CHAPTER -1 INTRODUCTION TO INDUSTRY

COMPANY PROFILE

INDUSTRY PROFILE

The tyre industry has evolved from the more basic cross ply to the more sophisticated radial

tyres. Nylon cords that impart low weight and additional strength to the tyres have also replaced

Cotton ply. This industry is strongly linked to the automobile sector. This industry is also driven

by agricultural and infrastructural activity that takes place in the region, as these two have an

impact on the transport sector.

India Vs Global

The global tyre market currently is estimated at USD 70 billion while the Indian market is

around Rs. 100 million. The global market is dominated by Goodyear-Sumitomo with a share of

22%. On the other hand, the domestic industry is dominated by MRF Ltd. Several mergers and

acquisitions have characterized the global market, in the recent past. This is essentially to acquire

technology, gain wider access to markets and be competitive. Indian players are also

reengineering their businesses and looking at strategic tie-ups in this segment.

In terms of technology, radial tyre usage has been catching up at a quick pace in the global

market. Almost all the automobile segments have shifted to radial tyres and the usage of cross

ply is restricted to trucks and buses only. On the other hand, in the domestic market, the radial

tyres are being used only in the passenger car segment while the rest of them still stick to the

cross ply variety. This is because of the lower price of cross ply and its re-treadability. In

addition, the poor quality of roads in India restricts the use of such tyres.

CURRENT SCENARIO

PRICING SCENARIO

Pricing is influenced by the demand. Since the tyre demand has not significantly increased in the

last one year, many of the tyre companies have surplus stocks. Hence in the last 2-3 months the

tyre companies are offering discounts between 20 to 40 percent to car manufacturers, but the car

companies are trying to squeeze more discounts. The cheap imports of non-radial tyres from

China are also adding to the present woos of these tyre manufacturers.

EXIM SCENARIO

The export market for India has been predominantly to the USA that accounts for nearly 30% of

exports from the country. These are mostly of the cross ply variety. However, of late India’s

share in the US market is being threatened by China and Japan. These two countries are able to

offer prices that are lower than that offered by Indian manufacturers. In addition, these two

nations are logistically better placed than India when it comes to exporting to the USA. Domestic

tyre manufacturers are also facing threat from imports from China and South Korea. The landed

cost of tyres from China is lower than the Indian price by 30%. In addition, tyres from South

Korea are imported at 30% customs duty while from other countries the duty levied is 35%. Thus

in both cases the domestic tyre manufacturers are feeling the heat.

GOVERNMENT POLICIES

The recent budget policy of the government has also not brought much relief to the tyre

manufacturers. The major issues of concern are high import duty on raw materials, ban on import

of used tyres, lack of exemption in import duty for steel and polyester tyre cords (currently being

imported) and imports of tyres from South Korea at lower duty.

CRYSTAL GAZING

The future is expected to see many strategic alliances among the domestic and global players to

enable them to have access to latest technology and expand their distribution network. A better

distribution will also ensure easy availability. The introduction of newer auto models will

significantly have a bearing on the tyres demand. The tyre companies will also be looking for tie-

ups with the OEM’s for better stability and long-term relationship. For instance, the international

player Bridgestone has a tie-up with Tatas for supply of tyres for its model ‘Indica’. Bridgestone

has entered the Indian market in association with Associated Cement Companies and has set up a

manufacturing plant at Kheda in Madhya Pradesh. Hyundai’s associate tyre manufacturer is

reported to set up operations at Sriperumbudur, in Tamil Nadu.Other multinational tyre

companies are also likely to enter the Indian market viz. Michelin with J.K.Tyres and Pirelli of

Italy, with Birla Tyres.

Birla Tyres was first established in 1991, as part of Kesoram Industries Limited. It then

collaborated with world-class tyre manufacturer Pirelli, in the production and development of its

tyres. Since then, Birla Tyres has built a solid reputation for quality and is now recognised as one

of the best tyre manufacturers around.

Kesoram Industries is a dynamic company with businesses in the fields of cement, rayon yarn,

spun pipes and heavy chemicals.

NETWORK EXPANSION

We have over 170 sales depots to meet every customer's needs. Find our new office locations at

Shankagiri, Panvel, Secunderabad, Daltongunge and Siwan.

INFRASTRUCTURE

We equip our production facilities with the latest technology to deliver the quality and reliability

Birla Tyres is known for. Our factory at Laksar, Uttrakhand, has a production capacity of over 44

lakh truck per year.

CHAIRMAN'S MESSAGE

We continue to operate in certain sectors where our customers trust our strategic vision. Cement

and Tyres, the two significant businesses of Kesoram have seen a mixed year. To meet the

challenges of these dynamic markets and to continue on our journey of success, we have

necessary foresight, strategy and preparedness. "

Birla Tyres was first established in 1991, as part of Kesoram Industries Limited. It then

collaborated with world-class tyre manufacturer Pirelli, in the production and development of its

tyres. Since then, Birla Tyres has built a solid reputation for quality and is now recognised as one

of the best tyre manufacturers around.

Kesoram Industries is a dynamic company with businesses in the fields of cement, rayon yarn,

spun pipes and heavy chemicals.

NETWORK EXPANSION

We have over 170 sales depots to meet every customer's needs. Find our new office locations at

Shankagiri, Panvel, Secunderabad, Daltongunge and Siwan.

INFRASTRUCTURE

We equip our production facilities with the latest technology to deliver the quality and reliability

Birla Tyres is known for. Our factory at Laksar, Uttrakhand, has a production capacity of over 44

lakh truck per year.

MILESTONES

Like our products, Birla Tyres remains resilient and keeps forging ahead, always ready to

explore the uncharted.

The first plant in Balasore was set up in collaboration with world-renowned tyre

manufacturer Pirelli in 1991.

The new high-tech factory at Laksar-Haridwar, Uttaranchal, was built in a record time of

10 months. This modern Rs. 2300 crore Haridwar factory today has a combined

production capacity of over 44 lakh truck tyres per year.

The company enjoyed an increase in turnover of Rs. 1947.22 crore in 2008 to Rs.

2849.61 crores in 2009. We are now looking ahead to reach a target of Rs. 5500 crore.

The Haridwar plant attained a total projected investment of Rs. 2300 crores.

In 2009, our export turnover exceeded Rs. 375 crore. Birla Tyres now exports to over 50

countries.

Our robust domestic network consists of 10 zonal offices. We have also grown our sales

depots from 80 to more than 170 points to meet every customer demand.

We have more than 170 new sales engineers at major locations to provide 24-hour claim

settlements.

With an expanding network of over 3200 dealers, Birla Tyres is growing from strength to

strength. We are constantly working on new and attractive schemes to increase dealer

benefits.

ACCREDITATIONS

International experts have recognised how Birla Tyres' pursuit of quality has created positive

impact for its stakeholders. Take a look below and see our progress in the areas of productivity,

environmental impact, product quality and organizational change.

BIAS

XPL

Extra thick casing for superior load carrying capacity backed by additional warranty of crown

concussion. Reinforced bead area to withstand toughest road conditions.

 

XET DLX

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

SAMSON

Unique straight-lug design & special tread compound for better road handling & mileage.

Reinforced casing for extra load carrying capacity.

 

BT 112 PLATINUM

Specially designed tread pattern for high mileage & excellent traction on metalled and

uninstalled roads. Heavy duty casing for multiple retreads.

 

BT 112 PLUS

Unique cross lug designs and extra pattern depth. Special tread compound for better mileage.

