vamshi in 2008.
He has over 40 years of experience in Aerospace industry and has worked in various senior
management disciplines including Operations, Marketing, and Customer Coordination in Hindustan
Aeronautics Limited before retiring as AGM, Production in 2004.
He also Served as Secretary HAL in Indian Embassy, Moscow coordinating all aerospace industries
in Russia with all HALs in India.
Mallikarjuna Swami General Manager Mallikarjuna Swami is General Manager - Operations of
Raghu Vamsi mechanical engineer having 42 years of experience and worked as a senior
management member in HAL koraput division and in reputed automotive component manufactures
like range engine valves, range Die cart and Synergies Casting Ltd.
3.3.5 Company Future Plans
Raghu Vamshi, in a short span of time, has evolved as a successful manufacturing partner to its
customers by providing High Precision machining and Engineering CAD/CAM Services.
A strategically defined plan till 2015 will further enhance our current capabilities

22
Our future plans include value-added services like:

Sheet Metal
Welding
NADCAP NDT
NADCAP Plating
Assembly Services
EMS Activity

3.3.6 Awards and Achievements

Managing Director of Raghu Vamshi, Mr.G.Vamsi Vikas was honored with Bharat Guarav
Award in 2007 by All India Business and Community foundation in the 37th National Seminar on
outstanding contributions to National development.
He was honored with Bharat vikas rattan award in 2009. He was honored with Rashtriya udyog
samman puraskar in 2006. He was also honored with young enterprising award f or the year 2005
by Fenner India Ltd.

ISO Certification

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An ISO 9001:2008 Certified Company.

Chapter-4

CONCEPTUAL FRAMEWORK

4.1Capital structure theories

23
 The financing decisions occupy a pivotal role in the overall finance function in a corporate firm
which mainly concerns itself with an efficient utilization of the funds provided by the owners or
obtained from external sources together with those retained or ploughed back out of surplus or
undistributed profits. These decisions are mainly in the nature of planning capital structure, working
capital and mechanism through which funds can be raised from the capital market whenever
required. The financing decisions explains how to plan an appropriate mix with least count, how to
raise long term funds, and how to mobilize the funds for working capital within a short span of time.
Such a financing policy provides an appropriate backdrop for formulating effective policies for
investment of funds as well as management of earnings. It contributes to magnifying the earnings on
equity as profitability (expressed as return on equity), to a large extent, is dependent on the degree of
leverage in the capital structure. Besides, the valuation of the structure of physical assets depends
fundamentally on the financing mix. This makes it necessary for the management of a firm to pursue
a well thought out of financing policy, which ought to be framed initially, incorporating, among other
things, the proportion of the debt and equity, types of debts and own funds to be used and volume of
the funds to be raised from each source or combination of sources, to enable the firm to have a
proper capitalization. In the absence of this, the firm may face the problem of either over-
capitalization or under-capitalization impeding its smooth financial functioning.
It is obvious that functioning decisions are extremely important for corporate firms. Such decisions,
in management parlance, are termed as capital structure decisions. The term capital structure is used
to describe the combination of various sources of finance employed to raise funds. It implies, in other
words, that when a firm chooses to use a group of sources in certain proportions the resulting pattern
is referred to as capital structure of the firm. The sources of finance could be divided in terms of
ownership of funds and duration of funds. The former comprises owned and borrowed funds while
the latter includes long, medium and short term funds. Of the two, the duration-based classification is
useful for preparing a plan to meet long term as well as short term capital requirements while
ownership-based classification is useful for selection of specified sources, determining debt-equity
ratio and analyzing impact of capital structure decisions on the earnings on equity. As the ownership
based classification suggests that there are two types of sources of finance, namely owned and
borrowed funds, the capital structure represents the component relationship between owned and
borrowed funds. The owned funds which are also described as equity fund may be defined as funds
provided by or belonging to the share-holders. In the opinion Raj want Singh and Brij Kumar, the
capital structure is made up of the long term borrowings, the preferred stock and the common stock
equity including all related net worth accounts. Similarly Morarka.R observes that the capital
structure implies a degree of permanency and normally omits short term borrowings of less than one
24
year but would include other intermediate and long term borrowings. The financial institutions
consider only long term sources of finance for computing the debt-equity ratio of corporate firm.
Definition
A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity,
the capital structure is how a firm finances its overall operations and growth by using different
sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure
Theories of capital structure
Different kinds of theories have been propounded by different authors to explain the relationship
between capital structure, cost of capital and the value of the firm. The main contributors to the
theories are Durand, Ezra, Solomon, Modigliani and Miller.
The important theories are discussed below:
Net Income Approach
Net Operating Income Approach.
The Traditional Approach.
Modigliani and Miller Approach.
1. Net Income Approach. According to this approach, a firm can minimize the weighted
average cost of capital and increase the value of the firm as well as market price of equity
shares by using debt financing to the maximum possible extent. The theory propounds that a
company can increase its value and decrease the overall cost of capital by increasing the
proportion of debt in its capital structure. This approach is based upon the following
assumptions:
The cost of debt is less than the cost of equity.
There are no taxes.
The risk perception of investors is not changed by the use of debt.
2. Net Operating Income Approach. This theory as suggested by Durand is another extreme of
the effect of leverage on the value of the firm. It is diametrically opposite to the net income
approach. According to this approach, change in the capital structure if a company does not
affect the market value of the firm and the overall cost of capital remains constant
irrespective of the method of financing. It implies that the overall cost of capital remains the
same whether the debt- equity mix is 50:50 or 20:80 or 0:100. Thus, there is nothing as an
optimal capital structure and every capital structure is the optimum capital structure. This
theory presumes that:
The market capitalizes the value of the firm as a whole.
The business risk remains constant at every level of debt equity mix;
There are no corporate taxes.
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 3. The Traditional Approach. The traditional approach, also known as intermediate approach,
is a compromise between extremes of net income approach and net operating income
approach. According to this theory, the value of the firm can be increased initially or the cost
of capital can be decreased by using more debt as the debt is a cheaper source of funds than
equity. Thus, optimum capital structure can be reached by a proper debt-equity mix. Beyond
a particular point, the cost of equity increases because increased debt increases the financial
risk of the equity shareholders. The advantage of cheaper debt at this point of capital structure
is offset by increased cost of equity. After this there comes a stage, when the increased cost of
equity cannot be offset by the advantage of low-cost debt. Thus, overall cost of capital,
according to this theory, decreases up to a certain point, remains more or less unchanged for
moderate increase in debt thereafter; and increases or rises beyond a certain point. Even the
cost of debt may increase at this stage due to increased financial risk.

