CHAPTER-I

Introduction

1
 INTRODUCTION

Increasing competitive environment’s pressure on business organizations during

globalization process and after it prompts finance managers to be more cautious about business

financing and establishing capital structure. Capital structure decisions change capital

components of business organizations and thus become more important in terms of decreasing

capital cost and increasing firm value. To understand how companies finance their operations,

it is necessary to examine the determinants of their financing or capital structure decisions.

Company financing decisions involve a wide range of policy issues.

The point is that in their attempt to set a capital structure that maximizes their overall

market value, firms do differ with regard to their capital structure. That is why there are various

theories of capital structure that try to explain this cross-sectional variation. These theories

examine the determinants of capital structure from different aspects and conclude in different

outcomes as far as the choice of the determination of the level of financial leverage is

concerned.

In the meanwhile, empirical evidence has sometimes proven to be inconsistent to a

particular theory that they examine. The most striking example is that of the empirical testing

of the pecking order theory, where various researchers have concluded in different, inconsistent

conclusion.

2
 Though there are many theories related to the capital structure of businesses but

Modigliani and Miller (1958) have got predominance in the area of finance. Firm value in the

absence of transaction and other fixed costs are insensitive to the capital structure of the firm,

according to Miller and Modigliani (1958). In other words, change in the capital structure has

no apparent effect on the value of firm and therefore, it can be changed any time. Modigliani

and Miller concluded to the broadly known theory of “capital structure irrelevance” where

financial leverage does not affect the firm’s market value. However their theory was based in

very restrictive assumptions that do not hold in the real world, such as, for instance, perfect

capital markets, homogenous expectations, no taxes and no transaction costs. The presence of

bankruptcy costs and favorable tax treatment of interest payments lead to the notion of an

“optimal” capital structure which maximizes the value of the firm, or respectively minimizes

its total cost of capital.

Capital structure is the mix or proportion of a firm’s permanent long term financing

represented by debt, preferred stock and common stock equity. The capital structure that

minimizes the firm’s cost of capital and there by maximizes the value of the firm is called as

the optimal capital structure. This approach suggests that the firm can initially lower of its cost

of capital and raise its total value through increasing leverage.

The choice of a firm’s capital structure is a marketing problem. It is essentially

concerned how the firm decides to divide its cash flows into two broad components, a fixed

component that is ear marked to meet the obligations toward debt capital and a residual

3
component that belong to equity share holders, since the object of financial management is to

maximize shareholders wealth.

There are different views on how capital structure influences value. Some argue that

there is no relationship what so ever between capital structure and firm value. Others believe

that financial leverage has a positive effect on firm’s value up to a point and negative effect

thereafter, still others contend that, other things being equal, greater the leverage, greater the

value of the firm.

ASSUMPTIONS:

To examine the relationship between capital structure and cost of capital the following

simplifying assumptions are commonly made.

1. There is no income tax, corporate or personal

2. The firm pursues a policy of paying all of its earnings as dividend. Put differently100%

dividend payout ratio is assumed.

3. Investors have identical subjective probability of distribution of operating income for

each company.

4. The operating income is not expected to grow or decline over time.

5. A firm can change its capital structure almost instantaneously without incurring

transaction cost.

4
 ABOUT SIVA SANKAR MOTORS PRIVATE LIMITED:

Siva Sankar Motors Pvt. Ltd. was established in the year between 2007-2008 and the

company corporate identity number is U34100AP2008PTC057883. The company was

incorporated under the companies Act 1956 (No. 1 of 1956) and that the company is Pvt. Ltd.

The founder and CEO of the company is Mr. Siva Sankar Prasad Meruva. Managing Director

of the Visakhapatnam branch name is Mr. Venkata Mahesh Ravinder Meruva.

The main objective of the company is to carry on the business of Automobile

Delares, Engineers, Manufacture and servicing of the motor cars. To carry on the business of

manufactures, dealers, distributors, stockiest of all kinds of Automobile Parts, Spares and

Accessories for all vehicles of motor vehicles. Siva Sankar Motors Pvt. Ltd. is locaed at, TSN

Colony, Visakhapatnam-530016.

The main activities of the company is basically divided into buy, sell, deal, maintain

all machines inclusive of component parts, accessories and fittings of such machines that may

be necessary for the manufacture, maintenance and working of all kinds of motor vehicles. The

business units of the Siva Sankar Motors Pvt. Ltd. Which are Visakhapatnam, Srikakulum

and Vizianagaram.

The company deals with only motor vehicle sales and servicing centers for customer

satisfaction. Now the company is having their own servicing sector at Industrial Estate in

Visakhapatnam. At present company is leading the present marketing values in all aspects.

The company turnover is increasing constantly and maintaining good relationships with their

customers.

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 NEED FOR THE STUDY

‘Financial management’ is broadly concerned with the acquisition and use of funds

by a business firm. The subject of financial management is of immense interest to both

academicians and practicing managers.

Key activities of Financial Management:

There are mainly three broad activities of financial management they are:

 Financial analysis, planning and control.

 Management of the firm’s capital structure and assets structure.
 Management of the firm’s financial structure.

It is concerned, the need for Financial Management practices in Siva Sankar Motors

Private Limited, Visakhapatnam are as follows:

 Assessing the financial performance and condition

 Forecasting and planning the financial future of the firm
 Estimating the financial needs of the firm
 Instituting appropriate systems of control to ensure that the actions of managers

are congruent with the goals of the firm

OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:

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 To analyze the capital structure of Siva Sankar Motors Private Limited,
Visakhapatnam.
.

SECONDARY OBJECTIVES:

The secondary objectives of the study are as follows:

1. To find out the debt equity ratio of the Siva Sankar Motors Private Limited,

Visakhapatnam.
2. To compare the capital structure for the fast five years of the company.
3. To assess the increase or decrease in the value of shares and debentures for the

fast five years.

4. To study capital structure leverages and EBIT and EPS.
5. To analyze the causes for the change in the value of the share.

SCOPE AND SIGNIFICANCE OF THE STUDY:

Finance is the blood stream for any organization. The company issues securities in

the stock market depending upon its capital structure and the value of the firm depends upon its

earning every year and also on its efficiency in minimizing its cost of capital.

The purpose of this study is to analyze and to explore the capital structure of the

company and the present value of shares and debentures in Siva Sankar Motors Private

Limited, Visakhapatnam. The findings of research explain how the value of shares and

debentures have increased or decreased in the past five years and the reasons for the change.

METHODOLOGY OF THE STUDY

In the achieving of the above objectives, the data was collected from the following

sources.

1. Primary Sources

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 2. Secondary Sources

The primary data has been collected by interacting with the officials and executives of

Finance department of Siva Sankar Motors Private Limited, Visakhapatnam.

The secondary data already available published or unpublished is collected by the

company records and manuals. It is an already published data collected for some purposes

other than the one comforting the researcher at a given point of time for this project secondary

was collected from various sources like:

1. Annual reports of Siva Sankar Motors Private Limited, Visakhapatnam.

2. Journals and magazines published by the company.

3. Internal records of the company.

Limitations of the Study

The present study is intended to analyze the capital structure of Siva Sankar Motors

Private Limited, Visakhapatnam over a period of 5 years from 2008 to 201. However, the

8
study suffers from the following limitations.

