FINANCIAL MANAGEMENT-II

Practical Project I

By-

Mrudula Gungolu
Soumen Kundu
Soumya Mohapatra
V.S.N.S. Meghana
Vinay Kumar Pandey
B. Sandeep

-22012
-22028
-22030
-22038
-22040
-M8-

01
Sushant Sasmal

-M8-09

Objective
Analyzing the annual report of a
company .
Identifying the companys fixed and
variable costs.
Getting information about companies
capital structure and interest paid.
Calculating companys operating and
financial leverage

INTRODUCTION
Capital Structure :
It is used to represent the proportionate
relationship between debt and equity.
It influences shareholders return and risk.
It is planned at the time of its promotion.

Operating Leverage :
Operating leverage affects a firms
operating profit (EBIT)

Financial Leverage :
Financial leverage affects PAT or the EPS.

Degree of Operating Leverage :

It is defined as the percentage changes in the earnings
before interest and taxes relative to a given percentage change
in sales.

Degree of financial Leverage :

It is defined as the percentage change in EPS due to a
given percentage change in EBIT.

Degree of combined Leverage :

The Degree of
Financial and operating leverages are combined to see the
affect of total leverage on EPS associated with a given change
in sales.

Questions to be answered while

making a financial Decision ?
How should the investment project be financed ?
Does the way in which the investment projects are
financed matters ?
How does the financing affect the shareholders
risk, return and value?
Does there exist an optimum financing mix in terms
of the maximum value to the firms sharholders?
Can the optimum financing mix be determined in
practice for a company ?
What factors in practice should a company
consider in designing its financing policy ?

Pecking Order Theory

Companies prioritize their sources of
financing (From internal financing to
Equity).According to the law of least effort
or least resistance, preferring to raise
equity as a financing means of Last
resort.
Internal funds are used first and when that
is depleted debt is issued and when it is
not sensible to issue anymore debt equity
is issued.

COMPANY OVERVIEW
Ashok Leyland Indian Automobile
manufacturing company.
Location : Chennai, India
Founded : 1948
Seconded largest commercial vehicle
manufacturer.
Market share :28% in 2007-08

FINANCIALS
FINANCIAL DETAILS
MARKET CAP (RS CR)

5,121.80

BOOK VALUE (RS)

16.74

FACE VALUE (RS)

1.00

DIV YIELD.(%)

3.12%

EARNINGS PER SHARE

1.63

TOTAL NO.OF SHARES

Shareholding of
Promoter and
Promoter Group

178710070
513618712
638009535

Public Shareholding
Shares held by
Custodians and
against which
Depository Receipts
have been issued-m

Total Liabilities

7,959.93

Total Assets

7,959.92

Total Income

12,561.13

Total Expenses

11,332.75

Net Profit

433.71

Fixed and variable cost:

Variable cost:
YEAR
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing
Expenses
Selling and Admin
Expenses
Miscellaneous
Expenses
Preoperative Exp
Capitalized
Total Expenses

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

8,925.14

9,702.20

8,406.17

5,534.24 4,554.36

86.00

76.75

65.19

44.47

38.42

1,075.51

1,039.07

974.60

671.61

566.26

0.00

99.67

86.04

45.51

50.30

0.00

1,001.27

857.00

645.89

495.68

1,246.10

334.40

0.19

0.16

0.13

0.00

-25.09

-24.06

-15.25

-8.20

11,332.75

12,228.27

10,365.13

6,926.63 5,696.95

 Fixed cost:
Interest

376.89

255.25

188.92

101.85 157.30

Depreciation

380.78

352.81

267.43

204.11 178.41

CAPITAL STRUCTURE OF ASHOK

LEYLAND
Capital Structure (Ashok Leyland)
Period
Instrument
Authorize Issued - P A I D U P d Capital Capital

From

To

(Rs. cr)

(Rs. cr) Shares (nos)