Reinforced clinch area for better torque resistance. Premium casing for additional retreads.

 

BT 339 PLATINUM

Extra deep tread and increased rubber volume for better traction and mileage. Ribs stabilised

with high tie-bars to reduce tread movement and rib sinking. Optimised foot-print and higher OD

to reduced ground pressure. Excellent casing for multiple retreads. Trouble free service.

 

ZETA + DLX

Supreme tread mileage due to extra pattern depth and super abrasion resistant tread compound.

Wider sidewall protection to prevent sidewall damage. Premium casing for additional retreads.

 

ROADMILER

Extra deep premium tyre for extra mileage, state-of the- art sinusoidal pattern for uniform wear,

anti- rib sinking and excellent steering control. Additional advantage for power steering

application. Very attractive and effective buttress design for cooler running. Premium casing for

additional retreads.

 

BT 339 +

ZYNO DLX

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

 

ULTRA PLUS

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

 

BT ULTRA

BT 112 GOLD

Specially treated casing for more retreads. Rear fitment lug design suitable for long haulage.

Higher tread depth for extra mileage.

TARZAN DLX

High mileage straight lug tyre for rear fitment. Suitable for long hauls. Special tread compound

to resist lug chipping. Specially treated casing for more retreads.

BT 111

High mileage lug tyre for rear fitment. Deep tread pattern provides excellent traction and long

service. Strong casing for more retreads.

 BT 112

Deep tread pattern provides excellent traction and longer life. Special tread compound designed

against chipping & chunking. Reinforced nylon casing offers durability & multiple retreads.

 

RAFTAR

TISON DLX

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

 

BT 339

Premium depth five rib design. Rugged shoulder for resisitance to damage due to road hazards.

Abrasion resistant tread compound for more mileage.

BT 339 N

BT 339*

 

TIRIB DLX

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

BT 336

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

BT 334

Five rib premium depth tyre for front fitment. Specially designed 'Z' tread pattern for superb

steering control and excellent mileage.

 

RUSTOM

Deep tread pattern provides excellent traction and longer life. Special tread compound designed

against chipping & chunking. Reinforced nylon casting offers durability & multiple retreads.

BT 334 *

Five rib premium depth tyre for front fitment. Specially designed 'Z' tread pattern for superb

steering control and excellent mileage.

BT-MAX

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

ZING

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

axle.

ZINA

Optimised tread design for easy steering and even wear. Excellent road holding and steering

capability. Reinforced casing for impact & multiple retreads.

SUPER BT

Higher depth for longer life and more mileage. Special cut resistance compound, better tractions,

less slippage & self cleaning, robust tread design for on and off the road usage.

Passenger Car

Bias

BT 339

Premium depth five rib design. Rugged shoulder for resisitance to damage due to road hazards.

Abrasion resistant tread compound for more mileage.

BT 444

Specially designed tread pattern for extra grip and steering control.

BT 446

Extra deep tread for better mileage.

THUNDER

Motor Cycle

Bias

ROADMAXX BT R-41

Rear tread pattern and uniform tread groves for excellent grip

ROADMAXX BT F-21

Longest life and high speed stability

ROADMAXX BT F-81

Specially made for powerful braking and wet grip

ROADMAXX BT R-42

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

ROADMAXX BT R-81

Longest mileage and Heavy duty casing

ROADMAXX BT R-82

Specially designed for high speed stability and wet grip

INTRODUCTION TO CAPITAL STRUCTURE

CAPITAL: Capital the dictionary meaning of the term capital is wealth capital is the total

account invested in business the capital of a business is the claim of the owner to the business is

the claim of the owner to the business. It basicall y refers to total funds invested in any business.

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

determine the proportion in which funds should be raised from different sources as securities. In

this way CAPITAL STRUCTURE decisions are related to the mutual ratio of long term sources

of CAPITAL.

LONG TERM SOURCES: These are the sources from which capital can be made

available for more than three years which can be OWNED & BORROWED funds.

TYPE OF LONG TERM SOURCES: 1. OWNED FUNDS: These are owned by the ,firm Which includes SHARE CAPITAL &

RESERVE &SURPLUS.

2. BORROWED FUNDS: These are the debts taken by the firm on which the firm has to

pay Interest at a fixed rate which includes DEBENTURES & LONG TERM LOANS from

Financial Institutions.

SHARE CAPITAL: The whole CAPITAL is divided in to SHARE of small values. Such as

the whole capital of Re.1000000 is divided in to 10000 shares of Re.100 each.

SHAREHOLDERS: These are the parties who invest in the shares.

DIVIDEND: This is that part of NET PROFIT which is to be distributed to the Shareholders.

TYPES OF SHARES: There are two types of Share EQUITY &PREFERENCE

EQUITY SHARES: These shares are the shares on which Dividend is paid after meeting all

obligations to other parties are repaid only at the time of Winding Up of the company after

meeting the Liability towards all other parties. Equity Shareholders are the Real Owners of the

company. They have Voting Rights & Right to participate directly in the decision making

process of company. Dividend paid is not fixed & company is not bound to pay Dividend.

PREFERENCE SHARES: These shares are like the Debenture because Dividend is paid at

a fixed rate & these shareholders are given Priority over Equity Shareholders (7). But they don’t

have Voting Right but in some special cases right can be given. They are also given priority over

the assets at the time of Winding Up.

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

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

FUNDS.

DEBENTURES: These are the like the Certificate which are basically the

ACKNOWLEDGEMENT OF DEBT issued in the favour of Debenture holder .These can be

SECURED OR UNSECURED. They are paid INTEREST at a fixed rate .It is a kind of

agreement in which all terms & conditions are decided in advance such as lifetime of

Debentures, Rate of Interest etc.

LOANS FROM FINANCIAL INSTITUTES: These are the loans in which Financial

Institutes get interest on decided rate. In this an agreement is set up in advance.

COST OF CAPITAL: This is the minimum “Rate of Return” the company has to pay to

various suppliers of funds. As Dividend to Shareholders & Interest to Debt providers.

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

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

TWO BASIC PURPOSE: Further two are the basic aims considered while deciding the

ratio:

“MAXIMUM VALUE OF FIRM”

“MINIMUM COST OF CAPITAL”

QUALITIES OF A SOUND OR OPTIMUM CAPITAL STRUCTUREFollowing are the FEATURES of an OPTIMAL Capital Structure:

1. SIMPLICITY: So far as possible, the Capital Structure of the firm should be simple. It

means that, there must be minimum number of securities to be issued. If it becomes complicated

in beginning, it can be difficult to maintain in future.

2. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be changed

7as & when needed. As New sources can be added to Capital Structure at the time of expansion

& can be repaid easily at the time of reduction.

3. MINIMUM COST OF CAPITAL : As described earlier that this is One of the ultimate aims

of the Financial Manager. The Cost of Capital Is In the form of Interest & Dividend. Thus the

combination should be the Cheapest as possible and Average cost of capital is to be considered.

4. ADEQUATE LIQUIDITY: The term Liquidity refers to the firm’s Ability to meet

itsSHORT term OBLIGATIONS & DAY TO DAY working. There is an inverse relation

between LIQUIDITY & PROFITABILITY. So a manager should be able to set up that Ratio

which balances the both.

5. MINIMUM RISK: Risk is one of the most important factors to be considered. As the more

use of Borrowed Funds will increase the Risk As they have to be paid before the claims of

shareholders. So Risk & Return must be balanced(15).