4.2 How can financial leverage affect the value?

One thing is sure that wherever and whatever way one sources the finance from, it cannot change the
operating income levels. Financial leverage can, at the max, have an impact on the net income or the
EPS (Earning per Share). The reason is explained further. Changing the financing mix means
changing the level of debts and change in levels of debt can impact the interest payable by that firm.
Decrease in interest would increase the net income and thereby the EPS and it is a general belief that
the increase in EPS leads to increase in the value of the firm.

4.3 concept of optimal capital structure

Optimal capital structure may be defined as that relationship of debt and equity which maximizes the
value of companys share in the stock exchange.
Kulkarni and Satyaprasad defined optimum capital structure as the one in which the marginal real
cost of each available method of financing is the same. They included both the explicit and implicit
cost under the term real cost.
According to Prof Ezra Solomon, Optimal capital structure is that mix of debt and equity which will
maximize the market value of a company. Hence there should be a judicious combination of the
various sources of long-term funds which provides a lower overall cost of capital and so a higher
total market value for the capital structure. Optimal capital structure may thus be defined as, the
mixing of the permanent sources of funds used by the firm in a manner that will maximize the
companys common stock price by minimizing the firms composite cost of capital.

26
The concept of optimal capital structure has drawn a great deal of attention in accounting and finance
literature. Capital structure means the proportion of debt and equity in the total capital of a firm. The
objective of a firm is to maximize the value of its business.
This is done by maximizing market value of the shares and minimizing the cost of capital of a firm.
An optimal capital structure is that proportion of debt and equity, which fulfils this objective of a
firm. Thus an optimal capital structure tries to optimize two variables at the same time: cost of
capital and market value of shares.
4.4 frame work of capital structure: FRICT analysis
A financial structure may be evaluated from various perspectives. From the owners point of view,
return, risk and value are important considerations. From the strategic point of view, flexibility is an
important concern. Issue of control, flexibility and feasibility assume great significance. A sound
capital structure will be achieved by balancing all these considerations:
Flexibility: the capital structure should be determined within the debt capacity of the
company, and this capacity should not be exceeded. The debt capacity of a company depends
on its ability to generate funds cash flows. It should have enough cash to pay creditors fixed
charges and principal sum and leave some excess cash to meet future contingency. The
capital structure should be flexible. It should be possible for a company to adapt its capital
structure with a minimum cost and delay if warranted by a changed situation. It should also
be possible for the company to provide funds whether needed to finance its profitable
activities.
Risk: the risk depends on the variability in the firms operations. It may be caused by the
macroeconomic factors and industry and firm specific factors. The excessive use of debt
magnifies the variability of shareholders earnings, and threatens the solvency of the
company.
Income: the capital structure of the company should be most advantageous to the owners
(shareholders) of the firm. It should create value; subject to other considerations, it should
generate maximum returns to the shareholders with minimum additional cost.
Control: the capital structure should involve minimum risk of loss of control of the company.
The owners of closely held companies are particularly concerned about dilution of control.
Timing: the capital structure should be feasible to implement given the current and future
conditions of the capital market, the sequencing of sources of financing is important. The
current decision influences the future options of raising capital.
The FRICT (flexibility, risk, income, control and timing) analysis provides general framework for
evaluating a firms capital structure. The particular characteristics of a company may reflect some
additional specific features. Further the emphasis given to each of these features will differ from
company to company.
27
4.5 Factors affecting capital structure theories:
Debt and equity differ in cost and risk. As debt involves less cost but it is very risky securities
whereas equity is expensive securities but these are safe securities from companies point of view.
Debt is risky because payment of regular interest on debt is a legal obligation of the business. In case
they fail to pay debt security holders can claim over the assets of the company and if firm fails to
meet return of principal amount it can even go to liquidation and stage of insolvency. Equity
securities are safe securities from companys point of view as company has no legal obligation to pay
dividend to equity shareholders if it is running in loss but these are expensive securities.
Capital structure of the business affects the profitability and financial risk. A best capital structure is
the one which results in maximizing the value of equity shareholder or which brings rise in the price
of equity shares. Generally companies use the concept of financial leverage to set up capital
structure.
The various factors which influence the decision of capital structure are:
1. Cash Flow Position:
The decision related to composition of capital structure also depends upon the ability of business to
generate enough cash flow.
The company is under legal obligation to pay a fixed rate of interest to debenture holders, dividend to
preference shares and principal and interest amount for loan. Sometimes company makes sufficient
profit but it is not able to generate cash inflow for making payments.
The expected cash flow must match with the obligation of making payments because if company
fails to make fixed payment it may face insolvency. Before including the debt in capital structure
company must analyze properly the liquidity of its working capital.
A company employs more of debt securities in its capital structure if company is sure of generating
enough cash inflow whereas if there is shortage of cash then it must employ more of equity in its
capital structure as there is no liability of company to pay its equity shareholders.
2. Interest Coverage Ratio (ICR):
It refers to number of time companies earnings before interest and taxes (EBIT) cover the interest
payment obligation.
ICR= EBIT/ Interest
High ICR means companies can have more of borrowed fund securities whereas lower ICR means
less borrowed fund securities.
3. Debt Service Coverage Ratio (DSCR):
It is one step ahead ICR, i.e., ICR covers the obligation to pay back interest on debt but DSCR takes
care of return of interest as well as principal repayment.

