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Financial Management CIA-1.2

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FINANCIAL MANAGEMENT

CIA1.2

SUBMITTED TO: Dr. NIRAKAR NATH PANDEY


SUBMITTED BY: ARNAV CHANDNA  
Introduction to our business –
Our textile brand “SYMP” is an upcoming textile brand trying to make a name in the newly
developing sports craze in India. The sportswear market was valued at over 8 Billion $ in 2019,
which was 1.5 Billion $ raise from the previous year. An overall exponential rise in the market which
has been witnessing since 2015. This is almost entirely driven by 15% growth. This is a huge chance
as the sports culture has been picking In India. The Indian textile industry is one of the country's
oldest industries, going back millennia. Today, the textile sector accounts for 14% of total industrial
output, 30% of total exports, 4% of India's GDP, and is the second-largest source of employment
after agriculture.

The model for profit making will be unique and the clothes we sell be different on the human’s skin.
We will introduce different types of clothing based on the sport. So basically, we will focus on the
sport played and material. As sports is slowly becoming an essential part of everyone’s life and
sports workouts cannot be done in regular clothes. We are focusing on the sweat winking fiber and
actually the clothes prove to be useful. The rising economy and shifting lifestyle choices have forced
Indian consumers to become more health-conscious and incorporate new health and wellness habits
into their already hectic lives. The large multinational companies, rightly dubbed the "Big Four" -
Reebok, Adidas, Nike, and Puma — have long dominated the Indian sportswear industry.
The company will require funding for all the following purposes: Collection prototype, Product
development, website/app development.
 Development Team
 Marketing Team
 Raw Materials
 Research and Development cost
 Licenses
 Working Capital
 Testing Team
 Office Space
 Manufacturing Unit
 Customer Service center

SYMP is just a brand which is launching slowly in only 2 cities. The company will focus on raising
money through Equity and Debt Financing through the medium of angel investors, small
venture capitalists and Loans.

Internal Equity – This is a type of equity where it is primarily owned by the Founder/Owners, their
spouses and family members and employees of the organization. This will be used at the primary
financing method to raise internal equity.

External Equity – The company here will raise equity financing from other business, investors,
government, public, venture capital and any other sources. This will be the way used to raise the
external source of equity which will be helpful for the business during its initial operations.

Internal Debt – The company will take loans from family members, close relatives or the employees,
borrowings from other sources. Also called as internal financial obligations.

External Debt – Business will take debt from other business. There are different typed of debt
provided by government. Basically commercial banks is what we are talking about. SIDBI, provides
loan under stand up India. Repayment of this loan can be upto seven years.
Factors to keep in mind while constructing capital structure –
1. When the company is raising through equity the business does not have to pay back the
money, but when we are raising money through debt there is a fixed period of time where the
business has to repay to the creditor.
2. Because the unpredictability of a company's profitability is higher, a company with high
business risk prefers to maintain low debt levels. The larger the debt proportion, the greater
the company's financial risk in terms of fixed costs and timely repayment of principle. My
business is a high-risk high reward business.
3. A company's earning capacity should allow it to produce enough income to cover its cost of
capital and fund future development. Because debt holders are guaranteed a set rate of return
and repayment of principle during the maturity term, the cost of equity is often greater than
the cost of debt.
4. Interest paid on the loan is tax deductible, increasing earnings. However, because it is a start-
up, it will have a lower creditworthiness, making it harder to acquire cash through loans.
Despite this, the firm was able to raise Rs 5 crore through loans.
5. Financial leverage, often known as "trading on equity," is the use of fixed-income securities
such as debt and preference capital in conjunction with owners' equity in the capital structure.
In terms of financial considerations, this is the most crucial decision.
6. The capital structure will be directly influenced by management's attitude toward keeping
control of the firm. Existing shareholders may not support the issuance of new equity shares
if they desire to keep their stake in the firm the same. The interest and holding over the firm is
reduced when new equity shares are issued.
7. The current taxation system favors debt over equity capital since interest on bonds is a tax-
deductible cost, whereas dividends are taxed. Although it is impossible to predict future
changes in tax rates, there is little doubt that they will be reduced.
Division of Capital –

