STUDY ON CAPITAL STRUCTUREdocshare04.docshare.tips/files/13666/136665051.pdf · 2017. 3. 5. · STUDY ON CAPITAL STRUCTURE MRF , APPOLO TYRE , CEAT and JK TYRE ltd industries , which

STUDY ON CAPITAL STRUCTURE

INDUSTRY PROFILE

The tire industry is essentially an automobile ancillary business. The demand for its

products emanates from the Original Equipment Manufacturer (OEM), replacement & export

market. All these segments are equally important in terms of volume of business. The tire

industry’s growth is linked to the growth in demand from vehicle manufacturers & the

aftermarket. During 2005-06, the growth in production of two or three wheelers & the

aftermarket demand were buoyant. Consequently there was a substantial growth in the sales

of 2/3 wheelers tires. Input costs especially the price of natural rubber & fabric remained high

due to increased demand for tires in passenger car & commercial vehicle segments &also

export of natural rubber.

The tire industry in India appears to be on the verge of changes due to the ongoing process of

globalization. Some foreign companies are making efforts to establish a manufacturing

facility in India by setting up joint ventures to cater to local demand as well as for buyback.

Indian companies are also stepping up their efforts & working to capture new markets.

Regional trade agreements may also have an impaction the industry future performance &

development. They tire industry has shown tremendous growth during the year .The 2/3

wheeler industry also witnessed substantial growth in the period under review. There has

been a marked shift in consumer preference away from mopeds & scooters & towards

motorcycles. The motorcycle tire segment is estimated to grow at 15% per annum. Given the

current economic realities, the industry will witness fierce competition between companies of

varying size & stature including multinational companies. The tyre industry is essentially an

automobile ancillary business. The demand for its products emanates from the original

equipment manufactures replacement and export market all these segment are equally

important is terms of volume of business. The tyre industries growth is linked to the growth

in demand from vehicle manufactures and the after market

During 2008-09 the growth in production of 2 and 3 wheeler increased as the market

demand were buoyant. Consequently there was a substantial growth in the sales of 2 and 3

wheeler tyres input costs, especially the price of natural rubber and fabric remained high due

to increased demand for tyre in passenger car and commercial vehicle segment and also due

to export of natural rubber.

The tyre industry in India appear to be the verge of changes due to the ongoing

process of globalization some foreign companies are marketing efforts to establish a

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manufacturing facility in India by setting up their effort and working to capture new markets

regional trade agreement may also have as impact on the industries future performance and

development.

The tyre industry has shown tremendous growth during the year the 2 and 3 wheeler

industry also witnessed substantial growth in the period under review. There has been a

market shift in consumer preference away from mopeds and scooter and towards motor

cycles. The motor cycle tyre segment is estimate to grow @15% per annum. Stature,

including multinational companies.

HISTORY OF THE TYRE INDUSTY

The word rubber industry had its beginning in the year 1887 with the initiation of process of

tuber vulcanization by Charles good year. However the growth of the industry received a big

boost towards the end of the century, when the boyd Dunlop succeeded in making the

vulcanized rubber into inflatable pneumatic tyres. Since then the tyre industry has constituted

a major segment of the industry all over the world. Even in India, automotive tyre and tubers

account for a major part of the Indian rubber produce industry.

SECTOR COMMENTS;

Ever since the first Indian tyre company given the current economic realities, the

industry will witness fierce competition between companies of varying size and Dunlop

rubber company (India) was incorporated in 1926, the tyre industry has grown rapidly and

today it is a Rs 9000 core worth industry. India has 2.61lakh people living in villages and are

connected by 6.23 lakh kms of metal led roads and 9.81lkh kms of un metalled roads. These

villages are linked to small town and cities. There is a daily traffic of over 4.12 lakhs trucks,

1.27 lakh busses, 7.23 lakh car and thousands of taxis, 2 wheeler, 3 wheeler, tractors and

animal drawn vehicle on Indian roads. There exists a market potential for the tyre industry in

India. The fortune of the tyre industry depends on the agriculture and industrial performance

as it influences economy, the transportation needs and the production of vehicles. Hence, this

is a very sensitive industry, which has to adopt itself to a highly volatile environment.