28
If DSCR is high then company can have more debt in capital structure as high DSCR indicates
ability of company to repay its debt but if DSCR is less then company must avoid debt and depend
upon equity capital only.
4. Return on Investment:
Return on investment is another crucial factor which helps in deciding the capital structure. If return
on investment is more than rate of interest then company must prefer debt in its capital structure
whereas if return on investment is less than rate of interest to be paid on debt, then company should
avoid debt and rely on equity capital. This point is explained earlier also in financial gearing by
giving examples.
5. Cost of Debt:
If firm can arrange borrowed fund at low rate of interest then it will prefer more of debt as compared
to equity.
6. Tax Rate:
High tax rate makes debt cheaper as interest paid to debt security holders is subtracted from income
before calculating tax whereas companies have to pay tax on dividend paid to shareholders. So high
end tax rate means prefer debt whereas at low tax rate we can prefer equity in capital structure.

7. Cost of Equity:
Another factor which helps in deciding capital structure is cost of equity. Owners or equity
shareholders expect a return on their investment i.e., earning per share. As far as debt is increasing
earnings per share (EPS), then we can include it in capital structure but when EPS starts decreasing
with inclusion of debt then we must depend upon equity share capital only.
8. Floatation Costs:
Floatation cost is the cost involved in the issue of shares or debentures. These costs include the cost
of advertisement, underwriting statutory fees etc. It is a major consideration for small companies but
even large companies cannot ignore this factor because along with cost there are many legal
formalities to be completed before entering into capital market. Issue of shares, debentures requires
more formalities as well as more floatation cost Whereas there is less cost involved in raising capital
by loans or advances.
9. Risk Consideration:
Financial risk refers to a position when a company is unable to meet its fixed financial charges such
as interest, preference dividend, payment to creditors etc. Apart from financial risk business has

29
some operating risk also. It depends upon operating cost; higher operating cost means higher
business risk. The total risk depends upon both financial as well as business risk.
If firms business risk is low then it can raise more capital by issue of debt securities whereas at the
time of high business risk it should depend upon equity.
10. Flexibility:
Excess of debt may restrict the firms capacity to borrow further. To maintain flexibility it must
maintain some borrowing power to take care of unforeseen circumstances.
11. Control:
The equity shareholders are considered as the owners of the company and they have complete
control over the company. They take all the important decisions for managing the company. The
debenture holders have no say in the management and preference shareholders have limited right to
vote in the annual general meeting. So the total control of the company lies in the hands of equity
shareholders.
If the owners and existing shareholders want to have complete control over the company, they must
employ more of debt securities in the capital structure because if more of equity shares are issued
then another shareholder or a group of shareholders may purchase many shares and gain control over
the company.
Equity shareholders select the directors who constitute the Board of Directors and Board has the
responsibility and power of managing the company. So if another group of shareholders gets more
shares then chance of losing control is more.
Debt suppliers do not have voting rights but if large amount of debt is given then debt-holders may
put certain terms and conditions on the company such as restriction on payment of dividend,
undertake more loans, investment in long term funds etc. So company must keep in mind type of
debt securities to be issued. If existing shareholders want complete control then they should prefer
debt, loans of small amount, etc. If they dont mind sharing the control then they may go for equity
shares also.
12. Regulatory Framework:
Issues of shares and debentures have to be done within the SEBI guidelines and for taking loans.
Companies have to follow the regulations of monetary policies. If SEBI guidelines are easy then
companies may prefer issue of securities for additional capital whereas if monetary policies are more
flexible then they may go for more of loans.
13. Stock Market Condition:
There are two main conditions of market, i.e., Boom condition. These conditions affect the capital
structure specially when company is planning to raise additional capital. Depending upon the market
condition the investors may be more careful in their dealings.
30
During depression period in the market business is slow and investors also hesitate to take risk so at
this time it is advisable to issue borrowed fund securities as these are less risky and ensure fixed
repayment and regular payment of interest but if there is Boom period, business is flourishing and
investors also take risk and prefer to invest in equity shares to earn more in the form of dividend.
14. Capital Structure of other Companies:
Some companies frame their capital structure according to Industrial norms. But proper care must be
taken as blindly following Industrial norms may lead to financial risk. If firm cannot afford high risk
it should not raise more debt only because other firms are rising.

4.6 Essential features of a capital mix

A sound or an appropriate capital structure should have the following essentials features:
1. Maximum possible use of leverage.
2. The capital structure should be flexible so that it can be easily altered.
3. To avoid undue financial/business risk with the increase of debt.
4. The use of debt should be within the capacity of a firm. The firm should be in a position to meet
its obligations in paying the loan and interest charges as when due.
5. It should involve minimum possible risk of loss of control.
6. It must avoid undue restrictions in agreement of debt.
7. It should be easy to understand and simple to operate to the extent possible.