 The whole study was conducted within a short span of eight weeks. I am sincere in

my efforts in gathering the maximum possible information and utilizing it for study.

 Due to the time limitation the management and staff member could provide only

limited information to prepare the reports.

 Refusal of procurement of certain data.

 Where there is un availability of data are interpreted and presented in the report.

9
 CHAPTER-II

Industry and Company Profile

INDUSTRIAL PROFILE

A Tata motor is sub division of Tata Groups. Tata Motors is an Indian based

multinational organization, whose headquarter is located in Mumbai, India. Tata was

10
 founded in the year 1945 and it was initially named as TELCO (Tata Engineering and

Locomotive Company). Tata Motors is largely involved in the commercial vehicle sector.

Tata, the founder of organization started Tata Motor organization by manufacturing

locomotive units in collaboration with Mercedes-Benz which became successful in course

of time. Later on Tata planed to modify his business and decided to build small cars on

demand of customers and finally attain success in this venture.

Tata Motors is largest automobile company in India; second largest commercial

vehicle manufacturer in world second largest truck manufacturer in the world; and fourth

largest bus manufacturer in the world. Tata holds 70% of Indian Domestic Commercial

Vehicle Segment’s market share. The popular brands of the company are

TataIndica,TataIndigo,TataSumo&TataSafari. .

Quick Facts

Founder Jamshedji Tata

Year of Establishment 1945
Industry Automotive

11
Business Group The Tata Group
Listings & its codes BSE - Code: 500570

NSE - Code: TELCO & TATAMOTORS

NYSE - Code: TTM

Corporate Office Bombay House

24, Homi Mody Street

Mumbai 400 001, India

Tel.: +(91)-(22)-56561676
Works Jamshedpur, Pune, Lucknow and Dharwad
E-mail am@tatamotors.com

rbc@telco.co.in (for international inquiries)

Website www.tatamotors.com.

Segment and Brands

PRODUCTS BRANDS
Passenger Tata Indigo
Indica V2 Indigo Marina
Cars CS
Indica V2
Indigo Manza
Turbo
Indica V2 Xeta Indigo XL Tata Nano
Tata Sumo

Grande

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 Utility
Safari Dicor Sumo Victa Tata Indicruz
Vehicles
Tata Aria
Trucks All types of Medium & Heavy Commercial Vehicles
Buses SFC 407 Turbo Mini-
Starbus Globus
bus
LP 407 Turbo LP 709 E Turbo LPO 1510 CGS bus

Mini- bus Bus (CNG bus)

LP / LPO 1512 TC LP / LPO 1512 TC
LP / LPO 1510
Turbo Bus Turbo Bus
LPO 1610 TC
LPO 1616 TC
RE Semi Low
Luxury Bharat LP 1109 Bharat Stage II
Floor Bharat
Stage - II Bus
Stage - II Bus
Defence Tata 407 (4 x 4) Tata 407 / (4 x2)
Tata LPTA 713 TC (4
Soft Top Troop Hard Top Troop
x4)
Carrier Carrier
Tata LPT 709 E
Tata SD 1015 TC Tata LPTA 1615 TC (4
Hard Top Troop
(4 x4) x 4)
Carrier
Tata LPTA 1621 Tata LPTA 1615

TC (6 x6) TC (4 x2)

Tata Motors Limited is India's largest automobile company, with consolidated

revenues of INR 1,65,654 crores (USD 32.5 billion) in 2011-12. It is the leader in commercial

vehicles in each segment, and among the top in passenger vehicles with winning products in

the compact, midsize car and utility vehicle segments. It is also the world's fourth largest truck

and bus manufacturer. The Tata Motors Group's over 55,000 employees are guided by the

13
mission "to be passionate in anticipating and providing the best vehicles and experiences that

excite our customers globally." Established in 1945.

Tata Motors' presence cuts across the length and breadth of India. Over 7.5 million

Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company's

manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra),

Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and Dharwad

(Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint

venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and

Tata cars and Fiat powertrains. The company's dealership, sales, services and spare parts

network comprises over 3,500 touch points.

Tata Motors, also listed in the New York Stock Exchange (September 2004), has

emerged as an international automobile company. Through subsidiaries and associate

companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain, South Africa

and Indonesia. Among them is Jaguar Land Rover, acquired in 2008. In 2004, it acquired the

Daewoo Commercial Vehicles Company, South Korea's second largest truck maker. The

rechristened Tata Daewoo Commercial Vehicles Company has launched several new products

in the Korean market, while also exporting these products to several international markets.

Today two-thirds of heavy commercial vehicle exports out of South Korea are from Tata

Daewoo.

In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish

bus and coach manufacturer, and subsequently the remaining stake in 2009. Hispano's presence

is being expanded in other markets. In 2006, Tata Motors formed a 51:49 joint venture with the

14
Brazil-based, Marcopolo, a global leader in body-building for buses and coaches to

manufacture fully-built buses and coaches for India - the plant is located in Dharwad. In 2006,

Tata Motors entered into joint venture with Thonburi Automotive Assembly Plant Company of

Thailand to manufacture and market the company's pickup vehicles in Thailand, and entered

the market in 2008. Tata Motors (SA) (Proprietary) Ltd., Tata Motors' joint venture with Tata

Africa Holding (Pty) Ltd. set up in 2011, has an assembly plant in Rosslyn, north of Pretoria.

The plant can assemble, semi knocked down (SKD) kits, light, medium and heavy commercial

vehicles ranging from 4 tones to 50 tones.

Tata Motors is also expanding its international footprint, established through exports

since 1961. The company's commercial and passenger vehicles are already being marketed in

several countries in Europe, Africa, the Middle East, South East Asia, South Asia, South

America, CIS and Russia. It has franchisee/joint venture assembly operations in Bangladesh,

Ukraine, and Senegal.

The foundation of the company's growth over the last 66 years is a deep understanding

of economic stimuli and customer needs, and the ability to translate them into customer-desired

offerings through leading edge R&D. With over 4,500 engineers, scientists and technicians the

company's Engineering Research Centre, established in 1966, has enabled pioneering

technologies and products. The company today has R&D centers in Pune, Jamshedpur,

Lucknow, Dharwad in India, and in South Korea, Spain, and the UK.

It was Tata Motors, which launched the first indigenously developed Light Commercial

Vehicle in 1986. In 2005, Tata Motors created a new segment by launching the Tata Ace,

India's first indigenously developed mini-truck. In 2009, the company launched its globally

15
benchmarked Prima range of trucks and in 2012 the Ultra range of international standard light

commercial vehicles. In their power, speed, carrying capacity, operating economy and trims,

they will introduce new benchmarks in India and match the best in the world in performance at

a lower life-cycle cost.