6. LEGAL REQUIREMENTS: Capital Structure should be maintained in Conformity with the

Legal Requirements of the country. As under the Capital Issue Control Act, the ratio of Debt to

Equity must be 2:1 in any firm(5). Similarly, related to Interest Rate on Debentures. Thus all such

kinds of Rules to be studied well.

7. MAXIMUM RETURN : Capital Structure must facilitate maximum return to the Investors.

and always Return on Capital must be greate than Cost of capital. Only than any firm can

survive.

8. CONTROL: The Control of the firm lies in the hands of the Shareholders because they are

having the voting rights in the meetings of the Companies. But in some special cases, Preference

Shareholders & Debenture holder may also get these rights(13) .So it should be considered that

control must lie in few hands for Better control.

In finance, capital structure refers to the way a corporation finances its assets through some

combination of equity, debt, or hybrid securities. A firm's capital structure is then the

composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and

$80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of

debt to total financing, 80% in this example, is referred to as the firm's leverage. In reality,

capital structure may be highly complex and include dozens of sources. Gearing Ratio is the

proportion of the capital employed of the firm which come from outside of the business finance,

e.g. by taking a short term loan etc.

The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the

basis for modern thinking on capital structure, though it is generally viewed as a purely

theoretical result since it assumes away many important factors in the capital structure decision.

The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This

result provides the base with which to examine real world reasons why capital structure is

relevant, that is, a company's value is affected by the capital structure it employs. Some other

reasons include bankruptcy costs, agency costs, taxes, and information asymmetry. This analysis

can then be extended to look at whether there is in fact an optimal capital structure: the one

which maximizes the value of the firm.

CAPITAL STRUCTURE IN A PERFECT MARKET:-

Assume a perfect capital market (no transaction or bankruptcy costs; perfect information); firms

and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't

affected by financing decisions. Modigliani and Miller made two findings under these

conditions. Their first 'proposition' was that the value of a company is independent of its capital

structure. Their second 'proposition' stated that the cost of equity for a leveraged firm is equal to

the cost of equity for an unleveraged firm, plus an added premium for financial risk. That is, as

leverage increases, while the burden of individual risks is shifted between different investor

classes, total risk is conserved and hence no extra value created.

Their analysis was extended to include the effect of taxes and risky debt. Under a classical tax

system, the tax deductibility of interest makes debt financing valuable; that is, the cost of capital

decreases as the proportion of debt in the capital structure increases. The optimal structure, then

would be to have virtually no equity at all.

CAPITAL STRUCTURE IN THE REAL WORLD

If capital structure is irrelevant in a perfect market, then imperfections which exist in the real

world must be the cause of its relevance. The theories below try to address some of these

imperfections, by relaxing assumptions made in the M&M model.

TRADE-OFF THEORY

Trade-off theory allows the bankruptcy cost to exist. It states that there is an advantage to

financing with debt (namely, the tax benefit of debts) and that there is a cost of financing with

debt (the bankruptcy costs of debt). The marginal benefit of further increases in debt declines as

debt increases, while the marginal cost increases, so that a firm that is optimizing its overall

value will focus on this trade-off when choosing how much debt and equity to use for financing.

Empirically, this theory may explain differences in D/E ratios between industries, but it doesn't

explain differences within the same industry.

PECKING ORDER THEORY

Pecking Order theory tries to capture the costs of asymmetric information. It states that

companies prioritize their sources of financing (from internal financing to equity) according to

the law of least effort, or of least resistance, preferring to raise equity as a financing means “of

last resort”. Hence: internal financing is used first; when that is depleted, then debt is issued; and

when it is no longer sensible to issue any more debt, equity is issued. This theory maintains that

businesses adhere to a hierarchy of financing sources and prefer internal financing when

available, and debt is preferred over equity if external financing is required (equity would mean

issuring shares which meant 'bringing external ownership' into the company. Thus, the form of

debt a firm chooses can act as a signal of its need for external finance. The pecking order theory

is popularized by Myers (1984)[1] when he argues that equity is a less preferred means to raise

capital because when managers (who are assumed to know better about true condition of the firm

than investors) issue new equity, investors believe that managers think that the firm is

overvalued and managers are taking advantage of this over-valuation. As a result, investors will

place a lower value to the new equity issuance..

AGENCY COSTS

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

Asset substitution effect: As D/E increases, management has an increased incentive to

undertake risky (even negative NPV) projects. This is because if the project is successful,

share holders get all the upside, whereas if it is unsuccessful, debt holders get all the

downside. If the projects are undertaken, there is a chance of firm value decreasing and a

wealth transfer from debt holders to share holders.

Underinvestment problem: If debt is risky (e.g., in a growth company), the gain from

the project will accrue to debtholders rather than shareholders. Thus, management have

an incentive to reject positive NPV projects, even though they have the potential to

increase firm value.

Free cash flow: unless free cash flow is given back to investors, management has an

incentive to destroy firm value through empire building and perks etc. Increasing

leverage imposes financial discipline on management.

OTHER

The neutral mutation hypothesis—firms fall into various habits of financing, which do

not impact on value.

Market timing hypothesis—capital structure is the outcome of the historical cumulative

timing of the market by managers.

Accelerated investment effect—even in absence of agency costs, levered firms use to

invest faster because of the existence of default risk.

ARBITRAGE

Similar questions are also the concern of a variety of speculator known as a capital-structure

arbitrageur, see arbitrage.

A capital-structure arbitrageur seeks opportunities created by differential pricing of various

instruments issued by one corporation. Consider, for example, traditional bonds and convertible

bonds. The latter are bonds that are, under contracted-for conditions, convertible into shares of

equity. The stock-option component of a convertible bond has a calculable value in itself. The

value of the whole instrument should be the value of the traditional bonds plus the extra value of

the option feature. If the spread (the difference between the convertible and the non-convertible

bonds) grows excessively, then the capital-structure arbitrageur will bet that it will converge.

FACTORS AFFECTING CAPITAL

STRUCTURE

Initially, at the time of promotion of the company, capital structure plan is to be prepared very

carefully. First of all, the objective of the capital structure should be determined & then the

financing decisions should be taken accordingly. Company has to arrange for funds for its

activities continuously. Therefore, capital structure decisions have to be taken on continuous

basis. Following factors must be taken in to consideration while taken decisions regarding the

capital structure:

.

1. SIZE OF BUSINESS: Small business has to face great difficulty in raising long Term

finance. If, it is all able to get Long Term Loan, it has to accept unreasonable conditions & has to

pay high interest. Therefore, While preparing capital structure plan, company should make

proper use of its size.

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

case of private companies, sole traders & partnership firms because in such businesses ,

ownership is widely spread. Therefore, control can’t be restricted.

3. STABILITY OF EARNINGS: The sale & stability of income affects the quantum of

leverage. The companies which have stability in income sales can use more of debt in their

capital structure. The industries producing consumer goods face more fluctuations but in the case

of public utility institutions are safer. Thus stability is a good factor for deciding the ratio of

funds.

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

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

capital.

5. STAGE OF LIFE CYCLE: Stage of life cycle of a firm is also an important factor. As

if a firm is in the initial stage then there are more chances of failure so share capital is a good

option.

6. CORPORATION TAX: Due to the current provision of tax, the use of debt is cheaper

as compared to share capital. On the other hand, if the shareholders fall in low income tax

bracket, they will like to get high dividend & in such case the company will meet its financial

requirement from external source.