MARKET PROFILE;

While the tyre industry is mainly dominated by the organized sector , the unorganized sector

holds sway in bicycle tyres. The major players in the organized tyre segment consist of

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MRF , APPOLO TYRE , CEAT and JK TYRE ltd industries , which account for 63% of the

organized tyre market. The other key players includes modi rubber, kesoram industries and

good year India, with 11per cent , 7%and 6% share respectively . Dunlop, falcon tyres

corporation of India ltd(TCIL), TVS –srichakra, metro tyre and balkrishna tyre are some of

the other players in the industry. MRF , the largest tyre manufacture in the country, has

strong brand equity ,while it rules supreme in the industry. Other players have created niche

markets of their own.

SECTOR SPECIFICS;

The tyre industry is a major consumer of the domestic rubber production, natural rubber

constitutes 80 per cent of the material content in India tyre synthetic rubber constitute only 20

per cent of the rubber content of a tyre in India. Worldwide, the ratio of natural rubber to

synthetic rubber is 30; 70. Apart from natural and synthetic rubber, rubber chemicals are also

widely used in tyres.

Most of the RSS-4 grade rubber required by the Indian tyre industry is domestically sourced,

with only a marginal amount being imported. This is an advantage for the industry, since

natural rubber constitutes 25% of the total raw material cost of the tyre.

OUTLOOK;

Globally, the OEM segment constitutes only 30%of the tyre market, exports 10% and the

balance from the replacement market. In India, the scenario is quite different .Nearly 85% of

the total tyre demand in the country is for replacement. This anomaly has placed the retenders

in a better position then the tyre manufactures .rethreading is looming over the tyre industry

has a colossal threat. The Coimbatore based elgi tyres and tread ltd., the largest rethreads in

India.

Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one. The

popularity of rethreading stems from the fact that is costs only 20% of a new tyre but

increases its life by 70% to 80%. Most of the transports in India thread their tyre twice during

its lifetime, will a few fleet owners even retread thrice. In their zealousness to economize

costs, they over look the reality that retreading the quality of the tyre.

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The Major Raw Material & their weight age in the total raw material structure are:

1. Natural Rubber 25%

2. Synthetic Rubber 14%

3. Carbon Black 13%

4. Nylon Tire Cord/yarn 34%

5. Share of Raw Material 14%

Remaining share of raw materials of 14% approx. is accounted by rubber chemicals.

1. NATURAL RUBBER

It is the most important raw material used in the manufacture of tires. Natural rubber

accounts for about 40% (by weight) of the total raw material requirement in the manufacture

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of a tire. The productivity of natural rubber in India is highest in the world but still India face

shortage of natural rubber produced in the country.

2. SYNTHETIC BUTADIENCE RUBBER

It is one of the major kinds of raw materials. It contains three types of rubber namely:

styrene rubber, Poly Butadiene rubber & Butyl Rubber.

3. CARBON BLACK

It is petroleum based unorganized chemical in the form of quasi-graphite powder of

extreme fitness & with high surface area composed essentially of elemental carbon. The main

input required in the manufacturing of carbon black is feedstock. Carbon black is divided into

soft grade & hard grade. In India carbon black used is of N660, N220, & N330 variety.

4. NYLON YARN/FABRIC/TIRE CORD

Nylon tire cords are an essential reinforcement material weigh- age Nylon tire yarn

in term of cost of raw materials used in the highest at about 27%. Caprolactum is a major raw

materials used in the manufacture of Nylon tire cord.

To sum up the tire industry is highly raw material intensive with raw material

accounting for 70% of the cost of production. The export-import policy allows free import of

all tires of new tires & tubes. However, import of retreated tires either for use or for

reclamation of rubber is restricted. This has led to use tires being smuggled into the country

under the label of new tires. Though tire imports & all raw materials for tires except natural

rubber are under Open General Licenses (OGL) only import of natural rubber from Srilanka

is eligible under OGL.

The profitability of the industry has high correlation with the price of key raw

materials such as rubber & crude oil. They account for more than 70% of the total cost. The

tire industry is also capital intensive industry as it requires around Rs. 4 billion to set up a

radial tire plant(tire having fabric layers parallel) & around 1.5 to 2 billion for a cross poly

tires.

Functions Of The Tire:

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Tire provides steering response.

Durable & easy to drive.

Has load carrying capacity.

Provides cushioning ability.

Cooler running & gives more mileage.

Having a minimum noise & vibration.

Passengers’ safety.