 Tata Motors also introduced India's first Sports Utility Vehicle in 1991 and, in 1998, the

Tata Indica, India's first fully indigenous passenger car.

 In January 2008, Tata Motors unveiled its People's Car, the Tata Nano. The Tata Nano

has been subsequently launched, as planned, in India in March 2009, and subsequently

in 2011 in Nepal and Sri Lanka.

 A development, which signifies a first for the global automobile industry, the Nano

brings the joy of a car within the reach of thousands of families.

Tata Motors is equally focused on environment-friendly technologies in emissions and

alternative fuels. It has developed electric and hybrid vehicles both for personal and public

transportation. It has also been implementing several environment-friendly technologies in

manufacturing processes, significantly enhancing resource conservation.

Through its subsidiaries, the company is engaged in engineering and automotive

solutions, automotive vehicle components manufacturing and supply chain activities, vehicle

financing, and machine tools and factory automation solutions.

Tata Motors is committed to improving the quality of life of communities by working

on four thrust areas - employability, education, health and environment. The activities touch the

lives of more than a million citizens. The company's support on education and employability is

16
focused on youth and women. They range from schools to technical education institutes to

actual facilitation of income generation. In health, the company's intervention is in both

preventive and curative health care. The goal of environment protection is achieved through

tree plantation, conserving water and creating new water bodies and, last but not the least, by

introducing appropriate technologies in vehicles and operations for constantly enhancing

environment care. Tata Motors Ltd is India's largest automobile company. The company is the

leader in commercial vehicles in each segment, and among the top three in passenger vehicles

with winning products in the compact, midsize car and utility vehicle segments. They are the

world's fourth largest truck manufacturer, and the world's second largest bus manufacturer.

The company is engaged in the development, designing, manufacturing, assembling and

sale of vehicles, including financing thereof, as well as sale of related parts and accessories.

They manufacture commercial vehicle, three passenger vehicle, truck and bus. They have a

portfolio of automotive products, ranging from sub-1 ton to 49 ton gross vehicle weight

(GVW), trucks (including pickup trucks) and from small, medium, and large buses and coaches

to passenger cars, including the car, the Tata Nano.

The company's segments include automotive, and others, which include information

technology (IT) services, construction equipment manufacturing, machine tools and factory

automation solutions, high-precision tooling and plastic and electronic components for certain

applications, and investment business. The company's passenger cars include the Indica, the

Indica Vista, the Indigo and the Indigo Marina. Jaguar produces four car lines: XK, XF, XJ and

X-Type.

17
 They manufacture a number of utility vehicles (UV), including the Sumo, and the

sports utility vehicle (SUV), Tata Safari. Also, they manufacture a variety of light commercial

vehicles (LCVs), including pickup trucks, trucks and buses with GVW of between 0.7 ton and

7.5 tons. This also includes the Ace, a mini-truck with a 0.7 ton payload, the Magic, a

passenger variant for commercial transportation and the Winger. They also manufacture a

variety of medium and heavy commercial vehicles (M&HCVs), which include trucks, buses,

dumpers and multi-axled vehicles with GVW of between 9 tons to 49 tons.

The company's manufacturing plants are situated at Jamshedpur (Jharkhand), Pune

(Maharashtra), Lucknow (Uttar Pradesh), Patna Nagar (Uttarakhand), Dharwad (Karnataka)

and Sanand (Gujarat). Through their subsidiaries and associate companies, the company has

operations in the UK, South Korea, Thailand and Spain. Tata Motors Ltd was incorporated in

the year 1945 with the name Tata Engineering and Locomotive Co Ltd for manufacturing

locomotives and other engineering products. In the year 1948, the company introduced steam

road roller in collaboration with Marshall Sons (UK). In the year 1954, they made

collaboration with Daimler Benz AG, West Germany for manufacturing medium commercial

vehicles.

 In the year 1959, they set up a Research and Development Centre at Jamshedpur. In the

year 1961, they started to export their products and the fist truck being shipped to Sri

Lanka.

 In the year 1966, the company set up the Engineering Research Centre at Pune to

provide impetus to automobile Research and Development. In the year 1977, they

manufactured first commercial vehicle in Pune. In the year 1983, they commenced

manufacturing of Heavy Commercial Vehicle. In the year 1985, the company produced

18
 first hydraulic excavator in collaboration with Hitachi. In the year 1986, they produced

the indigenously designed light commercial vehicle Tata 407 followed by 608.

 In the year 1989, they introduced third LCV model, Tatamobile 206. In the year 1991,

the company launched first indigenous passenger car, Tata Sierra and in the next year,

they launched Tata Estate.

 In the year 1993, the company signed a joint venture agreement with Cummins Engine

Co. Inc. for the manufacture of high horsepower and emission friendly diesel engines.

In the year 1994, the company launched Tata Sumo and LPT 709. During the year, the

company signed a joint venture agreement with Daimler - Benz / Mercedes - Benz for

manufacture of Mercedes Benz passenger cars in India. Also, they singed a joint

venture agreement with Tata Holset Ltd, UK for manufacturing turbochargers to be

used on Cummins engines. In the year 1995, they launched Mercedes Benz car E220

and in the next year, they launched Tata Sumo deluxe.

 In the year 1997, the company launched Tata Sierra Turbo and in the next year, they

launched Tata Safari and Indica in the market.

 In the year 2000, they launched Indica 2000 and CNG buses. In the year 2001, they

launched Indica V2, CNG Indica and Tata Safari EX.

 In the year 2002, the company signed a product agreement with MG Rover of the UK.

Also, they launched Petrol version of Indica V2, EX series in Commercial vehicles,

Tata Sumo+ Series and Tata Indigo.

 In the year 2003, they launched Tata Safari Limited Edition CityRover, 135 PS Tata

Safari EXi Petrol and Tata SFC 407 EX Turbo in the market.

19
 In July 29, 2003, the name of the company was changed from Tata Engineering Co Ltd

to Tata Motors Ltd.

 In the year 2004, the company acquired Daewoo Commercial Vehicle Company and

renamed it as Tata Daewoo Commercial Vehicle Co. Ltd. This company launched the

heavy duty truck 'NOVUS' in Korea. Also, the company launched Tata Indica V2, Tata

LPT 909 EX, Sumo Vista and Indigo Marina during the year.

 In the year 2005, the company acquired 21% stake in Hispano Carrocera SA, Spanish

bus manufacturing Company. The company launched branded buses and coaches,

namely Star bus and Globus in the market. Also, they launched Tata Ace, Indigo SX

series, Indica V2 Turbo Diesel, Tata TL 4X4 and Tata Novus. During the year, the

company inaugurated a new factory at Jamshedpur for Novus. Also, they unveiled Tata

X over at the 75th Geneva Motor Show.

 In the year 2006, the company made a joint venture with Marco polo, Brazil for

manufacturing fully built buses & coaches for India & markets abroad. They launched

Indica V2 Xeta and new Indigo range. Also, they unveiled new long wheel base

premium Indigo & X-over concept at Auto Expo 2006.

 In the year 2007, the company and Thonburi Automotive Assembly Plant Co.