7. STATE REGULATION: Capital Structure should be maintained in Conformity with the

Legal Requirements of the country(32). As under the Capital Issue Control Act, the ratio of Debt

to Equity must be 2:1 in any firm. Similarly, related to Interest Rate on Debentures. Thus all such

kinds of Rules to be studied well.

8.STATE OF CAPITAL MARKET: Capital Structure decisions of the company are also

affected by the state of capital Market. Sometimes Company wants to issue ordinary shares but

investors are not ready to invest due to high risk(34) .In such a situation, company should issue

other securities for raising the funds, but not the ordinary share.

9.ATTITUDE OF MANAGEMENT: The Attitude of management towards the factors

affecting the capital structure also affects the Capital Structure. Some managers do not want to

bear risk. In such case ordinary share capital should be used in place of debt & if managers are

not in a situation to bear risk then borrowed funds should be more.

10.TRADING ON EQUITY: To arrange funds for acquiring company’s assets, the use of Fixed

Cost sources like Preference share capital & debt funds is called as Trading On Equity or

Financial Leverage. If the return on assets acquired from the debt funds is greater than the cost of

debt, Earning per Share will increase. Therefore, a company should use such sources of funds

which will lead to increase in EPS.

11. LEVERAGE RATIO OF OTHER FIRMS IN THE INDUSTRY: While taking capital

structure decisions, debt-equity ratio of other firms in the industry should be compared. Debt-

equity ratio of the industry acts as a standard. If debt-equity ratio of the firm is not similar to the

debt-equity ratio of the Industry, its reasons should be ascertained.

12. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be

changed as & when needed. As New sources can be added to Capital Structure at the time of

expansion & can be repaid easily at the time of reduction.

13. CONTROL : The Control of the firm lies in the hands of the Shareholders because they are

having the voting rights in the meetings of the Companies. But in some special cases, Preference

Shareholders & Debenture holder may also get these rights .So it should be considered that

control must lie in few hands for Better control.

14. FLEXIBILITY: The Capital Structure of the firm should be flexible so that it can be

changed as & when needed. As New sources can be added to Capital Structure at the time of

expansion & can be repaid easily at the time of reduction.

Flexibility in the capital structure depends upon the following:

(1) Flexibility in the Fixed Assets

(2) Restrictive conditions in the debt agreement

(3) Terms of redemption

(4) Debt Capacity

15.FLOATATION COST: These are the costs incurred at the time of issue of the securities .

These costs include commission, stationary & other expenses. Normally the cost of debt is less

than the cost of shares. Therefore, the companies are attracted towards the borrowed funds. If the

amount of issue is increased, the percentage of floatation costs can decrease.

CAPITAL STRUCTURE THEORIES

NET INCOME APPROACH (NI)

According to this approach, the cost of debt and the cost of equity do not change with a change

in the leverage ratio. As a result the average cost of capital declines as the leverage ratio

increases. This is because when the leverage ratio increases, the cost of debt, which is lower than

the cost of equity, gets a higher weightage in the calculation of the cost of capital.

The formula to calculate the average cost of capital is as follows:

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

Where:

Ko is the average cost of capital

Kd is the cost of debt

B is the market value of debt

S is the market value of equity

Ke is the cost of equity

Net Operating income Approach (NOI)(9)

According to this approach:

The overall capitalisation rate remains constant for all levels of financial leverage

The cost of debt also remains constant for all levels of financial leverage

The cost of equity increases linearly with financial leverage

The formula to calculate the cost of capital is Ko=Kd(B/(B+S))+Ke(S/(B+S))

Ko and Kd are constant for all levels of leverage. Given this, the cost of equity can be expressed

as follows:

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

TRADITIONAL OR INTERMEDIATE APPROACH

This approach is midway between the NI and the NOI approach. The main propositions of this

approach are:

The cost of debt remains almost constant up to a certain degree of leverage but rises thereafter at

an increasing rate.

The cost of equity remains more or less constant or rises gradually up to a certain degree

of leverage and rises sharply thereafter.

The cost of capital due to the behaviour of the cost of debt and cost of equity

o Decreases up to a certain point

o Remains more or less constant for moderate increases in leverage thereafter

o Rises beyond that level at an increasing rate.

MM APPROACH

According to this approach, the capital structure decision of a firm is irrelevant. This approach

supports the NOI approach and provides a behavioural justification for it

Additional assumptions of this approach include(10):

Capital markets are perfect. All information is freely available and there are no

transaction costs

All investors are rational

Firms can be grouped into ‘Equivalent risk classes’ on the basis of their business risk

There are no taxes

This approach indicates that the capital structure is irrelevant because of the arbitrage process

which will correct any imbalance i.e. expectations will change and a stage will be reached where

further arbitrage is not possible.

EVALUATING ORGANIZATIONAL

(Birla Tyres) CAPITAL STRUCTURE

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an

important consideration for investing in a company's stock. The strength of a Birla Tyres balance

sheet can be evaluated by three broad categories of investment-quality measurements: working

capital adequacy, asset performance and capital structure. In this article, we'll look at evaluating

balance sheet strength based on the composition of a company's capital structure.

Birla Tyres capitalization (not to be confused with market capitalization) describes the

composition of a company's permanent or long-term capital, which consists of a combination of

debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a

company's capital structure is an indication of financial fitness.

CLARIFYING CAPITAL STRUCTURE RELATED TERMINOLOGY

The equity part of the debt-equity relationship is the easiest to define. In Birla Tyres capital

structure, equity consists of a company's common and preferred stock plus retained earnings,

which are summed up in the shareholders' equity account on a balance sheet. This invested

capital and debt, generally of the long-term variety, comprises a company's capitalization, i.e. a

permanent type of funding to support a company's growth and related assets.

A discussion of debt is less straightforward. Investment literature often equates a company's debt

with its liabilities. Investors should understand that there is a difference between operational and

debt liabilities - it is the latter that forms the debt component of a company's capitalization -

but that's not the end of the debt story.

Among financial analysts and investment research services, there is no universal agreement as to

what constitutes a debt liability. For many analysts, the debt component in a company's

capitalization is simply a balance sheet's long-term debt. This definition is too

simplistic. Investors should stick to a stricter interpretation of debt where the debt component of

a company's capitalization should consist of the following: short-term borrowings (notes

payable), the current portion of long-term debt, long-term debt, two-thirds (rule of thumb) of the

principal amount of operating leases and redeemable preferred stock. Using a comprehensive

total debt figure is a prudent analytical tool for stock investors.

It's worth noting here that both international and U.S. financial accounting standards boards are

proposing rule changes that would treat operating leases and pension "projected-benefits" as

balance sheet liabilities. The new proposed rules certainly alert investors to the true nature of

these off-balance sheet obligations that have all the earmarks of debt.

IS THERE AN OPTIMAL DEBT-EQUITY RELATIONSHIP?In financial terms, debt is a good example of the proverbial two-edged sword. Astute use of

leverage (debt) increases the amount of financial resources available to a company for growth

and expansion. The assumption is that management can earn more on borrowed funds than it

pays in interest expense and fees on these funds. However, as successful as this formula may

seem, it does require that a company maintain a solid record of complying with its various

borrowing commitments.

A company considered too highly leveraged (too much debt versus equity) may find its freedom

of action restricted by its creditors and/or may have its profitability hurt as a result of paying

high interest costs. Of course, the worst-case scenario would be having trouble meeting operating

and debt liabilities during periods of adverse economic conditions. Lastly, a company in a highly

competitive business, if hobbled by high debt, may find its competitors taking advantage of its

problems to grab more market share.