4.7 EBIT EPS Analysis:

EBIT-EPS analysis gives a scientific basis for comparison among various financial plans and shows
ways to maximize EPS. Hence EBIT-EPS analysis may be defined as a tool of financial planning
that evaluates various alternatives of financing a project under varying levels of EBIT and suggests
the best alternative having highest EPS and determines the most profitable level of EBIT.
Concept of EBIT-EPS Analysis:
The EBIT-EBT analysis is the method that studies the leverage, i.e. comparing alternative methods of
financing at different levels of EBIT. Simply put, EBIT-EPS analysis examines the effect of financial
leverage on the EPS with varying levels of EBIT or under alternative financial plans.
It examines the effect of financial leverage on the behavior of EPS under different financing
alternatives and with varying levels of EBIT. EBIT-EPS analysis is used for making the choice of the
combination and of the various sources. It helps select the alternative that yields the highest EPS.
We know that a firm can finance its investment from various sources such as borrowed capital or
equity capital. The proportion of various sources may also be different under various financial plans.
In every financing plan the firms objectives lie in maximizing EPS.
Advantages of EBIT-EPS Analysis: We have seen that EBIT-EPS analysis examines the effect of
financial leverage on the behavior of EPS under various financing plans with varying levels of EBIT.
It helps a firm in determining optimum financial planning having highest EPS.
Various advantages derived from EBIT-EPS analysis may be enumerated below:
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Financial Planning:
Use of EBIT-EPS analysis is indispensable for determining sources of funds. In case of financial
planning the objective of the firm lies in maximizing EPS. EBIT-EPS analysis evaluates the
alternatives and finds the level of EBIT that maximizes EPS.
Comparative Analysis:
EBIT-EPS analysis is useful in evaluating the relative efficiency of departments, product lines and
markets. It identifies the EBIT earned by these different departments, product lines and from various
markets, which helps financial planners rank them according to profitability and also assess the risk
associated with each.
Performance Evaluation:
This analysis is useful in comparative evaluation of performances of various sources of funds. It
evaluates whether a fund obtained from a source is used in a project that produces a rate of return
higher than its cost.
Determining Optimum Mix:
EBIT-EPS analysis is advantageous in selecting the optimum mix of debt and equity. By
emphasizing on the relative value of EPS, this analysis determines the optimum mix of debt and
equity in the capital structure. It helps determine the alternative that gives the highest value of EPS as
the most profitable financing plan or the most profitable level of EBIT as the case may be.
Limitations of EBIT-EPS Analysis:
Finance managers are very much interested in knowing the sensitivity of the earnings per share with
the changes in EBIT; this is clearly available with the help of EBIT-EPS analysis but this technique
also suffers from certain limitations, as described below
No Consideration for Risk:
Leverage increases the level of risk, but this technique ignores the risk factor. When a corporation, on
its borrowed capital, earns more than the interest it has to pay on debt, any financial planning can be
accepted irrespective of risk. But in times of poor business the reverse of this situation ariseswhich
attracts high degree of risk. This aspect is not dealt in EBIT-EPS analysis.
Contradictory Results:
It gives a contradictory result where under different alternative financing plans new equity shares are
not taken into consideration. Even the comparison becomes difficult if the number of alternatives
increase and sometimes it also gives erroneous result under such situation.
Over-capitalization:
This analysis cannot determine the state of over-capitalization of a firm. Beyond a certain point,
additional capital cannot be employed to produce a return in excess of the payments that must be
made for its use. But this aspect is ignored in EBIT-EPS analysis.

4.8 Pattern of Capital Structure

The term capital structure refers to the relationship between the various long-term forms of
financing such as debenture, preference share capital and equity share capital. Financing the firms
32
assets is a very crucial problem in every business and as a general rule there should be a proper mix
of debt and equity capital in financing the firms assets. The use of long-term fixed interest bearing
debt and preference share capital along with equity shares is called financial leverage or trading on
equity. In case of new company the capital structure may be of any of the following four patterns:
Capital structure with equity shares only
Capital structure with equity as well as preference shares
Capital structure with equity shares and debt capital
Capital structure with equity shares, preference shares and debt capital.

4.9 Approaches to establish target capital structure

The capital structure should 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 decisions should be made with a view to achieve the
target capital structure. The company needs funds to finance its activities continuously. Every time
when funds have to be procured, the financial manager weighs the pros and cons of various sources
of finance and selects the most advantageous sources keeping in view the target capital structure and
financial manager deals with existing capital structure. Thus the capital structure decision is a
continuous one and has to be taken whenever a firm needs additional finances.
Three common approaches to decide about a firms capital structure
EBIT-EPS approach for analyzing the impact of debt on shareholders return and risk.
Valuation approach for determining the impact of debt on the shareholders values
Cash flow analysis for analyzing the firms ability to service debt and avoid financial distress.

4.10 Changes in capitalization

No scheme of capitalization or capital structure can be said to be of permanent character or of static
nature in the fast changing world of business. The initial patterns of capitalization, however planned,
can never fully anticipate the efforts of these changes in the economy. The scheme of capitalization
may become outmoded with the changing conditions of the financial markets. Thus it may become
necessary to make changes in the scheme of capitalization to suit the present needs of a company. A
sound capital structure is one which can be adjusted according to the needs of the changing
conditions.
The following are the main reasons necessitating change in capitalization:
To restore balance in the financial plan: if the financial structure of a company has become
top heavy with fixed cost bearing securities resulting into a great strain on the financial
position of the company ,the company may readjust its capital structure by redeeming the
preference shares or debentures out of the proceeds of new issue of equity shares. This will
lead to easing out the tension or reduce the strain and restore the balance in the financial plan.

33
 To simplify the capital structure: when a company has issued a variety of securities at
different points of time to raise funds at difficult terms, it may need to consolidate such
securities to simplify the financial plan as and when the market conditions are favorable.
To suit investors needs: a company may have to change capitalization to suit the needs of its
investors. The companies often resort to split up of its shares to make these more attractive
especially when the market activity in the companys share is limited due to high face value
and wide fluctuations in its market prices.
To write off the deficit: In case a company has not been doing well and book value of its
assets is overvalued as compared to their real worth or when there are accumulated losses ,it
is better for the company to reorganize its capital by reducing book value of its liabilities and
assets to their real values such reorganization is also necessitated, because, otherwise the
company cannot legally pay dividends to its shareholders even in future when it makes profits
without writing off the losses.

Chapter-5
DATA INTERPRETATION AND ANALYSIS

5.1 Ratio analysis:

Ratio analysis is one of the oldest methods of financial statements analysis. It was developed by
banks and other lenders to help them chose amongst competing companies asking for their credit.
Two sets of financial statements can be difficult to compare. The effect of time, of being in different
industries and having different styles of conducting business can make it almost impossible to come
up with a conclusion as to which company is a better investment. Ratio analysis helps creditors solve
these issues.
Ratio analysis is a tool that was developed to perform quantitative analysis on numbers found on
financial statements. Ratios help link the three financial statements together and offer figures that are
comparable between companies and across industries and sectors. Ratio analysis is one of the most
widely used fundamental analysis techniques.