(Thonburi) formed a joint venture company in Thailand to manufacture, assemble and

market pickup trucks. They inaugurated Tata-Fiat plant at Ranjangaon. They launched

long wheel base Indigo XL, Tata Spacio, Magic, Winger, and Sumo Victa Turbo DI,

Indica V2 Turbo with dual airbags & ABS and Safari DICOR 2.2 VTT range.

20
 During the year 2007-08, the company unveiled the TATA Nano, the world's least

expensive car at the Auto Expo 2008 in New Delhi. Subsequently, the car was also

unveiled at the Geneva Motor Show and received international acclaim.

 They commenced production of TATA Ace from their manufacturing facility at

Uttarakhand during the year. During the year, the company developed new products for

the M&HCV passenger carrier sub-segment and displayed in the Auto Expo 2008, a 28

seater bus and an air conditioned low floor bus developed through their joint venture -

Tata Marco polo Motors Ltd. In the LCV segment,

 The company introduced two new products - Magic and Winger, which hold a strong

potential to shape the future of commercial passenger transportation in India. Further,

the company unveiled the 1 Ton and CNG variant of Ace, Cargo Panel van, Xenon XT

- a lifestyle pickup truck and Winger Executive office concept vehicle in the Auto Expo

2008. They showcased their new range of tactical and armored vehicles for military

and Para-military forces in the Defense Expo 2008. These include Tata Light Specialist

Vehicle, Light Armored Troop Carrier, Tata 8x8 HMV and the armored Tata Safari.

 During the year 2007-08, the company signed an agreement with Flat Group

automobiles Spa Italy and Flat India Automobiles Pvt. Ltd. (FIAPL) for establishment

of joint venture to manufacture passenger cars engines and transmissions at

Ranjangaon in India. They sold 15% stake each, in their subsidiary companies, HV

Axles Ltd (HVAL) and HV Transmissions Ltd (HVTL).

 In March 2008, the Company introduced Tata Xenon- 1 Ton pickup truck in Thailand

through its subsidiary Tata Motors (Thailand) Ltd.

21
 In June 2, 2008, the company acquired the businesses of Jaguar and Land Rover (a part

of Premier Automotive Group of Ford Motor Co.) for USD 2.3 billion. Jaguar and

Land Rover are in the business of development, manufacture and sale of high end

luxury cars and SUVs respectively. The acquisition includes the ownership of three

major manufacturing plants, two advanced design centers in UK a worldwide sales

network, Intellectual Property Rights (including perpetual royalty free licenses) and

Brands and Trade marks.

 During the year 2008-09, the company partially divested their stake in Tata Auto Comp

Systems Ltd an associate company, from 50% to 26%. Also, they sold their investment

in Tata Tele Services Ltd. During the year, the company launched 28 new commercial

vehicles. Among the new products launched during the year were LPT 3118 - a truck

with lift axle, CNG variants of the Ace, Magic and Xenon, new range of LCV buses

manufactured by Tata Marcopolo Motors and the ICV 909 bus. The company also

completed the execution of their first order of 650 low floor buses to Delhi Transport

Corporation (DTC). They have also bagged a second order of 1625 similar buses from

DTC to be executed in financial year 2009-10, the total order value of which is over Rs

2200 crore.

 In May 2009, they also unveiled the World Truck range of their next generation heavy

trucks. During the year 2009-10, the company acquired 79% shares in Hispano

Carrocera, S A by way of exercise of the existing call option, through mutual

agreement with the other share-holder, Investalia S. A., Spain, for a consideration of

Euro 2 million (Rs 1371 lakh). Consequently, Hispano Carrocera, S A has become a

100% subsidiary of the company. Also, the company sold 20% stake in Telco

22
 Construction Equipment Company Ltd (Telcon) to Hitachi Construction Machinery Co

Ltd. The company now holds 39.75% stake in Telcon. During the year, the company

launched the new heavy truck range Prima.

 Also, they launched the new range of buses (based on the Prima platform with bodies

being made by Tata Marco polo displayed at the Delhi Auto Expo in January 2010). In

small commercial vehicles, they launched the Ace EX and Super Ace.

 In June 2010, the company inaugurated the factory for the Nano mini car at Sanand, in

the western state of Gujarat. The factory is having an initial capacity of producing

250,000 cars per year.

 During the year 2010-11, the company launched the Aria, a premium crossover with

high-end features such as 4x4, Torque on Demand, ESP, six airbags. They launched BS

IV compliant variants of the Indica and the Indigo CS, the Indica eV2 and Indigo ECS

with segment leading fuel efficiencies. These vehicles are powered by the Company’s

1.4L CRAIL engine.

 The company plan, a high end variant of the Indigo Manza sedan. They launched

Venture, a Multi Purpose Vehicle (MPV) on the Ace platform. The company expanded

the Prima range launched during the previous year with the introduction of the Prima

Construct range of tippers in the market. Also, the company launched the all new

Jaguar XJ, the new 4.4 V8 diesel Range Rover and the new 2.2 diesel Land Rover.

 In September 2010, the company acquired 80% stake in Trilix Srl., Turin (Italy), a

design and engineering company. The company increased their shareholding in Tata

Precision Industries Pte. Ltd from 49.99% to 78.39% by subscribing to an additional

28.4% share of Tata Precision Industries Pvt. Ltd., Singapore on February 15, 2011.

23
 Tata Precision Industries Pvt. Ltd. holds 100% shares of Tata Engineering Services Pvt.

Ltd., hence Tata Engineering Services Pvt. Ltd. also became a subsidiary.

Board of Directors:

Chairman Emeritus

Ratan N Tata
Chairman Cyrus P Mistry
Vice Chairman Ravi Kant
Company Secretary H K Sethna
Director S M Palia

R A Mashelkar

Nasser Munjee

Subodh Bhargava

Vineshkumar Jairath

Ralf Speth

Nusli N Wadia
ED (Commercial Vehicles) Ravindra Pisharody
ED (Qual.,Vendor Del.& St. Sou.) Satish B Borwankar
Managing Director Karl Slym

24
SIVA SANKAR MOTORS PRIVATE LIMITED PROFILE:

 Establishment of the Company:

Siva Sankar Motors Pvt. Ltd. Is established in the year between 2007-2008

and the company corporate identity number is U34100AP2008PTC057883. The company

was incorporated under the companies Act 1956 (No. 1 of 1956) and that the company is

Pvt. Ltd.

 Founders:

The CEO of the company is Mr. Siva Sankar Prasad Meruva, s/o: M.

Venkataratnam (L) and the company Managing Director of the Visakhapatnam branch

name is Mr. Venkata Mahesh Ravinder Meruva, s/o: Siva Sankar Prasad Meruva.

 Objectives:

The main objective of the company is to carry on the business of Automobile

Delares, Engineers, Manufacture and servicing of the motor cars. To carry on the business

25
of manufactures, dealers, distributors, stockiest of all kinds of Automobile Parts, Spares

and Accessories for all vehicles of motor vehicles.