Unfortunately, there is no magic proportion of debt that a company can take on. The debt-equity

relationship varies according to industries involved, a company's line of business and its stage of

development. However, because investors are better off putting their money into companies with

strong balance sheets, common sense tells us that these companies should have, generally

speaking, lower debt and higher equity levels.

CAPITAL RATIOS AND INDICATORS

In general, analysts use three different ratios to assess the financial strength of a company's

capitalization structure. The first two, the so-called debt and debt/equity ratios, are popular

measurements; however, it's the capitalization ratio that delivers the key insights to evaluating a

company's capital position.

The debt ratio compares total liabilities to total assets. Obviously, more of the former means less

equity and, therefore, indicates a more leveraged position. The problem with this measurement is

that it is too broad in scope, which, as a consequence, gives equal weight to operational and debt

liabilities. The same criticism can be applied to the debt/equity ratio, which compares total

liabilities to total shareholders' equity. Current and non-current operational liabilities, particularly

the latter, represent obligations that will be with the company forever. Also, unlike debt, there

are no fixed payments of principal or interest attached to operational liabilities.

The capitalization ratio (total debt/total capitalization) compares the debt component of a

company's capital structure (the sum of obligations categorized as debt + total shareholders'

equity) to the equity component. Expressed as a percentage, a low number is indicative of a

healthy equity cushion, which is always more desirable than a high percentage of debt.

ADDITIONAL EVALUATIVE DEBT-EQUITY CONSIDERATIONSCompanies in an aggressive acquisition mode can rack up a large amount of purchased goodwill

in their balance sheets. Investors need to be alert to the impact of intangibles on the equity

component of a company's ( Birla Tyres ) capitalization. A material amount of intangible assets

need to be considered carefully for its potential negative effect as a deduction (or impairment) of

equity, which, as a consequence, will adversely affect the capitalization ratio.

Funded debt is the technical term applied to the portion of a company's long-term debt that is

made up of bonds and other similar long-term, fixed-maturity types of borrowings. No matter

how problematic a company's financial condition may be, the holders of these obligations cannot

demand payment as long the company pays the interest on its funded debt. In contrast, bank debt

is usually subject to acceleration clauses and/or covenants that allow the lender to call its loan.

From the investor's perspective, the greater the percentage of funded debt to total debt disclosed

in the debt note in the notes to financial statements, the better. Funded debt gives a company

more wiggle room.

Lastly, credit ratings are formal risk evaluations by credit-rating agencies - Moody's, Standard &

Poor's, Duff & Phelps and Fitch – of a company's ability to repay principal and interest on debt

obligations, principally bonds and commercial paper. Here again, this information should appear

in the footnotes. Obviously, investors should be glad to see high-quality rankings on the debt of

companies they are considering as investment opportunities and be wary of the reverse.

A company's ( Birla Tyres ) reasonable, proportional use of debt and equity to support its assets

is a key indicator of balance sheet strength. A healthy capital structure of the star paper mill that

reflects a low level of debt and a corresponding high level of equity is a very positive sign of

investment quality.

NEED OF THE STUDY

Tyre Industry is growing at a very fast speed. Now it is becoming the main part of growth of

Indian economy. Different companies are entered in Tyre industry. The sources of income of

these companies is to sell Tyres at National and international platform . I did my training in

Birla Tyre , So I want to know about the Birla Tyres and to analysis about the Capital structure

of Ratio analysis is the best source. It tells about the ability of payment of liability of company.

Some parameters which I have taken for the research study such as different ratios for analysis &

interpreter for results .

LITERATURE REVIEW

Literature Review is the way to express background of ideas that come to mind during the

research formulation. I asked various employees of the company about the new technological

initiative taken by the company. The project being conducted was "Financial Leverage of

Mindarika Pvt. Ltd on the basis of Debt-Equity Structure & their Impact on Shareholder Wealth

& Profitability”. Once the problem is formulated, the researcher undertakes an extensive

literature review connected with the problem.

CONCEPTUAL LITERATURE:-Conceptual literature is that which relates with concepts and theories. Help from different books

should be taken for different concepts and theories.

1.Malcolm stephens,2004 examines the causes of the reduction in trade finance in South East

Asia countries post-1997 with a particular focus on the role of export credit agencies.It concludes

that while such agencies did not cause or prolong the problem they did not contribute

significantly to a solution.The paper also suggests some implications from events in South East

Asia for both traditional debt-relief mechanisms and for the architecture of the international

financial system.

2.Koven Levit,2004 examines the arrangement is a non-binding, international agreement,it

nonetheless engenders unswerving compliance. This Article unfolds by empirically establishing

sustaind and pervasive compliance among industrialized ECAs. Having documented

compliance,the article then explores why the arrangement breeds such compliance,focusing on

three categories of compliance factors:state interests,international systemic linkages,and the

Arrangement’s architecture.While all factors are undoubtedly part of the compliance puzzle,the

arrangement itself-the nitty gritty of its substsntive and procedural rules-emerges as the integral

piece.

3.Jean-Pierre Chauffour 2005 export insurance and guarantees suggest that publicly

Backed export credit agencies have played a role to prevent a complete drying up of trade

finance markets during the current financial crisis. Given that export credit agencies are mainly

located in advanced and emerging economies, the question arises whether developing countries

that are not equipped with these agencies should establish their own agencies to support

exporting firms and avoid trade finance shortages in times of crisis.

4.Christian Saborowski examines a number of issues requiring attention in the decision

whether to establish such specialized financial institutions. It concludes that developing countries

should consider export credit agencies only when certain pre-requirements in termsof financial

capacity,institutional capability,governance at met.

5.Ahmet I.Soylemezoglu 2006 The arrangement on officially supported Export credits(the

arrangement) is an informal,”gentelmen’s agreement”among industrialized countries export

credit agencies (ECAs).ECAs are officialy supported governmental institutions that provide

financing in support of nationals exports.The arrangement sets specific, highly technical

parameters on the type of financing packages that ECAs may offer to promote national exports,

with the goal of eliminating competition among ECAs and thereby “leveling the playing field”

for exporters.

6.Jun Du examines a rich panel data set, we provide a rigorous analysis of the relationship

between access to external finance, foreign direct investment and the exports of private

enterprises in china. We conclude that, in order to foster the exports of indigenous enterprises,

the elimination of financial discrimination against private firms is likely to be a more effective

policy tool than the reliance on spillovers from multinational firms.

7.Sourafel Girma The export business in India is growing ,whether it is related to goods or

services. The India is a growing consumer hubas well. The contemporary international financial

issues, namely US sub-prime lending, appreciation of Indian currency; growing export and flow

of FIIs investment in India are changing the equation for exporters, bankers, investors and

therefore ECGC. The research study aims at determining how ECGC will be able to fulfill its

objective in the current scenario.

8.Daniele Giovannueei examines increasing participation of relatively inexperienced enterprises

in international trade calls for a concise and jargon-free, general reference to the many ways by

which traders can arrange for payments to be made and the relative merits, of each from a risk

standpoint. The most common methods i.e. letters of credit, are covered in some detail including

examples.

9.Vrajlal K.Sapovadia examines research study aims at determining how ECGC will be able to

fulfill its objective in the current scenario. The research will address studying present level of

ECGC performance and to compare with their counterparts, and to evaluate performance on

various measurable parameters. What shall be the impact of current trend if it continues on

spread sheet and its impact on stakeholders and ECGC ? And finally, to suggest what additional

measure ECGC should take to perform in adversity. The study envisages critical analysis of

various schemes of ECGC vis-à-vis financial performance.

