Answer 1We will compare the Capital Structures of Triveni Engineringand Industries Ltd and Kalpa-Taru Power Transmissions(KPTL) Ltd for the years 2009, 2008 and 2007.For Analysing the Capital Structure we have to find the Following:1.Profit before Interest and Taxes (PBIT) – EPS (Earnings per share) relationshipIt examines how different Capital structures affect the earnings available to share holders. It represents the effect of Financing alternatives on earnings per share. Itis a way of studying the leverage under various methods of Financing.EBIT= Sales – Variable Cost= Contribution – Fixed Costs= EBIT (Earnings before Taxes).EPS (Earnings per share)= EBIT – Interest= EBT – Tax = Earnings for Shareholders= Earnings per share.We also have EPS = (PBIT-I)(1-t)/n2.ROI – ROE relationshipROE=[ROI+(ROI-r)D/E](1-t) Where ROE = return on EquityROI = Return on InvestmentR = Cost of debtD/E = debt-equity ratioT = Tax rate3.Leverage AnalysisLeverage is a result of Fixed Costs. Two kinds of Leverages are Operating Leverageand Financial Leverage.3.1.Operating Leverage
This is the use of Fixed Costs than Variable costs so that the Price doesn’t fall as the demand falls. Degree of Operating Leverage = Percentage change in Operating income to the associated change in Percentage change in shares.DOL = Percentage change in NOI / Percentage change in sales= (Change in EBIT / EBIT) / (Change in Sales / Sales)3.2.Financial LeverageThis relies on the concept of substitution of fixed charge financing for Variablecost financing. This arises from the Firm’s fixed financing cost such as interest on debt.Degree of Financial Leverage= Percentage change in EPS / Percentage change in EBIT= EBIT / (EBIT – Interest)3.3 Degree of Total LerverageThis is the Percentage change in EPS that can result from a given percentage change in Sales.DTL = DOL X DFLDTL=Q (P-V)/ Q (P-V – F - intDTL=S-VC/S-VC-F-INT = GROSS PROFIT/EBIT-INT.We will analyse Triveni Engineering First.
Balance Sheet of Triveni Engineering------------------- in Rs. Cr. -------------------Mar '05Mar '06Sep '07Sep '08Sep '0912 mths12 mths12 mths12 mths12 mths
Sources Of FundsTotal Share Capital10.3025.7925.7925.7925.79Equity Share Capital8.3225.79
25.7925.7925.79Share Application Money0.000.000.000.000.00Preference Share Capital1.990.000.000.000.00
922.99Secured Loans429.96369.80931.131,079.84758.75Unsecured Loans20.1332.8170.4288.8675.05
Total Debt450.09402.611,001.551,168.70833.80Total Liabilities644.22932.851,693.591,952.421,756.79Mar '05Mar '06Sep '07Sep '08Sep '09
12 mths12 mths12 mths12 mths12 mthsApplication Of Funds
Gross Block387.68710.071,503.601,556.921,634.87Less: Accum. Depreciation116.92139.78218.94295.81370.17Net Block270.76570.291,284.661,261.111,264.70
Capital Work in Progress30.0446.7421.1139.6719.20Investments22.981.8610.8311.6226.98Inventories
435.28404.79419.72539.79458.14Sundry Debtors66.65100.3494.28213.45242.88Cash and Bank Balance17.3620.3620.9114.9215.65
Total Current Assets519.29525.49534.91768.16716.67Loans and Advances68.7687.36346.83385.71416.52Fixed Deposits5.425.56
4.523.7811.67Total CA, Loans & Advances593.47618.41886.261,157.651,144.86Deffered Credit0.000.000.000.000.00
Current Liabilities222.21256.68459.96435.20602.99Provisions53.7148.7651.5384.3497.27Total CL & Provisions275.92305.44511.49519.54
700.26Net Current Assets317.55312.97374.77638.11444.60Miscellaneous Expenses2.880.962.241.921.30
Total Assets644.21932.821,693.611,952.431,756.78Contingent Liabilities111.30177.6443.6758.8942.40Book Value (Rs)20.8919.8626.1729.74
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