 Location:

Mailing address as per record available in register of companies’ office:

Siva Sankar Motors Private Limited

D. No: 43-18-10, TSN Colony
Visakhapatnam-530016,
Andhra Pradesh, INDIA.

 Activities:

The Company activities are basically divided into buy, sell, deal, maintain all

machines inclusive of component parts, accessories and fittings of such machines that may

be necessary for the manufacture, maintenance and working of all kinds of motor vehicles.

 Financial Performance:

The annual turnover of the company is 50 corers. The authorized share capital

of the company is Rs. 2, 50, 00,000 (Two Corers Fifty Lashes only) divided into 25, 00,000

equity shares of Rs. 10/- each.

 Achievements:

26
 When the company was established, the company deals with only motor

vehicle sales. Later on company opened servicing centers for customer satisfaction. Now

the company is having their own servicing sector at Industrial Estate in Visakhapatnam.

Now a day’s company is leading the present marketing values in all aspects. The company

turnover is increasing and maintaining good relationships with the customers.

 Sub-Branches:

The main branch of the company in Andhra Pradesh is Visakhapatnam at

Dondaparthy and the company is having their own servicing of Visakhapatnam at Industrial

Estate. The company is having two sub braches. They are at Srikakulum and Vizianagarm.

 Units:

Visakhapatnam , Srikakulum and Vizianagaram.

 Company Average Sales:

2012-2013 – 947 Sales and used cars sales 2012-2013 is 403 cars.

27
 CHAPTER-III

Theoretical Background

28
 THEORETICAL FRAME WORK

Capital Structure:-

Capital structure refers to the mix of long term sources of funds such as debentures,

long term debt, preference shares capital and equity share capital including Reserves and

surpluses (i.e. retained earnings). Every time the firm makes an investment decision, it is at the

same time making a financing decision also. The investment projects of a company can be

financed either by increasing the owners claims or the creditors claims. The owners claims

increase when the firm raises funds by issuing common shares or by retaining the earning; the

creditor's claims increase by borrowing.

The financing or capital structure decision is a significant managerial decision. It

influences the shareholders return and risk. Consequently the market value of the share may be

affected by the capital structure decision. The company will have to plan its capital structure

initially at the time of its promotion. The decision will involve an analysis of the existing

capital structure and factors which will govern the decision like present shareholders equity

29
position strengthen by retention of earning. Thus, the dividend decision also has a bearing on

the capital structure decision, of the company.

Equity Shares:-

Equity shares represent the ownership position in a company and they provide

permanent capital. They have voting rights and receive dividend at the discretion of the board

of directors.

Preference Shares:-

The holders of the preference shares have a preference over the equity share holders

in the event of the liquidation of the company. The pref dividend rate is fixed and known. A

company may issue preference with maturity period. A preference share may also provide for

the accumulation of dividend. It is called cumulative preference share.

Debentures:-

Debentures refer to long term loan given by the holders of debentures to the

company. The rate of interest is specified and interest charges are treated as deductible

expenses in the hands of the company. Debentures may be issued with out interest rate. They

30
are called zero interest rate debentures. Such debentures are issued at a price much lower than

their face value. Therefore, they are also called Deep discount debentures/bonds.

Reserves and Surplus: -

The second part of the share capital is referred to as retained earnings or reserves and

surplus. The difference between the total earning to date and the total amount of dividends to

date is reserves and surplus. It represents total undistributed earnings.

Capital Structure: -

Capital structure refers to the mix of different sources of financing to the total

capitalization. Capital structure theories explain the theoretical relation ship between cost

of capital and the value of the firm.

Net income Approach: -

According to the NI approach, capital structure is relevant as a change in it will

lead to a corresponding change in the cost of capital and the total value of the firm. The core of

the approach is that as the degree of leverage increases, the ratio of less expensive source of

funds in the capital structure increases while that of equity decreases. In facts a change in

leverage amounts to substitution of less costly source in place of a more costly source.

According to the NI approach, evolve an optimum capital structure at which the cost of capital

would be the lowest and the value of the firm would be the highest.

Net operating Income Approach:-

31
 The NOI approach is diametrically opposite to the NI approach. The essence of this

approach is that capital structure is totally irrelevant. The main thrust of the argument NOI is

that an increase in the proportion of debt in the capital structure would lead to an increase in

the financial risk of shareholders. To compensate for the increased risk, the shareholders could

require a higher rate of return on their investment. The increase in the cost of equity would

match the savings in the lower cost of debt.

MM Approach: -

The significance of MM hypothesis is that it provides a behavioral for constant cost

of capital and value of the firm. In other words the MM approach, like the NOI approach,

maintains that the cost of capital and value of the firm do not change in the leverage. This

operational justification for this arbitrage process is essentially a balancing operation.

Traditional Approach: -

The traditional approach is mid-way between, the NI and NOI approaches. The

crux of this approach is that, through judicious combination of debt and equity, a firm can

increase its value and reduce the cost of capital. How ever, beyond a certain point, the risk is to

the investors. The increased financial risk will cause an increase in cost and decline in value at

that point, the capital structure is not optimum.

Ratio: -

It is defined as “The indicated quotient of two mathematical expressions” and as

“the relation ship between two or more things”. Several ratios are calculated from the

32
accounting data. It can be grouped into various classes according the financial activity or

function to be evaluated. Management is interested in evaluating every aspect of the firm’s

performance. The have to protect the interest of all parties and see that firm grows profitable in

view of the requirements of the various users of ratios. We may classify them in to the

following important categories.

1. Leverage ratios:

a) Debt equity ratio

b) Debt to capital ratio

c) Proprietary ratio

d) Debt service coverage ratio’s

2. Related to equity funds:

a) Return on equity

b) Earning per share

c) Price earning ratio

d) Earning yield ratio

3. Profitability Ratios:

a) Return on total assets

b) Return on capital employed

c) Return on investment

33
 Leverage ratio shows the proportion of debt and equity in financing the firm’s assets.

Price earnings ratios show the reciprocal of the earning yield is called the price earnings ratios.

The term investment may refer to total assets or net assets. The funds employed in net

assets in known as capital employed.

Net assets = Net fixed assets+ Current assets - Current liabilities.

ROE:-

Return on shareholders’ equity calculates the profitability of owners investment. The

shareholders equity or net worth will include paid up share capital, share premium and reserves

and surplus less accumulated losses.

Return on Share Holders Equity = Net Income / (E+R)

Cost of Capital:-

It is the acceptable rate of return on funds committed to the project and the minimum

acceptable rate of return is a compensation for time and risk in the use of capital by the project.

Since the investment projects may differ in risk, one of them will have its own unique capital.

Cost of Equity:-

Firms may raise equity capital internally by retained earnings. Alternatively they

could distribute the entire earning to equity share holders and raise equity capital externally by

34
issuing new shares. In both cases, share holders are providing funds to the firms to finance

their capital expenditures.

Ke = Do/Mv*100

Where, Do - Dividends of previous year &

Mv - Market Value.