Features of the Tires:

1. The tires have a stylish look.

2. The tires are made up of a unique thread design which provides unbeaten balance

coupled with low rolling resistance of gripping.

3. The performance level of tires is high.

4. The tires are durable.

5. Tires are specially created of unit directional patterns for optimum performance.

6. Tires give smooth driving comfort.

7. Product variety two, three & four wheelers.

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COMPANY PROFILE

Company history

Mr. H.D Shetty & a group of professionals promoted FALCON TYRES

LIMITED(FTL) in 1973 & it started commercial production in 1975.Then it was taken over

by JUMBO group in 1987 headed by Mr. M.R.Chhabria, NRI business tycoon in December

2005 organization was taken over by P.K.RUIA group. Dunlop has a 47% stake in Falcon

Tires however the company functions independently.

Company engages in the business of manufacturing of a wide range of Nylon bias

play tires & buty1 tubes for two & three wheelers passenger’s cars, jeep, light commercial

vehicles under ”DUNLOP” brand for the domestic market & FALCON brand for the

overseas market. It is location in the garden city Mysore, situated in Metagalli industrial area

of Karnataka industrial development board Mysore in 18 acres land area. Falcon is a

company registered under companies Act & under license from Dunlop India limited to

manufacture tires & tubes using state of the art technology. Falcon’s Mysore factory

manufactures 5400000 tires & 3600000 buty1 tubes per year.

Falcon tires is the preferred choice of all leading vehicle manufactures in India like

• Bajaj Auto

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• Yamaha Motors

• Escorts

• Hero Honda motors

• Majestic Auto

• LML

• Kinetic motors company

• Kinetic Engineering

• Royal Enfield motors

Falcon tires limited global operations include exporting tires to Bangladesh, Srilanka,

Peru Nepal, European countries etc. Falcon has acquired modern & sophisticated technology

for producing quality tires & tubes. It has imported high speed machines from Korea, Taiwan

&United Kingdom etc.

Close interaction with the customers has familiarized with their needs & has therefore

helped the company to create quality products such as the JAP series & latest M & Z series of

tires. This move has enabled the company to gain a major chunk of the market in the two &

three wheeler segment.

Falcon is the first & largest company in India to supply high speed, high performance

“Low Aspect Ratio” directional bias tires advanced & high powered new generation

motorcycles being introduced successfully on the Indian roads. Falcon tire meets

international organization for standardization bureau of India standard wherever applicable

Falcon’s R & D center is engaged upgrading the product performance, quality &introduction

of new products Falcon’s aim is to satisfaction to its customers by offering high & cost

effective tires & tubes.

OBJECTIVES OF THE COMPANY

Supply of the quality products.

On time delivery.

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Achieve fullest customer satisfaction.

Training to all levels.

Continual improvements.

MAJOR CUSTOMERS OF FALCON TYRES

a) Bajaj Auto Ltd. Akrudi, Pune

b) Bajaj Tempo Ltd. Akrudi, Pune

c) Bajaj Auto Ltd. Walaj, Aurangabad.

d) Hero Honda Motors, Chennai.

e) LML Ltd. Kanpur.

f) Yamaha Motors India Ltd. Faridabad.

g) Kinetic Engineering Ltd. Pune.

h) Piaggio Greaves Ltd. Bharamati.

i) VST Tillers & tractors Ltd. Bangalore.

BACKGROUND & INCEPTION OF THE COMPANY

Milestone of Falcon tires

1974: FTL was promoted by a group of professionals.

1975: FTL started its commercial production.

1983: Company started with its loss.

1987: The Company was taken over by Mr. Chabria & it becomes a part of jumbo group of

industries.

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1991-92: FTL started recording profit.

1994: The entire accumulated losses of the company were wiped off & it carried out the one

of the most remarkable turnover in the Indian corporation history.

1994-95: Capacity expansion from 2.2 lakh to 3.0 lakh.

1995-96: It emerged as the highest profitable company in the Indian tire industry with a net

profit ratio of over 7%.

1997-01: One stage capacity expansion to 3.5 lakhs till date.

2001-02: Company earns profits of 353.06.

2005-06: Company is taken over by P.K RUIA Group.

2006-07: Company started, cogen 6mw power project.