10.Mare Auboin examines the paper discusses the efforts deployed in 2008 and 2009 by various

players, governments, multilateral financial institutions, regional development banks, export

credit agencies, to mobilize greater flows of trade finance to offset some of the “pull-back” by

commercial institutions in the period of acute crisis that has characterized the financial sector in

the past two years. Given that 80 to 90% of trade transactions involve some form of credit,

insurance or guarantee one can reasonably say that supply-side driven shortages of trade finance

have a potential to inflict further damages to international trade. As an institution geared towards

the balanced expansion of world trade, the WTO had been concerned with occurrences of market

tightening throughout this period.

11.Mare Auboin examines efforts deployed by various players, mainly multilateral financial

institutions ,regional development banks, export credit agencies, to mobalize greater flows of

trade finance for developing countries, with a view to help them integrate in world trade. As an

institution geared towards the balanced expansion of world trade, the WTO is in the business of

making trade possible. Its various functions include reducing trade barriers, negotiating and

implementing global trade rules and settling disputes on the basis of the rule of law.

12.Dominic Coppens examines the degree of policy space the WTO leaves its members to

support export credits for non-agricultural goods. In the light of existing case law, it illustrates

that export credit support offered by export credit agencies that aims at complementing the

private trade finance market would in principle be prohibited under the SCM Agreement

13.Ernst Baltecensperger examines this paper endeavors to uncover in how far public export

insurance schemes foster international trade. Based on a gravity equation augmented with

contingency that firms contract defaulting foreign buyers, empirical results suggest that OECD

countries issuing trade credits with generous state guarantees did, during the 1999 to 2005

period, not witness more exports towards politically and commercially more unstable low

income countries. Rather, publically indemnified trade finance has promoted exports, to a

modest degree, towards high and middle income countries, where financial intermediaries and

markets provide practicable alternatives to hedge against payment risks.

14.Andrei A. Levehenko This paper points out the reverse link: financial development is

influenced by comparative advantage. The authors illustrate this idea using a model in which a

country’s financial systems is an equilibrium outcome of the economy’s productive structure:

financial systems are more developed in countries with large financially intensive sectors. After

trade opening demand for external finance and therefore financial development, are higher in a

country that specializes in financially intensive goods. By contrast, financial development is

lower in countries that primarily export goods which do not rely on external finance.

15.Quy Toan Do external finance need of exports and relate it to the level of financial

development. In order to overcome the simultaneity problem, they adopt a strategy in the spirit

of Frankel and Romer (1999). The authors exploit sector-level bilateral trade data to construct,

for each country and time period ,a predicted value of external finance need of exports based on

the estimated effect of geography variables on trade volumes across sectors. Their results

indicate that financial development is an equilibrium outcome that depends strongly on a

country’s trade pattern.

16.Mare Auboin The paper discusses a number of issues related to the treatment of trade credit

internationally, a priori and a posteriori and creditors in the case of default which are currently of

interest to the trade finance community, in particular the traditional providers of trade credit and

guarantees, such as banks, export credit agencies, regional development banks and multilateral

agencies. The paper does not deal with the specific issue of regulation of official insured export

credit, under the OECD arrangement, which is a specific matter left out of this analysis.

18.Nils Herger examines this contribution demonstrates that export credit support in accordance

with the safe haven might still be counter available and actionable. Finally, it is argued that an

exception which can be modified by a subgroup of WTO members, like the safe haven, can do

longer be accepted.

19.Mohd Arif examines an understanding of international financial management is crucial to not

only large MNCs with numerous foreign subsidiaries, but also to the small business engaged in

exporting or importing 75% of the 43300 US. Firms that export have less than 100 employees.

International business is even important to companies that have no intention of engaging in

international business.

20.Yoon Je Cho examines as directed credit programs should be small, narrowly focused and of

limited duration. They should be financed by long term funds to prevent inflation and

macroeconomic instability. Directed credit programs were a major tool of development in the

1960s and 1970s.In the 1980s,

EMPIRICAL LITERATURE:-Empirical literature consists of study made by other in the same field. The published data in

newspapers books & magazines available for discussion with people of organization.

BOOKS:

Kothari, C.R “Quantitative Techniques”: Knowledge about the quantitative techniques

of scaling the data & different types of research and different types of research designs.

Kothari C.R. “Research Methodology & Techniques”: Knowledge about research

process, sample design, research design etc. The information regarding the basics of

research and research methodology, what are the different types of research designs,

problem statement, sources of data collection and methods of data collection are given in

this section.6.

Gupta S.K “Management Accounting”: Page20.1-20.20,Knowledge about leverages

meaning and type, Financial Leverage or Trading on equity, Impact of financial

Leverage,

Gupta S.K “Management Accounting”: Degree of Financial Leverage, significance of

Financial leverage, Limitation of Financial Leverage/Trading on Equity.

Gupta S.P., “Business Statistics”: From here researcher found the information regarding

correlation , trend and statistical tools.

Goel D.K “Management Accounting and Financial Management5” : In this researcher

found the different types of ratios and there formulas and about thumb rule and all basic

concept.

Pandey , I.)“Financial Management”: How to prepare comparative balance sheet and

how can we evaluate.

Maheshwari ,S.N “‘Advanced Accounting7”: It explains ratio analysis as a tool to

analyze the financial statements of organization. Different ratios depict the position of

firm in market.

Mittal R.K , “Management Accounting& Financial Management8” from this researcher

took information about how to prepare comparative balance sheet and how to interpret it.

Bhalla, V.K, “ Financial Management and Policy”: Knowlegde about Financial

Leverage and the rate of EPS and Financial Breakeven Point.

Beri G.C“Marketing Research” tell about the data collection, methods of data collection.

Gupta S.P., “Business Statistics” revealed the information about the correlation, its type

and its importance.

Hooda R.P(., “Statistics for Business and Economics”: It explains ratio analysis as a tool

to analyze the financial statements of organization. Different ratios depict the position of

firm in market.

Schaum,“Statistical outline” :-The information regarding the statistical tools and their

limitations in different fields the research is given in this section.

JOURNALS:-Kumar Santanu, “Finance India”:- Information about Optimality in Firm’s Capital

Structure has been taken from this jornal.

Kaur Kuldip “Finance India” :-From this articles researcher have taken the meaning of

efficiency and different types of efficiency regarding determinants of debt-equity mix..

Veni P. “Management Accountant”:- It is a case study regarding leverage, Capital structure,

dividend policy and practices.

Sufi Amir ,“The Journal of Finance”:- It gives information about optimal debt contract

which will allocate certain right to creditors.

Axelson Ulf “The Journal of Finance”:- From these pages researcher read theory about

financial structure of private equity funds and also about levered buyouts.

Vinayak Ravindar,“The Indian Journal of Commerce”:- This paper attempts to develop

and test a theory on capital structure of corporate giants of india which helped researcher in

the project.

Whited Toni “ The Journal of Finance”:-Researcher has taken information about estimated

financing friction are higher for low dividend firms.

Sharma J.P., “The Indian Journal of Commerce”:-This paper has reveal information

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

venture capital.

MAGAZINES:- Tibrewala Shalini, “Buisness World”:- This paper has given information regarding

bonds that look good both in short and long terms.

Dungore Parizad, “ Icfai Reader”:- The stock prices outpace market initially and

investors are drawn to acquiring firm attracted by their rapid growth in earning.