Cost of External Equity:-

It is the minimum rate of return which the equity share holders require on funds

supplied by them for purchasing new shares to prevent decline in the existing market price of

the equity share.

Ke- Do/Mv*100 + Growth rate.

Market Value:-

A bond/debenture may be traded in a stock exchange. The price at which it is

currently sold or bought is called the market value of the bond/debenture.

Market value = D1/Ke-g

Where D1 = Do (1+G)

Cost of Preference Capital:-

35
 The cost of preference capital is a function of the dividend expected by investors.

Pref. capital is never issued with an intention not to pay dividends on preference capital yet it is

generally paid when the firm makes sufficient profits. The firm may find difficulty in raising

funds by issuing Pref/equity shares. The market value of the equity shares can be adversely

affected if dividends are not paid to the preference shareholders and therefore to the equity

shareholders. Dividends on preference should be paid regularly except where the firm does not

make profits, or it is in a very tight cash position.

Irredeemable Preference Share:-

The preference share may be treated as a perpetual security, if it is irredeemable. Thus

its cost is given by the following equation.

Kp = PDIV/Po

Where,

Kp = cost of preference share

PDIV= expected preference dividend and

Po = issue price of preference share

Redeemable Preference Share:-

It is the preference shares with finite maturity. Thus it cost is given by the following

formula.

36
 PDIV+(RV-MV) 1/N

Po –––––––––––––––––––––

(RV+MV) ½

Where,

RV= Redeemable Value

MV = Market Value.

Capital Structure:-

Capital structure refers to the mix of long term sources of funds such as debentures,

long term debt, preference share capital and equity share capital including Reserves and

surpluses (i.e. retained earnings).

These are of three types of Capital Structures,

1. Positive Capital Structure: R>k

2. Negative Capital Structure: R<k

3. Indifferent Capital Structure: R=k

Where, R= Return

K= cost

Preference dividend

37
 Financial Break Even Point = Interest + –––––––––––––––––

1-tax

Leverage: -

Leverage refers to change in one variable which leads to the change in other

variables. In general terms leverage may be defined as relative change in profits due to a

change in sales.

Financial leverage:-

The use of fixed charges capital like debt with equity capital in the capital Structure

is described as financial leverage or trading on equity. The main reason for using financial

leverage is to increase the shareholders return.

Where there are preference shares:

EBT = EBIT-[ Int + PD/1- Tax]

EBIT (1-T)

EPS = ––––––––––––

38
 EBIT depends on sales.. The variability in EBIT is due to a change in sales which

is affected by the composition of fixed and variable costs.

Operating Leverage:-

Operating leverage refers to the use of fixed cost in the operation of a firm. A firm

will not have operating leverage, if it’s ratio of fixed costs to total costs is nil, For such a firm

given change in sales would produce the same percentage in the operating profit or earning

before interest and taxes.

Operating Leverage = Contribution / EBIT

Financial Ratio Analysis:-

Ratio analysis is a powerful financial analysis tool. Ratio is defined as the indicated

quotient of two mathematical expressions and as the relation ship between two or more things

in financial analysis ratio is used as benchmark after evaluating the financial position and

performance of a firm. Ratio helps to summarize large quantities of financial data and make

qualitative judgment about the firm’s financial performance.

39
 CHAPTER-IV

Analysis and Interpretations

40
 DATA ANALYSIS & INTERPRATETION

CAPITAL STRUCTURE LEVERAGES:

Leverage I = Total Debt / Total Assets

TABLE 4.1
Year Total Debt Total Assets Ratio
2008-2009 261.57 347.13 0.753
2009-2010 486.1 1383.57 0.351
2010-2011 681.86 1541.48 0.442
2011-2012 983.27 1974.77 0.497
2012-2013 996.85 1997.12 0.499
Source: Annual Reports avilable from Siva Sankar Motors Pvt. Ltd.

41
 FIGURE 4.1

Interpratetion:

It is observed from the above table 4.1 above Total Debt to Total Assets ratio for
the past 5 years in increasing trend. The maximum ratio was seen in the year 2008 -2009 and
the value is 0.753. The minimum ratio was noted in the year 2009 -2010 and the value is 0.351.

Leverage II = Debt / Total Assets

TABLE 4.2
Year Debt Total Assets Ratio
2008-2009 195.62 347.13 0.56
2009-2010 242.24 1383.57 0.18
2010-2011 361.37 1541.48 0.23
2011-2012 681.29 1974.77 0.34
2012-2013 160.24 1997.12 0.08
Source: Annual Reports avilable from Siva Sankar Motors Pvt. Ltd.

42
 FIGURE 4.2

Interpratetion:

It is observed from the above table 4.2 , Debt to Total Assets ratio for the past 5
years in fluctuating trend. The maximum ratio was seen in the year 2008 -2009 and the value is
0.56. The minimum ratio was noted in the year 2012 -2013 and the value is 0.08.

Leverage III = Current Debts / Total Assets

TABLE 4.3
Year Current Debts Total Assets Ratio
2008-2009 65.95 347.13 0.189
2009-2010 243.86 1383.57 0.176
2010-2011 320.49 1541.48 0.207
2011-2012 301.99 1974.77 0.152
2012-2013 836.61 1997.12 0.418
Source: Annual Reports avilable from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.3

43
Interpratetion:

It is observed from the above table 4.3 , Current Debts to Total Assets ratio for the
past 5 years in increasing trend. The maximum ratio was seen in the year 2012 -2013 and the
value is 0.418. The minimum ratio was noted in the year 2011 -2012 and the value is 0.152.

LEVERAGE ANALYSIS

Cost Marginal Statement 2008 – 2009

TABLE 4.4

44
 Particulars Rs. in Lakhs

Sales 1229.51
Less: Variable Cost (Purchase) 1710.88
Contribution -481.33
Less: Fixed Cost 2.27
EBIT -483.6
Less: Indirect Expenses 19.855
EBT -503.455
Operating Leverage = Contribution / EBIT

= -481.33 / -483.6

= 0.995

Financial Leverage = EBIT / EBT

= -483.6 / -503.455

= 0.960

Combined Leverage = Contribution / EBT

= - 481.33 / -503.455

= 0 .956

Cost Marginal Statement 2009 – 2010

TABLE 4.5

45
Operating Leverage = Contribution / EBIT

= 43.78 / 43.78
Particulars
Particulars Rs.in
Rs. inLakhs
Lakhs

Sales
Sales 4708.98
2130.92
Less: Variable
Less: Variable Cost
Cost (Purchase)
(Purchase) 4671.90
2087.14 =
Contribution
Contribution 37.08
43.78
Less: 1
Less: Fixed
Fixed Cost
Cost 0.173
-
EBIT
EBIT 36.907
43.78
Less:
Less: Indirect
Indirect Expenses
Expenses 36.137
24.22
EBT
EBT 0.77
19.56
Financial Leverage = EBIT / EBT