NATURE OF THE BUSINESS

Falcon company is engaged in manufacturing business, it provides tires, tubes, flap,

radical tires & tubeless tires with licensed capacity of automotive tires of 5400000 &

automotive tubes of 3600000 per year. Company enjoys 20% of market shares globally. The

companies into globalization, it exports products to the developing countries like East Asian

countries. It has several regular customers like Bajaj auto, Yamaha motors, Hero Honda.

The company suppliers to all major Original Equipment Manufacturers (OEM)

directly from the factory. The replacement market is catered through the C & F agents

established all over the country. The export market is directly handled from the factory at

Mysore. The company’s brand “Dunlop” has enabled the company to with stand the sever vet

throat competition from the other tire companies to a great extent.

FTL is engaged in manufacturing & marketing of automotive tires, tubes flaps, the

products are as follows:

o Tires of autos

o Tires of motor cycles, scooters, jeeps.

o Tires for tractors.

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o Automotive inner tubes for all the above tires.

AREA OF OPERATION

Falcon manufactures & markets Nylon bias poly tires & buty1 tubes for two & three

wheeler passengers cars & jeeps light commercial vehicles under the Dunlop brand the

domestic & Falcon brand for the overseas market.

FTL in the year 1987 company has taken over by DUNLOP INDIA LIMITED. Even

though it is subsidiary of India Ltd. It is a separate entity & profits enter by it being a

subsidiary of Dunlop. Falcon has the stable assistance of the SUITOMO industries of Japan.

The company supplies products to the Original Equipment Manufacturers (OEM) &

replacement throughout the nation & exports products to the developing countries like South

East Asia & Latin America. Therefore it operates globally, nationally & regionally.

VISSION, MISSION AND QUALITY POLICY

VISSION STATEMENT

The company believes in the philosophy of continuous improvement in all facts of its

operation & to have leadership status in two & three wheeler segment.

To set global benchmark in each segment of our operation & in the process delight all

our customers, employees & stakeholders.

MISSION STATEMENT

The Falcon Tyres Ltd. Will always strive to be a socially responsible corporate citizen,

dedicated to providing value for money to its customers through the operational excellence of

its process, partners & employees where the focus is on continuous improvement of the

quality of all its products & processes.

To focus on 2 & 3 wheeler business along with capacity expansion of existing

capacity

To mark Falcon Tyres available all across India.

Improvement in costumer relations & production quality.

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QUALITY POLICY

Falcon Tyres Ltd. committed to supply quality tyres, tubes & flaps on time to achieve

fullest customer satisfaction.

EOHS POLICY

Falcon Tyres Ltd. manufacturing tyres, tubes & flaps are committed to develop

environmental friendly healthy & safe working systems. We shall achieve this by:

1. Use of proper & efficient methods in our operations with the aim of conservation of

natural resources, prevention of pollution & hazards.

2. Compliance with applicable legislations & regulations.

Training at all levels & continually improving environmental, occupational, health

& safety performance.

PRODUCT PROFILE

Falcon Tyres Ltd. Manufacture & market a wide range of Nylon bias poly tyres &

butyl tubes for two & three wheelers, passenger cars, light commercial vehicles & farm

vehicles. FTL markets its products under DUNLOP brand for the domestic market &

FALCON brand for the overseas market.

DUNLOP- MAGIC/MYSTRY/ ZEBRA-Vehicles in which they are used;

Hunk, Eliminator, Splendor plus, Enticer, Ambition, Karizma, CBZ, Dawn, CD dawn,

Libero crux, CD-10008 pulsars, Caliber – 115, Boer, velocity, Boss, Freedom, Victor, Fiero,

Wind, RX-100. DUNLOP-GLINDER & STEEL vehicles in which these kinds of enriched

tyres are used: Cheek safari, DX Zoom, Nova, Marvel, Legend, Active Honda & dieo.

DUNLOP CMALLING-Vehicles in which these kinds of tyres are used: Appachi,

Passion plus, R-15, Ambition, Dawn, Libero, CRUX, CRUX-R victor, pulsar, caliber-115,

Boxer, Kinetic velocity, Freedom, Boss, Fiero, RX-125.