Face
Value

Capital

2012

2013

Equity Share

400

266.09

2660676634

266.07

2011

2012

Equity Share

300

266.09

2660676634

266.07

2010

2011

Equity Share

200

133.05

1330338317

133.03

2009

2010

Equity Share

200

133.05

1330338317

133.03

2008

2009

Equity Share

150

133.05

1330338317

133.03

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

Total Share Capital

266.07

266.07

133.03

133.03

133.03

Equity Share Capital

266.07

266.07

133.03

133.03

133.03

Share Application Money

0.00

0.00

0.00

0.00

0.00

Preference Share Capital

0.00

0.00

0.00

0.00

0.00

Reserves

4,189.04

2,632.34

2,523.65

2,190.10

1,976.00

Revaluation Reserves

0.00

1313.36

1306.28

1333.17

1364.86

Networth

4,455.11

4,211.77

3,962.96

3,656.30

3,473.89

Secured Loans

1,903.46

960.43

1,272.22

788.12

304.41

Unsecured Loans

1,601.36

1,435.10

1,385.97

1,492.33

1,657.57

Total Debt

3,504.82

2,395.53

2,658.19

2,280.45

1,961.98

Debt-Equity Ratio:
Year

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

Net worth

4,455.11

4,211.77

3,962.96

3,656.30

3,473.89

Total Debt

3,504.82

2,395.53

2,658.19

2,280.45

1,961.98

Debt Equity Ratio

0.79

0.83

0.98

0.93

Debt Equity Ratio

1.2
1
0.79
0.8

0.98

Mar '11

Mar '10

0.93

0.83

0.6
0.4
0.2
0
Mar '13

Mar '12

Debt Equity Ratio

Mar '09

Interest Payment Details:

Year

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

PBDIT

1,228.38

1,298.03

1,258.16

850.74

544.16

Interest

376.89

255.25

188.92

101.85

157.3

PBDT

851.49

1,042.78

1,069.24

748.89

386.86

Interest
400.00
376.89
350.00
300.00
255.25
250.00
188.92

200.00

157.30

150.00
101.85

100.00
50.00
0.00
Mar '13

Mar '12

Mar '11
Interest

Mar '10

Mar '09

Interest coverage ratio:

Year

Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

PBIT

847.6

945.22

990.73

646.63

365.75

Interest

376.89

255.25

188.92

101.85

157.3

Interest Coverage

1.48

3.68

5.23

5.83

2.27

Interest Coverage
7
5.83

5.23

5
4

3.68

2.27

21.48
1
0
Mar '13

Mar '12

Mar '11
Interest Coverage

Mar '10

Mar '09

Companys Operating and Financial

Leverage:
Year
PBIT
Earnings Per
Share (Rs)
Sales Turnover

Mar
Mar
Mar '13 Mar '12 Mar '11
'10
'09
847.6
945.22 990.73 646.63 365.75
1.63

2.13

4.75

3.18

1.43

12,481.2 14,134.0 12,393.3 8,071.7 6,826.9

0
8
6
4
6

Degree of Operating Leverage

(DOL):
Year

Mar '13

Mar '12

Mar '11

Mar '10

% change in PBIT

-0.1033

-0.0459

0.5321

0.7680

% change in Sales

-0.11694

0.140456

0.535401

0.18233

DOL

0.88

-0.33

0.99

4.21

DOL
5.00
4.21
4.00
3.00
2.00
0.99

0.88
1.00
0.00
Mar '13

-0.33
Mar '12

Mar '11

-1.00
DOL

Mar '10

Degree of Financial
Leverage (DFL):
Year

Mar '13

Mar '12

Mar '11

Mar '10

% change in EPS

-0.2347

-0.5516

0.4937

1.2238

% change in PBIT

-0.1033

-0.0459

0.5321

0.7680

DFL

2.27

12.01

0.93

1.59

DFL
14.00
12.00

12.01

10.00
8.00
6.00
4.00
2.27
2.00
0.00
Mar '13

0.93
Mar '12

Mar '11
DFL

1.59

Mar '10

Degree of Combined Leverage (DCL):

Year

Mar '13

Mar '12

Mar '11

Mar '10

% change in EPS

-0.23474

-0.55158

0.493711

1.22378

% change in Sales

-0.11694

0.140456

0.535401

0.18233

DCL

2.01

-3.93

0.92

6.71

DCL
8.00

6.71

6.00
4.00
2.01
2.00
0.00
Mar '13
-2.00
-4.00

0.92
Mar '12

Mar '11

-3.93

-6.00
DCL

Mar '10

Conclusion:
We have analyzed the annual report of Ashok Leyland using the capital
structure concepts. The interest coverage ratio of the company is
showing decreasing pattern and the debt equity ratio is also decreasing
which means though the companys revenue is decreasing. We have
also analyzed the operating and financial leverage of the company. In
this we have seen that the sales turnover of the company is decreasing.
This may be attributed to economic slowdown and increasing variable
costs like material cost and employee expenses. The operating leverage
is increasing whereas the financial leverage is decreasing which means
earnings per share is decreasing at higher rate than EBIT, which is also
decreasing but at a lower rate.

The company should focus on decreasing its debt as interest

coverage ratio is decreasing. It should find ways to increase the sales,
so that the company can increase its profits so that it can retain part of
its earnings and utilize it for further growth and simultaneously increase
shareholders wealth by providing higher dividends.