Biswas Joydeep, “Icfai Reader”:- The Indian corporate sector became more and more

dependent among others to the external borrowings trade use and other current liabilities.

Shah Rashesh, “Business World”:-Researcher expect liquidity to be a neutral factor as a

cash flow into equities,

Dubey Rajeev, “Buisness World”:- In this researcher has taken idea about shareholders

have been left wondering if company is morphing itself into a conglomerate.

Seth Meera, “Business World”:-Private equity investors who offered to buy the debt ,

converted into the equity and then served a diktat about targets.

Sinha Paritosh, “Icfai Reader”:- It gives the information regarding the return on equity

addresses. The same question in term of the percentage return earned after meeting the

fund invested by the shareholder.

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

WEBSITES:-

www.capitaline.com:- This provide researcher information any every financial aspect of

different companies. It also provided me knowledge about management and history of

different companies.

www.investopedia.com:- This site help to get data for debt to equity ratio & market capitalization

Private equity investors who offered to buy the debt , converted into the equity and then served a

diktat about targets..

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

ongoing developments.

http://www.investorwords.com/1952/financial_leverage.html: This site explain The

degree to which an investor or business is utilizing borrowed money. Companies.

http://www.12manage.com/description_financial_leverage.html: This site explain

Investments and Leverage and risk, Accounting leverage is total assets divided by total

assets

http://autonews.indiacar.com/news/n12234.htm: Mindarika's second plant to be functional

by August-end Mindarika Pvt Ltd, part of the Rs 300 crore plus Minda Group,

www.moneycontrol.com:- This site helped in providing various data regarding status of

industry.

www.minda/group/mindarika/annualreport:- This site reveals the information regarding

company profile and balance sheet.

STATEMENT OF THE OBJECTIVES

MAIN OBJECTIVE: -

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

SUB OBJECTIVE

1. The basic objective of studying the ratios of the company is to know the financial

position of the company.

2. Another reason is to study that the company’s profit trends.

3. To know the borrowings of the company as well as the liquidity position of the company.

4. To know the solvency of the business and the capacity to give interest to the long-term

loan

5. To study the balance of cash and credit in the organization.

RESEARCH METHODOLOGY

Research is a systematic and continuous method of defining a problem, collecting the facts and

analyzing them, reaching conclusion forming generalizations.

Research methodology is a way to systematically solve the problem. It may be understood as a

science of studying how research is done scientifically. In it we study the various Steps that are

generally adopted by a researcher in studying his research problem along with the logic behind

them.

The scope of research methodology is wider than that of research method(. Thus when we talk of

research methodology we not only talk of research methods but also consider the logic behind

the method we use in the context of our research study and explain why we are using a particular

method.

So we should consider the following steps in research methodology:

Meaning of research

Problem statement

Research design

Sample design

Data collection

Analysis and Interpretation of data

MEANING OF RESEARCH

Research is defined as “a scientific & systematic search for pertinent information on a specific

topic”. Research is an art of scientific investigation. Research is a systemized effort to gain new

knowledge. It is a careful inquiry especially through search for new facts in any branch of

knowledge. The search for knowledge through objective and systematic method of finding

solution to a problem is a research.

RESEARCH DESIGN:-Research design involves a series of rational decision making benefits at each point from such

sophisticated design to ensure accuracy, confidence and commensurate with large investment of

resources.

The research design is formulated for the above problem is descriptive. The information is

obtained from the primary as well as secondary sources. Primary sources are the working staff of

the company and secondary sources are the information contained in the files of Company (Birla

Tyres )and other subject related books and journals. The time period available for the research of

is 40 days.

Research design

Descriptive

NATURE OF RESEARCH:-The research methodology adopted during the project is descriptive in nature. A characteristic in

research studies in business management in their reliance on secondary data source in particular

and primary data in general.

What is study about

Why is study being made

Where will the study be carried out

What type of data are required

What will be the sample design

How will the data be collected

How will the data be analyzed?

DATA COLLECTION

The task of data collection is begins after a research problem has been defined and research

designed/ plan chalked out. Data collection is to gather the data from the population. The data

can be collected of two types:

PRIMARY DATA:The Primary data are those, which are collected afresh and for the first time, and thus happened

to be original in character. Methods of collection of Primary data are as follows:

o Interview

o Observation Method

SECONDARY DATA:-The Secondary data are those which have already been collected by some one else and which

have already been passed through the statistical tool. Methods of collection of Secondary data

are:-

Journals,

Websites

balance sheet

profit & loss

NOTE : “In this the researcher has used the secondary data for the

research study”.

SAMPLING DESIGN:

A sample design is a definite plan for obtaining a sample from the sampling frame. It refers to

the technique or the procedure that is adopted in selecting the sampling units from which

inferences about the population is drawn. Sampling design is determined before the collection of

the data.

Several decisions have to be taken in context to the decision about the appropriate sample

selection so that accurate data is obtained and efficient results are draw

I chose descriptive research in my research because I use more secondary data. In this I take data

from internet, books, and journal’s primary data is very less so it is the reason to chose the

descriptive research

SAMPLING SIZE

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

Company Manual .

SAMPLING UNIT : BIRLA TYRE

SAMPLING AREA : BIRLA TYRE FINANCIALS

SAMPLING PERIOD :

The time period of the study _______________ to _____________ ( 45 days ) .

LIMITATION OF THE STUDY

In spite of best efforts of the investigator the study was subjected to following limitations:-

STUDY OF INTERIM REPORTS: it is only the study of interim reports and secondary

data present on different websites so not much reliable as primary data.

Analysis is based only on monetary information and not on non monetary factors.

CHANGES IN ACCOUNTING PROCEDURE by a firm may often make financial

statements misleading.

MINOR PLAYER: I have studied only a single firm of the industry. So, I got

knowledge about just a minor player in the team.

TIME PERIOD: The time period given to me for the completion of the project was

short in such a short span of time it is difficult to complete any project in detail.

SECRECY OF INTERNAL DATA: Manager some time denied disclosing some

important financial matters, which can be helpful in this study.

RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statement so that the strength & the weakness of a Railway

workshop standard as well as historical performances & current financial condition can be

determined. The term ratio refers to the numerical or quantitative relationship between two

variables.

SIGNIFICANCE OF RATIO ANALYSIS

i) Helps in decision making

ii) Helps in communicating

iii) Helps in co-ordination

iv) Helps in Control

OBJECTIVE OF USING RATIO ANALYSIS:

Helpful in analyzing financial statement

Simplification of accounting data

Helpful in comparative study

Helpful in locating the weak spots of business

To estimate the trend of the business

Fixation of ideal standards

Effective control

LEVERAGE RATIOS :

CURRENT RATIO :

The current ratio is measure of the firms short term solvency . It indicates the availability of

current assets in rupees for every one rupees of current liability . Current ratio 2:1 or more are

considered satisfactory .

Table 4.1

Particulars 2009 2010 2011 2012 2013Current assets 393.19 460.97 369.77 273.69 161.28Current Liabilities 805.11 674.24 670.27 532.06 480.15

CURRENT Ratio 0.95 0.94 0.90 0.92 0.98

0.95

0.94

0.9

0.92

0.98

0.86

0.88

0.9

0.92

0.94

0.96

0.98

2009 2010 2011 2012 2013

Series1

Graph 4.1

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

QUICK RATIO :

It is also called as Acid test ratio or Liquid ratio. With the help of this ratio, the capacity of the

firm to pay its current liabilities immediately is measured. This is ratio is calculated by dividing

liquid assets by current liabilities.