= 43.78 / 19.56

= 2.24

Combined Leverage = Contribution / EBT

= 43.78/19.56

= 2.24

Cost Marginal Statement 2010 – 2011

TABLE 4.6

46
 Operating Leverage = Contribution / EBIT

= 37.08 / 36.097

= 1.027

Financial Leverage = EBIT / EBT

= 36.097 / 0.77

= 46.87

Combined Leverage = Contribution / EBT

= 37.08/0.77

= 48.155

Cost Marginal Statement 2011 – 2012

TABLE: 4.7

47
 Operating Leverage = Contribution / EBIT

Particulars Rs. in Lakhs

Sales 5780.20
=
Less: Variable Cost (Purchase) 5532.36
Contribution -352.16
Less: Fixed Cost 0.282
EBIT -352.442
Less: Indirect Expenses 68.12
EBT -420.56
-352.16 / -352.442

= 0.999

Financial Leverage = EBIT / EBT

= -352.442 / -420.56

= 0.838

Combined Leverage = Contribution / EBT

= -352.16/-420.56

= 0.837

Cost Marginal Statement 2012 – 2013

TABLE 4.8

48
 Particulars Rs. in Lakhs

Sales 5338.08
Less: Variable Cost (Purchase) 5118.75
Contribution 219.33
Less: Fixed Cost -
EBIT 219.33
Less: Indirect Expenses 16.02
EBT 203.31
Operating Leverage = Contribution / EBIT

= 219.33 / 219.33

=1

Financial Leverage = EBIT / EBT

= 219.33 / 203.31

= 1.078

Combined Leverage = Contribution / EBT

= 219.33/203.31

= 1.078

Operating Leverage = Contribution / EBIT

Financial Leverage = EBIT / EBT

Combined Leverage = Contribution / EBT

TABLE 4.9:

Leverage Analysis (Rs. In Lakhs)

49
 Year Operating Leverage Financial Leverage Combined Leverage
2008-2009 0.995 0.96 0.956
2009-2010 1 2.24 2.24
2010-2011 1.027 1.027 1.027
2011-2012 0.999 -0.838 -0.837
2012-2013 1 1.078 1.078
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.9:

Interpretation:

From the figure 4.9 Leverage Analysis for the past 5 years fluctuating trends.

 The maximum Operating Leverage ratio was noted in the year 2009-2010 and 2012-
2013 and the values are 1 for both the years and the minimum value is 0.995 in the year
2008-2009.

 The maximum Financial Leverage ratio was noted in the year 2009-2010 and the value
was 2.24 and the minimum value is -0.838 in the year of 2011-2012.

 The maximum Combined Leverage ratio was noted in the year 2009-2010 and the value
was 2.24 and the minimum value was -0.837 in the year of 2011-2012.

CAPITAL STRUCTURE STATUS

TABLE 4.10 (Rs. in Lakhs)

50
 Year Equity Debt
2008-2009 195.62 5.94
2009-2010 242.24 297.36
2010-2011 361.37 3.93
2011-2012 681.29 9.97
2012-2013 160.24 9.97
Source: Annual reports aviable from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.10

Interpretation:

From the above table 4.10 Equity to Debt Ratio for the past five years was seen in
decreasing ternd. The Maximum ratio was seen in the year 2009-2010 and the value is 297.36.
The minimum ratio was seen in the year 2010 -2011 and the value is 3.93.

Debt Equity Ratio

51
Formula: Debt Equity Ratio = Debt / Equity

TABLE 4.11:

Debt Equity Ratio (Rs. in Lakhs)

Year Debt Equity Ratio
2008-2009 195.62 5.94 32.93
2009-2010 242.24 297.36 0.814
2010-2011 361.37 3.93 91.95
2011-2012 681.29 9.97 68.33
2012-2013 160.24 9.97 16.07
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.11:

Interpratetion:

From the table 4.11 above Debt Equity Ratio for the past 5 years in the

Fulcutuating trend. The Maximum Debt Equity Ratio was seen in the year 2010-2011 and the

52
ratio was 91.95. The Minimum Debt Equity Ratio was seen in the year 2009-2010 and the

value was 0.814.

Debt Ratios

Formula: Debt Ratio = Debt / Total Funds

53
 TABLE 4.12:

Debt Ratio (Rs. in Lakhs)

Year Debt Total Funds Debt Ratio
2008-2009 195.62 281.18 0.695
2009-2010 242.24 1139.71 0.212
2010-2011 361.37 1220.99 0.295
2011-2012 681.29 1672.79 0.407
2012-2013 160.24 1160.51 0.138
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.12:

Interpratetion:

It is observed from the table 4.12 above Debt Ratio for the past 5 years. The

Debt Ratio was seen from the past five years in fluctuating trend. The Maximum Debt Ratio

was seen in the year 2008-2009 and the ratio was 0.695. The Minimum Debt Ratio was noted

in the year 2012-2013 and the value was noted as 0.212.

54
 Net Profit or Loss to Networth

Formula: Net Profit or Loss to Net worth = Net Profit or Loss / Net worth

TABLE 4.13:

Net Profit or Loss to Net worth (Rs. in Lakhs)

Year Profit or Loss Net worth Net worth Ratio

55
 2008-2009 -12.03 105.94 -0.113
2009-2010 -53.69 297.36 -0.18
2010-2011 14.65 253.93 0.057
2011-2012 14.42 259.97 0.055
2012-2013 -38.18 309.87 -1.23
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd

FIGURE 4.13:

Interpratetion:

From the table 4.13 above Net Profit or Loss to Networth is in Decreasing

Trend. The Maximum Net Profit or Loss to Networth Ratio was observed in the year 2010-

2011 and the ratio was 0.057. The Minimum Net Profit or Loss to Networth Ratio was noted in

the year 2012-2013 and the ratio was noted as -1.23.

56
 Net Profit or Loss to Capital Employeed

Formula: Net Profit or Loss to Capital Employed = Profit or Loss / Capital Employed

TABLE 4.14:

Net Profit or Loss to Capital Employed (Rs. in Lakhs)

Year Profit or Loss Capital Employed Ratio
2008-2009 -12.03 281.18 -0.042
2009-2010 -53.69 1139.65 -0.047
2010-2011 14.65 1220.99 0.011
2011-2012 14.42 1672.79 0.086
2012-2013 -38.18 1160.51 -0.032
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.14:

57
Interpratetion:

It is observed from the table 4.14 above Net Profit or Loss to Capital

Employeed for the past 5 years are in flutucting trend. The Maximum Net profit or Loss to

Capital Employeed was seen in the year 2011-2012 and the value was 0.086. The Minimum

Net Profit or Loss to Capital Employeed was observed on the year 2009-2010 and the value

was noted as -0.047.

58
 Net Profit or Loss to Capital Ratio

Formula: Net Profit or Loss to Capital = Net Profit or Loss / Capital

TABLE 4.15:

Net Profit or Loss to Capital (Rs. in Lakhs)

Year Profit or Loss Capital Ratio
2008-2009 -12.03 231.94 -0.051
2009-2010 -53.69 297.36 -0.18
2010-2011 14.65 298.98 0.048
2011-2012 14.42 308.05 0.046
2012-2013 -38.18 357.94 -0.106
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd

FIGURE 4.15:

59
Interpratetion:

From the table 4.15 above Net Profit or Loss to Capital Ratio for the past 5

years in decaresing trend. The Maximum ratio was noted in the year of 2010-2011 and the

value was 0.048. The Minimum ratio was seen in the year 2009-2010 and the value was -0.18.