DIFFERENT TYPE OF TYRES

AUTO RICKSHAW MOTOR CYCLE SCOOTER

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Jap 700

Auto star

Kargil

Lug

Leader

Superstar

Megastar

Super tuff

Maxi rib jap 320

Maxi rib jap 330

Maxi rib jap 360

Uni grip gold

Uni grip speed

Hero

Magic

Master

Smart

Challenger

Mystery

specter

Maxi life

Jap 220

Glider

Kiraro jap 230

Maxi life jap 200

K137

CAR JEEP AND LCV TRACTOR

PC 523

Super tuff

Olympus

Olympus ULT

Road track

Rod track major

Road star plus

Border

XM rib extra

Front jap 910

Front Mahan

Mahan LR5

Power tills

Reaper jap 940

Rear jap 930

Trailer RK 59

OWNERSHIP PATTERN

Falcon Tyres Company is private limited company 91.06% of shares of the company

are in the electronic from share holding pattern as on 30th September 2011.

PARTICULARS NO. OF SHARES HELD % OF SHARE HOLDING

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A. Promoter’s holding

1.Promoters

Indian promoters

Foreign promoters

5947644

23513100

17.45

68.98 2.Persons acting in

concert

---- ----

Subtotal 29460744 86.43

B.Non- promoters holding.

3. Institutional investors

a. Mutual fund & UTI

b.Bank, FIs, Insurance

companies.

c. FIIs

----

----

----

----

----

----Subtotal ---- ----

3.Others

a)private corporate bodies

b)Indian public

c)NRIs/OCBs

d)Any other

2564568

2032590

11922

15708

7.50

5.97

0.03

0.05

Subtotal 4624788 13.57

GRAND TOTAL 34085532 100.00

COMPETATORS INFORMATION

MADRAS RUBBER FACTORY (MRF)

A leading company in the tyre industry MRF Ltd. Boasts of an enviable track record.

The company has continued in the same vein & has been posting excellent results,

notwithstanding the winds of recession blowing across the economy performance of the

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company has been commendable in light of the fact that the user industry is facing a slow

down. The company has benefited from better productivity & operational efficiency. The

company caters to a host of impressive clients.

CEAT

Being the second largest selling brand in India with a market share of 14.6% CEAT

caters primarily to the replacement market. Due to the strong growth in the OEM sector the

share of the replacement market in the total revenue of the company has fallen. However, the

production growth in the automobile sector. Over the past few years should provide a boost

to the replacement market in the coming years & CEAT could be major beneficiary thereof

with the advent of multinationals like Goodyear, Michelin Bridgestone & Continental, a

major shakeout in the industry is imminent & the same could result in CEAT.

APPLLO TYRES LIMITED (ATL)

A slowdown in the tyre market & rubber procurement at high prices has put the

brakes on Apollo Tyres Ltd. (ATL). The company has traditionally has been the market

leader in the truck & bus tyres segments.

INFRASTRUCTURAL FACILITIES

1. It has 18 acres of land.

2. Canteen facilities.

3. Medical & health care facilities.

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4. Safety department.

5. Each & every department should be clean.

6. Air conditioning & ventilation system.

7. Meeting rooms.

8. Leave facilities.

9. Shoes & uniform for workers.

10. Co-generation power plant.

11. Raw water storage tanks.

12. Water facilities.

I.ACHIEVEMENT/AWARDS

Central Excise has termed FTL as “good payer”

Sales Tax Department & the Electricity Board have giving “GORDCARD” to FTL>

The PF Department has termed FTL as “BEST ENTERPRISE”.

OTHER AWARDS

ISO 9001:2000 certificate in March 2003.

ISO/TS 16949:2002 certificate in April 2004.

ISO 40001; 2004 certificate in September 2005.

OHSAS 18001:1999 certificate in October 2005.

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WORK FLOW MODEL OF FTL

Receipt of stock

Receipt of chemical

Blue patches chalk power & Blue/white paint

Tube joint paint

Valve, valve base paint

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R

A

W

M

A

T

E

R

I

A

L

S

T

O

R

E

Final mixing

Testing

Extrusion

AGEING

Precutting

Splicing

Valve Fixing

Chilling

Performing

Curing

Inspection

WORK AWAY

COMPOUND (20X)

WORK AWAY

WORK AWAY

WORK AWAY

WORK AWAY

WORK AWAY

WORK AWAY

SCRAP


Core, Nut, washer & packing bags

Work flow model gives the detailed tyres manufacturing process & also tube

manufacturing process. It is systematic process which is explained in detail as follows:

TUBE MANUFACTURING PROCESS & PROCESS SPECIFICATION

RAW MATERIALS

BUTYL

Butyl rubber a copolymer of isobutylene & isoprene is used in the manufacture of

automotive tubes because of its low permeability of gases.