34
However, financial ratios vary across different industries and sectors and comparisons between
completely different types of companies are often not valid. In addition, it is important to analyze
trends in company ratios instead of solely emphasizing a single periods figures.
What is a ratio? Its a mathematical expression relating one number to another, often providing a
relative comparison. Financial ratios are no differentthey form a basis of comparison between
figures found on financial statements .As with all types of fundamental analysis, it is often most
useful to compare the financial ratios of a firm to those of other companies.
Financial ratios fall into several categories. For the purpose of this analysis, the commonly used
ratios are grouped into four categories: activity, liquidity, solvency and profitability.
Following ratios have been used to analyze and interpret the result of the study:
Debt Equity ratio.
Solvency ratio.
Interest coverage ratio.
Earnings per share ratio.
5.2 Computation of ratio

5.2.1 Debt-equity ratio

The main object of calculating the debt-equity ratio is to measure the relative interest of owners and
creditors in the firm. From the creditors point of view, it measures the extent to which their interest
is covered by owned funds. A standard debt-equity norm for all industrial units is neither desirable
nor practicable. Different standard debt-equity ratios are used for different industry groups. However,
in less developed countries, such standards cannot be accepted. Therefore, this ratio depends upon
industry, circumstances, and prevailing practices and so on. The generally accepted standard norm of
debt-equity ratio is 2:1. The ratio may be calculated in terms of the relative proportion of long term
debt i.e. borrowed funds and shareholders' equity i.e. net worth. This is a vital ratio to determine the
efficiency of the financial management of business undertakings (Roy Chowdhary).

Debt - equity ratio is calculated by using the following formula:

Debt Equity Ratio = Long Term Debt / Net Worth.

The debt - equity ratio of Serwel private Limited and Raghuvamsi private limited is presented in

Table -5.1

Serwel private Ltd. Raghuvamsi private Ltd.

35
Year Debt Equity Ratio Year Debt Equity RATIO
( in Rs) (in Rs) (in Rs) (in Rs)

09-10 90194572 80883376 1.11 09-10 25361218 19017075 1.33

10-11 18201951 142525426 12.7 10-11 20800000 20915100 0.99

11-12 28083967 20292436 1.38 11-12 28083967 20292436 1.38

12-13 44902047 269394812 0.41 12-13 42042434 51438286 0.81

13-14 87183784 208336107 0.41 13-14 39409580 58572104 0.67

14-15 288095383 97369359 2.95 14-15 47741624 31786007 1.5

5.1(a)Graph showing the variation of ratios between serwel and raghuvamsi

5.1(b) Interpretation:
Table 1 shows Debt-Equity ratio of Serwel pvt. Ltd. And Raghuvamshi pvt.Ltd. The Debt-
Equity ratio is calculated by dividing the long term debt and Net worth.
It is evident that long term debt of the company serwel decreased remarkably from
Rs.90194572 in 2009 to 87183784 in 2014 and again a rapid increase of Rs.288095383 in
2015. Net Worth had a gradual rise of Rs.80883376 in 2010 and a rapid fall in 2014 by Rs.
26939481 and again rose by Rs. 97369359 in 2015. In other words Net Worth is fluctuating
in the entire study in serwel electronics pvt.Ltd.
It is evident that long term debt of the company raghuvamshi increased remarkably from Rs.
25361218 in 2010 to Rs.47741624 in 2015. Net worth is also rapidly increasing from
Rs.19017075 in 2010 to Rs.31786007 in the year 2015.

36
 Debt-Equity ratio had varied from the higher of 1.3 times in 2010 to the lowest 2.9 in 2015.
The ratio is well slight above than the standard ratio of 2:1. It means that the debt employed
by the company was slight high from the point of view as the standard ratio. However, the
interest of the debt-holders of the company was well protected.

5.2.2 Solvency ratio

Solvency is the term which is used to describe the financial position of any business which is capable
to meet outside obligations in full out of its own assets. So their ratio establishes relationship
between total liabilities and total assets.
Solvency ratio is calculated by using the following formula:
Solvency ratio = total liabilities / total assets.
The solvency ratio of Serwel private Limited and Rraghuvamshi private limited is presented in
Table 5.2

SURWELL PVT. LTD. RAGHUVAMSI PVT. LTD.

Year Total liabilities Total assets Ratio Year Total liabilities Total assets Ratio
(in Rs.)
(in Rs.) (in Rs.) (in Rs.)
09-10 172610403 172610403 1 9-10 57368776 5736776 1
10-11 327250093 327250093 1 10-11 8495300 8495300 1
11-12 927662724 9277662724 1 11-12 102138072 102138072 1

12-13 1225470915 1225470915 1 12-13 116767188 116767188 1

13-14 1311264590 1311264590 1 13-14 114422012 114422012 1
14-15 1074191635 1074191635 1 14-15 110996369 110996369 1

5.2(a) Graph showing solvency ratio of serwel and raghuvamshi pvt.Ltd.

37
5.2(b) Interpretation:
Table 2 shows solvency ratio of Serwel pvt. Ltd. And Raghuvamshi pvt.ltd. Solvency
ratio is calculated by dividing total liabilities by total assets giving 1 as ratio from the year
2010 to 15.
Total assets and liabilities had a gradual rise in 2011 of Rs.172610403 and a rapid fall in
2015 by 1074191635 in serwel electronics and also it is rise from Rs.5736776 in 2010 to
Rs.110996369 in 2015 in raghuvamsi electronic Pvt. Ltd.In other words Net Worth is
fluctuating in the entire study.