60
 Networth to Total Assets Ratio

Formula: Networth to Total Assets = Networth / Total Assets

TABLE 4.16:

Networth to Total Assets (Rs. in Lakhs)

Year Networth Total Assets Ratio
2008-2009 105.94 347.13 0.305
2009-2010 297.36 1383.57 0.214
2010-2011 253.93 1541.48 0.164
2011-2012 259.97 1974.77 0.007
2012-2013 309.87 1997.12 0.19
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd

FIGURE 4.16:

61
Interpratetion:

It is observed from the table 4.16 above Networth to Total Assets Ratio was

seen from the past 5 years in flutuating trend. The Maximum Networth to Total Assets Ratio

was seen in the year 2008-2009 and the ratio was noted as 0.305. The Minimum Networth to

Total Assets Ratio was observed in the year 2011-2012 and the ratio was 0.007.

62
 Capital to Total Assets

Formula: Capital to Total Assets= Capital / Total Assets

TABLE 4.17:

Capital to Total Assets (Rs. in Lakhs)

Year Capital Total Assets Ratio
2008-2009 231.94 347.13 0.668
2009-2010 297.36 1383.57 0.214
2010-2011 298.98 1541.48 0.193
2011-2012 308.05 1974.77 0.155
2012-2013 357.94 1997.12 0.179
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd

\ FIGURE 4.17:

63
Interpratetion:

The above table 4.17 showing the Capital to Total Assets of the company for the

past 5 years. The Maximum Capital to Total Assets was seen in the year 2008-2009 and the

value was 0.668. The Minimum Capital to Total Assets was observed in the year 2011-2012

and the value was noted as 0.155. It is identified the Capital to Total Assets are in the

decreasing trend.

64
 Debt to Total Assets Ratio

Formula: Debt to Total Assets = Debt / Total Assets

TABLE 4.18:

Debt to Total Assets (Rs. in Lakhs)

Year Debt Total Assets Ratio
2008-2009 195.62 347.13 0.563
2009-2010 242.24 1383.57 0.173
2010-2011 361.37 1541.48 0.234
2011-2012 681.29 1974.77 0.344
2012-2013 160.24 1997.12 0.08
Source: Annual Reports available from Siva Sankar Motors Pvt. Ltd.

FIGURE 4.18:

65
Interpratetion:

From the table 4.18 above Debt to Total Assets Ratio for the past 5 years are in

Fluctuating Trend. The Maximum Debt to Total Assets Ratio was seen in the year 20058-2009

and the value was notified as 0.563. The Minimum Debt to Total Assets Ratio was observed in

the year 2012-2013 and the value was 0.08.

66
 CHAPTER-V

Summary, Findings and

Suggestions
67
 SUMMARY, FINDINGS AND SUGGESTIONS

5.1 SUMMARY:

This study concentrated on the financial state of affairs of the Siva Sankar Motor

Company. It involved study of Balance sheet profit and loss account and ratio analysis and

also their comparison over the last five years, it has presented a broader picture of the financial

position of the company. The study analyzed the company’s success in being able to

effectively manage its day to day requirements pertaining to capital structure ratios and capital

structure leverages to know the financial performance and capital structure

The performance of the Company in terms of both Production and Sales Revenue has

been not satisfactory; the Company surrounded various adverse situations during the past five

years.

68
5.2 FINDINGS:

1. It is observed that debt ratio of the “Siva Sankar Motors Pvt. Ltd.” has been

decreasing trend.

2. It is found that, the profitability for the past present firm for the past 5 years seen

unfavourable.

3. Networth to Total Assets has been decreasing except in the year 2012-2013.

4. It is observed Total Assets of the firm has been increasing trend.

5. As per the Leverage Analysis:

(i) Operating Leverage is moderate.

(ii) Financial Leverage favourable in the year 2009-2010 & 2010-2011.

(iii) Combined Leverage good in the years 2009-2010, 2010-2011 and

69
 2012-2013. Although debt equity ratio has seen high ratio, it is note in

satisfactory position and favourable conditions high debt ratio is desirable.

6. It is seen that, profit to networth is unfavourable.

7. Profit to Capital Employeeed is not good for the past 5 years for the present firm.

8. It is observed that Profit to Capital is unfavorable during the years 2008-2009,

2009-2010 and 2012-2013.

9. Networth to Total Assets is recorded low ratio in the year 2011-2012.

10. It is observed that, Capital to Total Assets are in decreasing trend.

11. It is observed that debt to Total Assets is not favourable.

12. It is seen that, Total Debt to Total Assets in incerasing trend.

70
5.3 SUGGESTIONS:

1. The liquidity of Siva Sankar Motors Pvt. Ltd. Absolutely good. Hence it is advisable to

divert some possible extent of cash to other short term investments.

2. Another reason for the Siva Sankar Motors Pvt. Ltd. to have minimum earnings is due

to the increase with operating expenses and more appropriation. Siva Sankar Motors

Pvt. Ltd. may consider by that efficiency can be improved further by reducing the

operating expenses.

3. The analysis of the debt –ratio shows that the amount of debt is high. It is right for the

company but it can bear the financial charges. Else it should try to reduce its debt

levels.

4. Company should try to maintain an optimized equity and debt proportion of capital

structure it gives favorable financial results in future.

71
5. The Company should try maintaining the some debt-equity ratio in feature so that it can

increase its EPS.

6. The Company tries to create some extent of reserve funds whenever needed to finance

its profitability activities.

7. The Company try to reduce its operating expenditure impact on its leverage will be

improved.

8. All available profits of the company some extent transfer to share holders and balance

profits can be converted to reserves impact on that share holders wealth will be

increased.

9. Optimized Capital Structure is one that trends to minimize cost of financing and

maximize earning per equity share.

72
5.4 CONCLUSION:

Borrowed Capital, the Capital Structure which has a minimum cost is termed as the

Optimal Capital Structure. So the company should ensure that the cost of capital is minimum

and it should also be able to earn enough return. So, that the company is in anytime is a

position to pay of its financial charges. The researcher by analyst Capital Structure of any

company reveals the proportion of its owned capital and the Capital Structure of Siva Sankar

Motors Pvt. Ltd. has come to a conclusion that, the company has unfavorable position as its

value is in a decreasing trend. The financial health also is in unsatisfactory condition.

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 BIBLOGRAPHY

1 Essentials of Financial Management : I.M.Pandey

2 Financial Management : Prasanna Chandra

3 Financial Management : R.K.Sharma, sheshi k. Gupta

Annual Reports of “Siva Sankar Motors Pvt. Ltd.”

Website:
www.sivasankarmotors.com

Search Engine:
Google Search

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