Study the effect of Financial Leverage structure on the profitability and liquidity of KEI industries Ltd. for four years.

Submitted to: Submitted by:

Miss Jaya Malhotra Vikash Faculty, M.B.A 1142/08T.I.M.T M.B.A.

( F) (S-1)

CONTENTSIntroductionObjective of the studyResearch DesignData collectionTools FindingsLimitations of studyConclusion

KEI industries ltd.

Important years for KEI ind. Ltd1968: Established as a Partnership Company. 1968: Manufacturing of Switchboard Cables for DOT starts. 1985: Manufacturing of Control, Instrumentation and

Thermocouple Cables begins1995: Launch of the First IPO, went Public. 1996: Installation of Major SSW plant at Bhiwadi 2002: Established JFTC Plant at Silvassa 2005: Upgraded JFTC Plant in Silvassa to manufacture

existing cable range - Rebalancing Act. 2007: Upgrading Bhiwadi Unit to manufacture HT power

cable up to 132 kV & LT cable. 2007: Proud recipient of Corporate Governance Rating 2007: Setting up of 100% EOU at Chopanki 2008: Enhanced HT Cable Capacity at Bhiwadi up to 132

KV

Products of KEI industries Ltd. HT Cables LT Cables Control Cables Instrumentation Cables Thermocouple Extension/Compensating Rubber Cables House Wires Single/Multicore Flexible Wires Winding Wires Stainless Steel Wires

Objectives of Study

• To study the impact of financial structures of the company.

To study the impact of financial leverages on profitability of the company.

To study the impact of financial leverages on liquidity of the company.

Theoretical Framework

Construct Impact of financial leverages on profitability and

liquidity of the company

Variables Independent Variable – financial leverages i.e. debt

& equity Dependent variables - liquidity, profitabily position

Research DesignTYPES OF RESEARCH

DESIGN

Exploratory Descriptive Experimental

Types of data

Primary Secondary

Swot Analysis

S

W

O

TTHREATS

WEAKNESS

STRENGTHS

OPPORTUNITIES

Ratios Related To The Profitability And Liquidity

Current RatioDebt Equity RatioEarning per shareInterest coverage ratioDebt to total fund ratioProprietory ratioQuick ratio

Current Ratio

Fy06- 2.02Fy07- 2.66Fy08- 2.24Fy09- 2.44

%AGE CHANGE IN CURRENT RATIO

OVER THE YEARS

0

0.5

1

1.5

2

2.5

3

FY06 FY07 FYO8 FYO9

Series1

Debt equity ratio

Fy06- 0.77Fy07- 2.04Fy08- 0.44Fy09- 0.40

%AGE CHANGE IN DEBT EQUITY RATIO

0

0.5

1

1.5

2

2.5

FY06 FY07 FYO8 FYO9

Series1

Earning per share

Fy06- 15.39Fy07- 6.81Fy08- 9.59 Fy09- 15.69

EPS OVER THE YEARS

02468

1012141618

FY06 FY07 FYO8 FYO9

Series1

Interest coverage ratio

Fy06- 4.3Fy07- 3.37Fy08- 2.75Fy09- 0.89

INTEREST COVERAGE RATIO

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

FY 06 FY07 FY08 FY09

INTEREST COVERAGERATIO

Debt to total fund ratio

Fy06- 43%Fy07- 67%Fy08- 62%Fy09- 65%

DEBT TO TOTAL CAPITALISATION RATIO

0

10

20

30

40

50

60

70

80

FY06 FY07 FY08 FY09

DEBT TO TOTALCAPITALISATIONRATIO

Proprietory Ratio

Fy06- 57%Fy07- 33%Fy08- 38%Fy09- 35%

PROPRIETORY RATIO IN %AGE

0

10

20

30

40

50

60

FY06 FY07 FY08 FY09

PROPRIETORYRATIO IN %AGE

Quick ratio

Fy06- 1.0027Fy07- 1.2427Fy08- 1.3488Fy09- 1.6532

QUICK RATIO

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

FYO6 FY07 FY08 FY09

Series1

Statistical and Analytical tools applied

ANOVAREGRESSION

T- TEST

Let null hypothesis be there is no significant impact of financial leverage on profitability.According to the alternate hypothesis there is impact of financial leverages on profitability.

ANOVAb

Model Sum of Squares df Mean Square F Sig.1 Regression 2.404E17 1 2.404E17 3.659 .307a

Residual6.570E16 1 6.570E16

Total3.061E17 2

a. Predictors: (Constant), financial.leverages

b. Dependent Variable: profitability

Let null hypothesis be there is no significant impact of financial leverage on liquidity.According to the alternate hypothesis there is impact of financial leverages on liquidity.

Model Sum of Squares df Mean Square F Sig.1 Regression 4.088E16 1 4.088E16 4.44296 .030a

Residual9.202E13 1 9.202E13

Total4.098E16 2

a. Predictors: (Constant), financial.leverages

b. Dependent Variable: liquidity

Regression

Model Summary

Model R R Square Adjusted R SquareStd. Error of the

Estimate1 .886a .785 .571 2.56329E8a. Predictors: (Constant), financial. leveragesb. profitability

Model Summary

Model R R Square Adjusted R SquareStd. Error of the

Estimate1 .999a .998 .996 9.59273E6a. Predictors: (Constant), financial. leveragesb. Liquidity

Let null hypothesis be there is no significant impact of financial leverage on profitability.According to the alternate hypothesis there is impact of financial leverages on profitability.

One-Sample Test

Test Value = 0

t dfSig. (2-tailed)

Mean Difference

95% Confidence Interval of the Difference

Lower UpperPROFITABILITY 1.722 2 .227 3.89033E8 -5.8282E8 1.3609E9FINANCIAL.LEVERAGE

4.199 2 .052 3.93200E8 -9.7232E6 7.9612E8

Let null hypothesis be there is no significant impact of financial leverage on liquidity.According to the alternate hypothesis there is impact of financial leverages on liquidity.

One-Sample Test

Test Value = 0

t dfSig. (2-tailed)

Mean Difference

95% Confidence Interval of the Difference

Lower UpperFINANCIAL.LEVERAGE

4.199 2 .052 3.93200E8 -9.7232E6 7.9612E8

LIQUIDITY 40.820 2 .001 3.37333E9 3.0178E9 3.7289E9

Findings

Company is Very much dependent on the debtors for its

funding and it is not favorable for the firm. Total sales of the company is going upwards as

compared with previous year. Earning per share is also increasing. Financial leverages having a lot of effect on

profitability liquidity of the firm.

RecommendationsCompany is using a lot of debt & it has to pay

high interests for it so I think firm should use more and more equity capital to sustain its workings.

Company is spending good percentage of its profit on depreciation. It’s a kind of wastage so firm should try to reduce wear and tear.

Due to cutthroat competition in the market, firm should emphasize on good customer relationships.

Limitations Of Study

Secrecy of internal dataLimited timeSecondary dataLack support of some officers due to lack of

time