QUICK RATIO :

= QUICK ASSETS/CURRENT LIABILITIES

Table 4.2

Particulars 2009 2010 2011 2012 2013Quick Ratio 0.80 1.00 0.96 0.93 0.90

0.8

10.96 0.93 0.9

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2009 2010 2011 2012 2013

Series1

Graph 4.2

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

LONG TERM SOLVENCY RATIOS:-

DEBT EQUITY RATIO: The relationship between borrowed funds and owners capital is a

popular measure of long term financial solvency of a firm. The relationship is shown by the debt

equity ratio. This ratio reflects the relative claims of creditors & shareholders against the assets

of the firm. Alternatively this ratio indicates the relative proportion of debt and equity in

financial the assets of a firm. One approach is to express the debt equity ratio in terms of the

relative proportion of long term debt and shareholders’ equity.

Debt Equity Ratio = Long Term Debt Shareholder's Fund

DEBT-EQUITY RATIO

Table 4.3

Particulars 2009 2010 2011 2012 2013Debt. Equity Ratio 0.48 0.50 0.46 0.36 0.18

0.480.5

0.46

0.36

0.18

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

2009 2010 2011 2012 2013

Series1

Graph 4.3

The debt equity ratio is increasing which means that the company’s dependence on the

external debt is increasing. In the year 2012,13 it has decreased from the last years .

This shows greater inflexibility in the company’s operation.

INTEREST COVERAGE RATIO :

This ratio used to determine how easily a company can pay interest on outstanding debt. The

interest coverage ratio is calculated by dividing a company's earnings before interest and taxes

(EBIT) of one period by the company's interest expenses of the same period:

INTEREST = NET PROFIT BEFORE INTEREST AND TAXES

COVERAGE FIXED INTEREST CHARGES

RATIO

Table 4.4

YEAR 2009 2010 2011 2012 2013

INTEREST

COVERAGE

RATIO 6.41 4.04 8.00 28.35 20.68

6.41

4.04

8

28.35

20.68

0

5

10

15

20

25

30

2009 2010 2011 2012 2013

Series1

Graph 4.4

The interest coverage ratio first decreasing from 6.41 to 4.04 between the year 2009-

2010 but it increased in the year 2011 to 8 . Then it increases in the year 2012,13 from

28.35,20.68 .

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

PROFITABILITY RATIOS:

NET PROFIT RATIO:-

Net profit ratio establishes a relationship between net profit (after tax) and sales, and indicates

the efficiency of the management, selling, administrative and other activities of the firm. This

ratio is the overall measure of firm’s profitability and is calculated as:

Net profit ratio = Net profit *100

Net sales

Table 4.5

YEAR 2009 2010 2011 2012 2013

NET PROFIT

RATIO 9.88 10.03 14.25 24.90 17.68

9.88 10.03

14.25

24.9

17.68

0

5

10

15

20

25

2009 2010 2011 2012 2013

Series1

Graph 4.5

The net profit ratio is 9.88 in the year 2009 then it increases from 10.03 to 14.25 from

the year 2009-2011 . In the year 2012 it is on the peak i.e 24.90 ..

This reveals that the efficiency in manufacturing, administering and selling the products

is increasing between the year 2011-13 .

OPERATING RATIO : Operating profit margin ratio indicates how much profit a company makes after paying for

variable costs of production such as wages, raw materials, etc. It is expressed as a

percentage of sales and shows the efficiency of a company controlling the costs and

expenses associated with business operations. Phrased more simply, it is the return

achieved from standard operations and does not include unique or one time transactions.

Terms used to describe operating profit margin ratios this include operating margin,

operating income margin, operating profit margin or return on sales (ROS).

OPERATING PROFIT RATIO = OPERATING PROFIT X 100

SALES

Table 4.6

YEAR 2009 2010 2011 2012 2013

OPERATING

PROFIT

RATIO 15.09 18.27 20.88 33.31 24.71

15.09

18.27

20.88

33.31

24.71

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013

Series1

Graph 4.7

The operating profit is increasing from 15.09 to 33.31 in the year 2009-2012 , then it

decreases in the year 2013 which is 24.71. This shows that the operating cost of the

company has balanced from 2011-13.

FINDINGS

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

follows.

After analyzing the current ratio I found liquidity of the company is not good .

Company quick ratio is no balanced in these years .it slightly increasing & decreasing

every year .

The debt equity ratio is increasing which means that the company’s dependence on the

external debt is increasing. In the year 2010 it has decreased from the last years . This

shows greater inflexibility in the company’s operation.

Interest coverage ratio indicates Company not excessive use of debt.

After analyzing Profitability ratio I found efficiency in manufacturing, administering

and selling the products is increasing between the year 2009-12 but it slightly decrease in

the year 2011.

Operating ratio shows that the operating cost of the company has increased from 2009-

12.

SUGGESTIONS

BIRLA TYRES should use debt in limited amount to reduce the financial risk. As I

have found that company is much more dependent on the debt and equity is being

constant from last five years so at time of contingencies there will be more burdens

on the shoulders of the shareholders. So, company should reduce its dependency on

the debt.

BIRLA TYRES should limit its debts to that extent that the liquidity position of the

firm cannot be impacted and this does not create any hindrance.

They should be a careful decision upon a range of manufacturers and enter into firms

contract between them.

Debt collection period is 45 days which shows lenient debt policy. Debt policy

should make strict to reduce the risk of bad debts.

CONCLUSION

In finance, capital structure refers to the way a corporation finances its assets through some

combination of equity, debt, or hybrid securities. A firm's capital structure is then the

composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and

$80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The Star Paper

Mill standard ratio of debt to total financing, 80% in this example, is referred to as the firm's

leverage. In reality, capital structure may be highly complex and include dozens of sources.

Gearing Ratio is the proportion of the capital employed of the firm which come from outside of

the business finance, e.g. by taking a short term loan etc..

A perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals

can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing

decisions.

While there is a general belief that the world economy has stablised after the global economic

recession, revival is expected to take sometime. Paper demand and price both have shown an

improvement in the later part of the financial year. However continuous rise in raw material and

power & fuel costs are a cause of concern. Your company will continue to strive for better

operational and financial performance in the year to come.

BIBLIOGRAPHY

BOOKS & JOURNALS :

1. Kothari, C.R “Quantitative Techniques” Second Edition, Himalayan Publishing House,

New Delhi, PP-40-45

2. Kothari C.R. “Research Methodology & Techniques” Second Edition, New Age

International Publishers, New Delhi, PP-85-98, 110-115

3. Gupta S.K. “Management Accounting” 8th Edition. PP-20.1-20.20

4. Gupta S.K. “Management Accounting” 5th Edition PP-80.1-80.5

5. Gupta S.P., “Business Statistics” Current Edition, Arya Publications, Agra. PP- 56-78

6. Goel D.K. “Management Accounting and Financial Management” 7th Edition, Vinay

Publications, New Delhi, PP-87-89

7. Pandey , I.M “Financial Management” Surya Publications, New Delhi. PP-49-86

8. Maheshwari ,S.N “‘Advanced Accounting” 1st Edition ,Mcmillan India Ltd., New

Delhi, PP-42-43

WEB- SITES: www.irailway.com

www.capitaline.com

www.investopedia.com

www.economywatch.com/business

http://www.investorwords.com/1952/financial_leverage.html.

http://www.12manage.com/description_financial_leverage.html

http://autonews.indiacar.com/news/n12234.htm

www.moneycontrol.com

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