EPDM

It is a copolymer of ethylene & propylene which posses very good resistance to

ageing & also low cost since it is used butyl for manufacturing of tubes.

CARBON BLACK

Carbon black used in rubber compounds to provide increased strength & produced by

burning crude oil in a special type of furnace.

OIL

Paraffin/Aromatic/Naphthenic oils are used as an extender

ZINC OXIDE

Used as an activator in butyl rubber compound.

STEARIC ACID

Stearic acid in combination with acid & acts as a activator & also act as an internal

lubricant.

RECCLAIM RUBBER

Butyl reclaim is a processing aid.

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CORE FIXING

Finished Goods


CURATIVES

Sulphur act as a Vulcanizing agent.

ACCELEATORS

Trim ethyl tetra mine & mercapto benzyl thiozole.

MASTER BATCH MIXING

Master batch mixing of butyl rubber inner tube compound is carried out in an internal

mixer but finalization (addition of curatives) may be carried out in open mill or internal

mixer.

The objective of master batch mixing is to disperse the carbon black in the butyl with

the minimum of macro agglomerates & stock porosity. It has offended been considered that

carbon black addition in a conventional butyl mixing cycle should quite early as the polymer

does not undergo palpitation during mixing. However, a degree of mastication of the butyl

rubber converts the initially formed sumps into a continuous mass which more readily

accepts black typically the first black addition is made after one minute of rubber mastication.

Zinc oxide &/or stearic acid should not be added with the polymer initially as they

coat it, reducing shear & adversely affecting mix quality. Zinc oxide is preferably added with

the first black & stearic acid with the subsequent black oil addition.

Process oils should not be added with the first black as they reduce viscostitu &

shear. They should be added with the last black addition.

Dump temperature of 155-165 degree C are indicated for optimum mix temperature is

mandatory to ensure complete chemical reaction. Dump temperatures must exceed 125

degree cent. To ensure dispersion of polyethylene butyl bale wrap.

STRAINING

Straining is process of eliminating foreign matter from the compound as the wall

thickness of the tube is very tolerating the same. Butyl inner tube compounds are strained to

remove foreign matter black agglomerates, etc…. efficient cooling & minimal heat history

are prerequisites for straining finalized compounds preferably should go directly to the

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Extruder are sometimes practiced. The compound must be particularly well-mixed & high

quality curatives used to avoid frequent screen changing.

Staining is carried out after master batch mixing.

STRANED EXTRUDER

Mesh size : 40/50 mesh

Strained rubber compound temperature : 125’oC max

Extruder screw RPM : 60 max

FINAL MIXING

Curatives may be added to butyl inner tube compounds on the open mill before

finalizing. It is desirable to rest the master batch for a minimum of 2 hours preferably

overnight to allow cooling & some equilibration. This allows maximum rubber carbon black

interaction, which improves green strength.

CURATIVES

TMT, MBT are accelerators & sulphur act as vulcanizing agent.

Final mixing is carried out in two ways:

1. Understand master batch mixing.

2. Strained master batch mixing.

EXTRUSION

Hot feed extrusion is the most widely practiced technique. A tube of uniform of

dimensions with minimum porosity is the objectives.

In hot feed extrusion, particular an adequate supply of compound strip with minimum

porosity & at the correct temperature. A small rolling bank should be maintained on the feed

mill should not be over loaded a slight excess of stock is desirable in the extruder feed box to

make sure that the screw flight are full, thus preventing an excessive intake of air with the

feed. Feed sped temperature of 110 to 120 dg. Cent. Give efficient extrusion. The take off

conveyor sped should match the extrusion speed & pulling down should avoided as it results

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in increased tube wall porosity & uneven shrinkage on cooling. The crown which under goes

thinning in the forming operation is usually extruded 1.5- 1.6 times the thickness of the base.

Talc or other dusting is blow into the interior of the tube during extrusion to prevent

the collapsed tube sticking to itself.

The application of blue fine compound to the butyl tube during extrusion is useful it

identifies tube as butyl to re-clainers. A light thin line only should apply so that it is dry

before entering the cooling batch.