5.2.3 Interest coverage Ratio = EBIT/interest

Interest Coverage Ratio, sometimes called Times Interest Earned Ratio and the abbreviation TIE is
used. It is a term that indicates how many times the total income covers interest payments. The
interest coverage indicates the size of safety cushion for creditors. The indicator is one of the balance
sheet debt ratios (of long-term financial stability).
Calculation: Interest Coverage Ratio = EBIT / Total Interest Payable
The interest coverage ratio of Serwel private Limited and Rraghuvamshi private limited is presented
in
Table - 5.3
Serwel Pvt.Ltd. Raghuvamsi Pvt.Ltd.
Year EBIT (in Interest (in Ratio Year EBIT (in Interest (in Ratio
Rs.) Rs.) Rs.) Rs.)
09-10 36095913 9945333 36.2 09-10 5477108 3839642 1.42
10-11 71508287 16491369 11.32 10-11 3689174 3515770 1.04
11-12 89018291 4294877 20.74 11-12 5665064 4580779 1.23
12-13 111747738 60437125 1.85 12-13 10277314 6699981 1.53
13-14 152821207 69432605 2.26 13-14 10736974 5462317 0.31
14-15 951254340 91997441 10.32 14-15 8524233 4841782 1.76

38
5.3(a) Graph showing variation in EBIT ratios in serwel and raghuvamshi electronics pvt.Ltd.

5.3(b) Interpretation
Table 3 shows
EBIT ratio of
Serwel pt. Ltd. And Raghuvamshi pt. ltd. EBIT ratio is calculated by dividing EBT by interest
from the year 2010 to 2015.
EBIT had a gradual rise in 2011 of Rs.71508287 and increasing gradually to Rs.951254340 in
2015 in Serwel electronics Ltd. In the same way RAGHU VAMSI company has rise from
Rs.5477108 in 2010 to Rs. 8524233.In other words EBIT has been increasing from past few
years.
Graph shows that Serwel Company has decreased EBIT ratio from year 2010 of 36.2 to 2015
of 10.3 where as raghuvamshi company has increased EBIT ratio from 2010 of 1.4 to 1.7 in
2015.

5.4 Earnings per share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per
share serve as an indicator of a company's profitability.
Calculated as = Earnings after tax
No. of shares
The EPS of Serwel private Limited and Raghuvamsi private limited is presented in table
Table 5.4
Serwel pvt.Ltd. Raghuvamshi pvt.Ltd.
Year EAT (in No. Of shares Ratio Year EAT (in No. of Ratio
Rs.) Rs.) shares
09-10 20161351 1863300 108.2 09-10 590475 190170.7 3.1
10-11 33191254 186330 178.1 10-11 1160252 202925.3 5.7
11-12 57590554 321920 178.8 11-12 113017 201795.1 5.6
12-13 40278831 417370 96.5 12-13 246608 257191.4 0.9
13-14 84683957 417370 202.8 13-14 3566909 292860.5 12.1
14-15 22058556 973693.59 22.6 14-15 2544574 317860 8.05

5.4(a) Graph shows EPS ratio of serwel and Raghuvamashi pvt.Ltd.

39
5.4(b) Interpretation
Table 4 shows EPS ratio of Serwel pt. Ltd. And Raghuvamsi pvt. ltd. EBIT ratio is calculated
by dividing EAT by no. of shares.EPS is calculated here from the year 2010 to 2015.
EAT had a gradual rise in 2010 of Rs. 20161351 and is being increasing in 2015 by 22058556
in serwel electronics and in Raghuvamsi company Rs. 590475 in 2010 rose to Rs. 2544574 in
2015. In other words EAT has gained profits in entire study.
Earnings per share ratio is 108.2 in 2010 and has increased to 22.6 in 2015 in serwel and 3.1
in 2010 and raised to 8.05 in 2015 in Raghuvamsi company.

Chapter-6
FINDINGS, SUGGESTIONS &CONCLUSIONS
6.1 FINDINGS
The average ratio of debt and equity is better in serwel as compared to raghuvamsi
electronics. It shows that serwel is more using debt financing in its capital structure pattern as
compared to raghuvamsi electronics. It implies that company is adopting NOI approach of
capital structure. The more use of debt financing in this industry is increasing the value of the
firm and minimising the cost of capital resulting in overall wealth maximisation of
shareholders.

40
 It has been found from the study that average of debt equity ratio of serwel in 2014-15 i.e.
2.97 where as the average of debt equity ratio in Raghu vamsi pvt.Ltd. is only 1.5 as per the
standard norm of 2:1 of debt equity ratio for the industries.
It has been found from the study that the average solvency ratio is maintained as 1:1 from the
last five years in both raghuvamsi and serwel electronics.
The average EBIT ratio of serwel is better compared to Raghuvamsi in past few years and the
ratio has been declined from 36.2 in 2010 to 10.6 in 2015,where as raghuvamsi is maintained
with 1.4 in 2010 to 1.7 in 2015.
The EPS of Serwel private Limited is far better compared to Raghuvamsi private limited in
the year 2014-15 is 22.6 and 8.05 respectively.
The rising overall average of trend of debt and equity in case of both the SMEs this implies
that these industries have access to market for both equity and debt financing. Initially,
companies were raising maximum debt fund to reduce the cost of capital but which resulted
in increase in financial risk. So they shifted to equity financing also .They are maintaining a
trade-off between debt and equity.

6.2 SUGGESTIONS
The SERWEL and Raghuvamsi industries should improve their debt equity ratio as it is not as
per the standard norm. These industries are not using as much debt as expected from them.
The average ratio of debt and equity is not better in raghuvamsi industry as compared to
serwel industry. The Raghuvamsi industry should pay more attention towards their reserves
and surpluses, because due to this they are not getting higher profits. They should more focus
towards debt financing to maximise the wealth of shareholders.
Both the SMEs are advised to maintain a trade off between debt and equity in future also so
as to achieve the objective of optimum capital structure.
The solvency ratio of Serwel private Limited and Raghuvamshi private limited presented is
good and if maintained in the same manner would be profitable.
The EPS of Serwel private Limited and Raghuvamsi private limited presented shows that
serwel has better yields in as profits, if Raghu vamshi shareholders investment is to be
increased in coming years then this would excellent opportunity for raghuvamsi to maximize
the profits.
The interest coverage ratio of serwel is great compared to raghuvamsi capital structure of
Raghuvamsi is to be increased for good profit returns.