Equity/Debt Source of Funding Money Raised


Internal Equity Savings 2 Crores
Family Members 1 Crore
External Equity Venture Capitalist 5 Crores
Angel Investors 5 Crores
Internal Debt Loan from personal sources 1 Crore
External Debt Bank 3 Crore
SIDBI 1 Crore
TOTAL 18 Crores

Capital Structure of SYMP

Period Instrument Authorized Issued -PAIDUP-


Capital Capital
From To (Rs. cr) (Rs.cr) Shares Face Capital
Value (Rs. Cr)
2020 2021 Equity Share 19.8 13.00 1,30,00,000 10.0 13.00

DEBT AMOUNT (in Rs Cr)


LONG TERM DEBT 5 Cr.
Under Armour’s mission is to make all athletes better through passion, design and the relentless
pursuit of innovation. Founded in 1996 by former University of Maryland football player Kevin
Plank, Under Armour is driven by a passion for high performance clothing – engineered to keep
athletes cool, dry and light throughout the course of a game, practice or workout. The technology
behind Under Armour’s diverse product assortment for men, women and youth is complex, but the
program for reaping the benefits is simple: wear HeatGear when it’s hot, ColdGear when it’s cold,
and AllSeasonGear between the extremes.

CAPITAL STRUCTURE OF UNDER ARMOUR


Period Instrument Authorized Issued -PAIDUP-
Capital Capital
From To (Rs. cr) (Rs.cr) Shares Face Capital
Value (Rs. Cr)
2020 2021 Equity Share 11.2 10 50,00,000 5.0 10
COMPARISION –
If used in the correct manner, debt and equity can boost the company’s market value while lowering
its costs. Underarmour India is in a position in this country that it doesn’t have only debt and consists
of only equiy. Too much debt, on the other hand, raises the financial risk to shareholders and reduces
the required return on equity. Debt securities often raise risk, but equity securities lower risk. Risk
may be evaluated to some extent using ratios, measurement, gearing, and time — interest earned.
SYMP’s capital structure comprised both debt and equity, whereas Underarmour’s capital structure
solely included stock. It's conceivable that they don't need as much debt as our firm did, thus
UnderArmour didn't factor debt into their capital structure.

DEBT TO EQUITY RATIO

SYMP: 5/13 = 0.38.


The debt to equity ratio is significantly different for various sector. Financial experts have a
threshold of the D/E ratio not exceeding 2.0. Underarmour India doesn’t have a D/E ratio because of
zero debt. The cost of the debt depends on how the company is performing financially. A company
with a AAA rating can borrow money at relatively cheap interest rates. Meanwhile, a high-risk firm
with a lot of debt may have to pay 15% or more in borrowed capital. For Symp the interest rate
would be 12.5%
p.a. and underarmour didn’t raise any debt. Interest on loan has to be payed irrespective of the
Profit/Loss of the company. Our finance manager calculates the cost of equity by taking into account
the dividend percentage and projected capital gains for equity shareholders. A firm with a good
credit rating has more flexibility in adjusting funding sources upwards or lower in response to
substantial changes in funding requirements than one with a bad credit rating.
Bibiliography –

1. Factors Affecting Capital Structure Decisions. (2019, February 4). Essays, Research Papers
and Articles on Business Management.
https://www.businessmanagementideas.com/financial-management/capital-structure-
decision/factors-affecting-capital-structure-decisions/18907
2. Under Armour Inc C (UA) Balance Sheet - Investing.com India. (2021, August 12).
Investing.com India. https://in.investing.com/equities/under-armour-c-balance-sheet
3. Wikipedia Contributors. (2021, August 9). Under Armour. Wikipedia; Wikimedia
Foundation. https://en.wikipedia.org/wiki/Under_Armour

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