Butyl inner tubes should be well cooled after extrusion by passing through a cold

water spray. It is particularly essential that the folds are well cooled, warm folds are

particularly susceptible to fold breakdown. All water should be blown off the surface of the

tubes after leaving the cooling section.

A polyethylene patch is applied to the hot tube in the area where the value will be placed. The

polyethylene should be plain & un-patterned. The tube is then dusted or dip coated externally

with talc. Tubes are then cut to length & usually passed to storage in the bear trap racks.

If possible the green tubes should not stacked, as this can result in fold break down.

The tubes are preferably stored for the duration of 2 hours which will ensure a good condition

for splicing.

“GREEN TUBE STORAGE AFTER EXTRUSION SHOULD NOT MORE THAN 4

HOURS”.

VALVING

Butyl inner tubes should be fitted with butyl rubber values valving before splicing

allows the tubes to be spliced crown down if required; the valve hole can be punched before

valve fixing. Valve hole punching is carried out using specified templates.

Valve cement is made from the inner tube compound with added tacakifier resin. The

valve cement is applied to the base of the valve pad. A single thin coat of well compounded

cement is adequate sufficient drying time to allow all solvent to escape from the adhesive is

required.

Butyl inner tube valves should be consolidated using specified valve consolidation

die; the valve consolidation time varies from 6.0 sec. to 8.0 sec. depending on the tubes sizes.

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Oven temperature : 60+/- 50 deg. cent

Drying time (Minutes) : minimum 20/ maximum 30

SPLICING

Splicing is a fundamentally important step in Butyl inner tube production & must be

performed as efficiently as possible, since splice faults often form large proportion of total

rejects.

Butyl tubes are spliced by automated butt splicing machines the ends of the inner

tubes to be joined are cut to length by a hot knife & the fresh tacky surfaces are butted

together & consolidated. Optimum butt splice quality to be obtained with a horizontal cut &

rubber faced clamps.

SAFETY FEATURES

1. Twin starter buttons requiring two-handed operation.

2. Clamps lift if starter buttons released before they have completely desended.

3. Kick bar immediately lifts clamps & stops knife according to which part of cycle is in

progress.

4. Guarded clamp covers table opening on machines.

STORAGE

After splicing, green tube should be carefully stored on racks, storage time should not

be longer than 24 hours & the storage environment should reasonably clean & cool.

SPLICE CHILLING

Chilling of the butt splice Butyl tube to increase its green strength & minimize splice

opening during the subsequent operation is required. The most common method of chilling is

by laying the splice section over a pipe through which cooled bring circulating splice should

not be over chilled & the chilled time being usually equivalent to the duration of the cure

cycle. Care should be taken to ensure that no moisture remains on the tube when it is placed

in the press, the presence of moisture may cause defects.

FORMING

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Forming is the operation in which the uncured tube is inflated to about 97% to 98% of

its final cured volume before placing it in the prese. Forming Rings should be designed to

minimize any expansion of the base of the tube, concentrating it on the thickened crown

section. Tubes should be slowly inflated. It is advisable to use a guide to control the degree of

inflation. Over formed tubes are susceptible to thinning & may crease in the mould. Forming

rings should not be located very close to presses as the heat from the press may cause splice

opening or thinning.

VULCANIZATION

Inner tubes are vulcanized in quite simple press often with a hot black to increase the

temperature in the thicker valve region. Inner tubes area inflated internally with compressed

air. Normally, Butyl inner tubes curing temperatures are 190-200 deg. Cent. And curing time

will of course vary with size & thickness.

Mould surfaces should smooth & clean both from the stand point of the appearance

of finished tubes & ease with which the stock flows in the mould. Dirty moulds can lead to

poor stock flow & buckles. Moulds to be cleaned with diesel or alkali (5%) in water. Moulds

should be well vented & the vents kept clear to prevent dimpling.

Internal air pressure : 7.0+/-0.5 kgs

External temperature : 195-205 deg, cent

(Curing temperature)

INSPECTION

After vulcanization the tubes should inspected carefully for flaws that might offect

serviceability using a combination of visual & manual techniques particular attention should

be given to the splice & the valve region, The most common sources of defective tubes.

The tubes next are usually vacuum evacuated, folded & packaged for storage &

shipments. A good practice is to package the tubes in sealed polyethylene bags, which will

help prevent ozone attack during long storage.