41
 Chapter-7
CONCLUSION

Results of the present empirical study revealed that long term funds had apportioned nearly two-third
of total funds when compared to short term funds in the SMEs selected for the study. The firms had
utilized more owned funds than borrowed funds. The SMEs had shown an inclination in
strengthening long term funds consisting of both shareholders funds as well as long term borrowed
funds in order to finance its assets requirement. The financial risk of the firms is comparatively low
since it mostly depended on equity financing. The mobilization of the debt funds by the company
means that it could raise the external funds to bring the optimum capital structure i.e. minimize the
cost of capital and maximize the share value of the firm. This may due to the tax deductibility of the
interest paid on debt. Thus the benefits of financial leverage can be reaped for improving the
financial performance of the firm. The behaviour of the interest coverage ratio was unpredictable.
The interest charges are fully covered by the earnings before interest and taxes. A higher interest
coverage ratio is desirable, but too high ratio indicates that the firm is very conservative in using
debt, and it is not using debt to the best advantage of the shareholders. Hence, it is suggested that
SMEs shall tap the debt funds optimal to maintain a balanced capital structure. The financial
performance of a firm is greatly influenced by its capital structure. An optimal capital structure
maximizes the shareholders wealth with best combination of debt and equity mix thereby
minimizing the cost of capital

BIBLIOGRAPHY
References

42
1. Khan M Y., Financial Services, Tata McGraw Hill Education Private Ltd. Fifth Edition,
2010.
2. I M Pandey., financial management, vikas publishing house Pvt Ltd.,Tenth edition,2010.
3. Gordan E ., Natrajan K., Financial markets and services, Himalaya publishing house,2013
4. Jean J. Chen-Determinants of capital structure of Chinese-listed companies., Journal of business
research,2004
5. Thorsten Beck, Small and medium-size enterprises: Access to finance as a growth constraints,
Elsevier publications, Journal of business research.2006
6. Sheridan Titman and Roberto Wessels., The Determinants of capital structure choice,Weily
Publications,1998.
Stable URL: http://www.jstor.org/stable/2328319

7. Kenny Bell and Ed Vos., SME Capital Structure: The Dominance of Demand
Factors,SSRN,August,2009.
Stable URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1456725

8. D K Y Abeywardhana, Impact of Capital Structure on Firm Performance: Evidence from

Manufacturing Sector SMEs in UK,WBI conference., November 2015.
Stable URL: http://www.wbiworldconpro.com/pages/paper/melbourne-conference-2015-
november/3392

WEBSITES

http://www.nsic.co.in/

http://www.raghuvamsi.com/

http://serwel.com/

http://www.moneycontrol.com/

Balance Sheet and Profit And Loss Statements of Serwel Pvt.,Ltd

BALANCE SHEET AS ON MARCH 31, 2010

Schedule As on march 31, 2010

43
I. Source of funds

(1) Shareholders funds

1 18633000
(A) Capital
2 23855376
(B) Reserves
3 38395000
(C) Share application money

(2) Loan funds

4
(A) Secured loans 90194572
5
(3) Deferred tax liability 1532455

TOTAL

II. Application of funds

(1) Fixed assets 6

48579211
(A) Gross blocks
3019880
(B) Less : Depreciation
45559331
(C) Net block

(3) Current assets, loans and advances 7

15818864
(A) Sundry debtors
402846
(B) Cash and bank balances

(C) Loans & advances 8 15538059

Less : current liabilities 2174998

Provisions

TOTAL 172610403

PROFIT N LOSS FOR THE YEAR ENDED MARCH 31, 2010

SCHEDULE For the year ended march 31,

2010

INCOME

Turn Over 9 432572279

Other In come 3827522

Accretion/Desertion to shock

44
 10 6323470

TOTAL 442723271

EXPENDITURE
6986202
Manufacturing Expenses 11
8047645
Personnel Expenses 12
390110845
Administrative Expenses 13

TOTAL 405144692

Profit before Finance Charges, Depreciation & 37578580

Taxation
14 9945333
Less : Finance charges
27633247
Profit before Depreciation & Taxation
1482667
Less : Depreciation

Profit before Taxation 6 26150580

Less : Provisions for Taxation

(a) Income Tax 5100000

(b) Fringe benefit tax 0

Add/Less Deferred Tax Asset/Liability 889229

TOTAL 20161351

BALANCE SHEET AS ON MARCH 31, 2011

Schedule As on march 31,2011

I. Source of funds

(1) Shareholders funds

1 18633000
(A) Capital
2 67495000
(C) Share. application money
3 56397426
(B) Reserves

45
 (2) Loan funds 4

(A) Secured loans 5 182031951

(3) Deferred tax liability 2692716

TOTAL 327250093

II. Application of funds

(1) Fixed assets 6

(A) Gross blocks 66269776

(B) Less : Depreciation 5144380

(C) Net block 61125396

(D) Capital work in progress 10248722

(2) Current assets, loans and advances 7

(A) Inventories 247960320

(B) Sundry debtors 13131345

(C) Cash and bank balances 21113953

(E) Loans & advances 10348998

Less : current liabilities & 8 23465504

Provisions 13213137

NET current assets 255875975

TOTAL 327250093

PROFIT N LOSS AS ON MARCH 31, 2011

SCHEDULE AS ON MARCH 31,2011

INCOME
699429726
Turn Over
21801161
Other In come
524937
Accretion/Desertion to shock

TOTAL 721755824

46
EXPENDITURE

Manufacturing Expenses 12097686

Personnel Expenses 17150981

Administrative Expenses 618874371

TOTAL 648123038

Profit before Finance Charges, Depreciation & 73632786

Taxation

Less : Finance charges 16491369

Profit before Depreciation & Taxation 57141417

Less : Depreciation 2124497

Profit before Taxation 55016918

Less : Provisions for Taxation 16809354

(a) Income Tax 3856049

(b) Fringe benefit tax 0

Add/Less Deferred Tax Asset/Liability 1160261

TOTAL 33191254

BALANCE SHEET AS ON MARCH 31, 2012

Schedule As on march 31,2012

I. Source of funds

(1) Shareholders funds

32192000
(A) Capital
168223981
(B) Reserves
57524000
(C) Share allotment money

(2) Net current liabilities 29722227

(3) Current liabilities 640000516

TOTAL 927662724

47
II. Application of funds

(1) Fixed assets

67091194
(A)Tangible assets
9993151
(B) Intangible assets
338005
(C) Loans and advances

(D) Capital work in progress 3421540

(2) Current assets, loans and advances

514956753
(A) Inventories
249805856
(B) Sundry debtors
55309392
(C) Cash and bank balances
26284938
(D) Loans & advances 461895
NET current assets

TOTAL 927662724

PROFIT N LOSS AS ON MARCH 31, 2012

Schedule As on march 31, 2012

INCOME

Turn Over 1228708974

Other In come 4112033

Accretion/Desertion to shock 125157646

TOTAL 1357978653

EXPENDITURE
134981853
Manufacturing Expenses
26518732
Personnel Expenses

TOTAL 161500585

48
Profit before Finance Charges, Depreciation & 83144983
Taxation
42948477
Less : Finance charges
40196506
Profit before Depreciation & Taxation
5473092
Less : Depreciation
34723414
Profit before Taxation

Less : Provisions for Taxation

26142075
(a) Income Tax
990785
Add/Less Deferred Tax Asset/Liabilities

TOTAL 57590554

49
50
51
Balance Sheets and Profit & Loss Statements of Raghuvamsi Pvt. Ltd.

52
BALANCE SHEET AS ON MARCH 31, 2010

Schedule As on march 31, 2010

I. Source of funds

(1) Shareholders funds

16746600
(A) Capital
590475
(B) Reserves
1680000
(C) share allotment money

(2) Loan funds

(A) Secured loans 25361218

(B) Unsecured loans 12990483

TOTAL 57368776

II. Application of funds

(1) Fixed assets

38594750
(A) Gross blocks
9586815
(B) Less : Depreciation
29007935
(C) Net block

(2) Investments 1000

(3) Current assets, loans and advances

9444873
(A) Inventories
18388963
(B) Sundry debtors
603310
(C) Cash and bank balances 8308260
(E) Loans & advances 7887281
Less : current liabilities

TOTAL 57368776

PROFIT N LOSS AS ON MARCH 31, 2010

Schedule As on march 31, 2010

53
INCOME

Turn Over 59794835

449546
Other In come
1283520
Accretion/Desertion to shock

TOTAL 61527902

EXPENDITURE
9991134
Manufacturing Expenses
2030565
Personnel Expenses
2351540
Administrative Expenses

TOTAL 12573239

Profit before Finance Charges, Depreciation & 7271529

Taxation
3839642
Less : Finance charges
3431887
Profit before Depreciation & Taxation
1794421
Less : Depreciation
1637466
Profit before Taxation

Less : Provisions for Taxation

265000
(a) Income Tax
276281
(b) Fringe benefit tax 505710

Add loss from last year

TOTAL 590475

BALANCE SHEET AS ON MARCH 31, 2011

Schedule As on march 31, 2011

54
I. Source of funds

(1) Shareholders funds

16746600
(A) Capital
2488500
(B) Reserves
1680000
(C)Share application money

(2) Loan funds

20800000
(A) Secured loans
17400000
(B) Unsecured loans

TOTAL 59115100

II. Application of funds

(1) Fixed assets

40594800
(A) Gross blocks
11466900
(B) Less : Depreciation
29107900
(C) Net block

(2) Investments 1000

(3) Current assets, loans and advances

9625000
(A) Inventories
20145000
(B) Sundry debtors
94000
(C) Cash and bank balances
7929000
(D) Loans & advances
7840000
Less : current liabilities &

Provisions

TOTAL 59115100

PROFIT N LOSS AS ON MARCH 31, 2011

Schedule As on march 31, 2011

INCOME

Turn Over 64000000

Other In come 1258100

55
Accretion/Desertion to shock 6000000

TOTAL 88741900

EXPENDITURE
10718900
Manufacturing Expenses
6606000
Personnel Expenses
3084000
Administrative Expenses

TOTAL 20408900

Profit before Finance Charges, Depreciation &

Taxation 8253000

Less : Finance charges 3655000

Profit before Depreciation & Taxation 4598000

Less : Depreciation 1800000
Profit before Taxation
2698000
Less : Provisions for tax

Income Tax 800000

TOTAL 1898000

BALANCE SHEET AS ON MARCH 31, 2012

Schedule As on march 31, 2012

56
I. Source of funds

(1) Shareholders funds

18426500
(A) Capital
1865936
(B) Reserves

(2) Loan funds

28083967
(A) Secured loans
19807055
(B) Unsecured loans
512483
(3) Deferred tax liability
30442131
(4) Other liabilities

TOTAL 102138072

II. Application of funds

(1) Fixed assets

35743383
(A) Gross blocks
1000
(2) Investments

(3) Current assets, loans and advances

(A) Investments 2900000

(B) Inventories 24547739

(C) Sundry debtors 34312372

(D) Cash and bank balances 48537

(E) Other current assets 3097176
(F) Loans and advances 1487864

TOTAL 102138072

PROFIT N LOSS AS ON MARCH 31, 2012

Schedule As on march 31, 2012

57
INCOME
57176277
Turn Over
1168669
Other Income

TOTAL 58344946

EXPENDITURE
48200537
Manufacturing Expenses
5197285
Personnel Expenses
5300974
Administrative Expenses

TOTAL 58698796

Profit before Finance Charges, Depreciation & 77111662

Taxation
4580779
Less : Finance charges
2530883
Profit before Depreciation & Taxation
2046598
Less : Depreciation
484285
Profit before Taxation

Less : Provisions for Taxation

26600
(a) Income Tax
344668
(b) Fringe benefit tax

TOTAL 113017

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