RECYCLING OF COMPONDS

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In the manufacture of butyl inner tubes a certain amount of uncured stick, which must

be record have been damaged during storage. If there is no scorched material or other foreign

matter in the rubber, this material can be used at up to 10% to 20 % during final mixing. It

should be at uniform rate on the final mix mill or warm-up mill but it should be remembered

that recycle reduces the scorch safety of new compound.

Material for recycle must be free from water & extraneous materials such as valve

patch & valves. Thus care must be taken to excluded water at all possible pints of entry.

Watch together with dusting agents & polyethylene patches, can be a potent source of blisters

& porosity in cured inner tubes.

FUTURE GROWTH & PROSPECTS

• To develop wide range of tyres and tubes in two, three and four wheeler and

industrial segments for export market.

• To develop tubeless tyres in two wheeler segments.

• To further introduce advanced technology tyres of directional pattern design

and conventional pattern in motorcycle segment.

• To further develop hi-tech low profile tyres in scooter

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MCKENCY’S 7S FRAME WORK:

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The 7-S model is better known as McKenzie 7-S. This was developed by tom peters

and Robert waterman who had been consultants at the firm “McKenzie”. They published

their 7-S model in their article “Structure is not organization” (1980) and in their books “The

art of Japanese management” (1981) and “In search of excellence” (1982). Just as the 7

wonders of the world serve as the mirror to world’s beauty, so do these 7 elements constitute

the entire company as a whole.

The mode consists of 7 elements. Those 7 elements are distinguished in so called

hard S’s and soft S’s. The hard elements are feasible and easy to identify. They are strategy,

structure and system of the organization. The four soft S’s are hardly feasible. They are

highly determined by the people at work in the organization i.e., style, staff, skills and shared

values.

STRATERGY

A company plans in response to or anticipate changes in the external environment.

Strategy sets out vision, mission, objectives, major action plans and policies of the entire

enterprise. These set out the picture of the organization in the future. In a typical pattern, it

spells out the overall organization strategy.

The main strategy of FTL is provided wide range of products at superior quality to

the customers. In order to achieve this, company has expanded the existing manufacturing

capacity and facilities. It is also aiming at product diversification. So, new pattern of tyres

and tubes have been introduced.

STRUCTURE

FTL has both horizontal and vertical organization structure. Where there are different

departments and under these departments there are sub managers according to their preferred

jobs.FTL is an independent an organized structure in itself. The lower level and functional

level managers are consulted and consultation is analyzed before the top management any

decisions.

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ORGANIZATION STRUCTURE:

Managing Director

Vice President

Sr. General Manager

General Manager

Sr. Deputy General Manager

Deputy General Manager

Assistant General Manager

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Sr. Manager

Manager

Officer

Board of directors in FTL

• Mr. Pawan Kumar Ruia, Chairman

• Mr. S.Ravi, Director

• Mr.Ambuj Kumar Jain, Director

• Mr. Kokkarne Natarajan Prithviraj, Director

• Mr. Prakash P Mallya, Director

• Mr. S Badrinarayanan, Director

• Mr. Ashok Agarwal, Director

• Mr. Ashok Guptta, Whole Time Director

• Mr. Sunil Bhansali, Executive Director

Functional department of DPPL industry

There are the functional at DPPL

• Finance

• Human resource management

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• Marketing

• Production department includes engineering, technical, quality assurance material and

production planning related actively.

SYSTEM

System on 7S frame works refers to the rules, regulations and procedures; both formal

and informal rules complement the organization system, production planning, control system

and budgeting system. The FTL uses a complete systematized process in all areas of its

operations. The company has different organized methods in order to smooth flow of the

information from one department to another. Dunlop has good internal control system.

• Information system & IT used in the FTL

• Budgets are made in order to find sales forecast by Marketing Department. Budgets

are properly planned to make purchase at reasonable time and price by Financial

Department.

• HR systems

HR Department aims at providing training and development.

STYLE

Tangible evidence of what management considers important by the way it collectively

spends time and attention and uses symbolic behavior. If it is not what management says is

important, it is the way management behaves.

In FTL there exists a highly participative style of management. The employees are

given full important. Even workers are allowed to express their views freely by suggestions;

schemes and best suggestion is awarded. The workers are educated about their rights. The

company values the opinion of workers, believes in “Total acceptance” rather than

acceptance by the management or the workers. The opinions of both management and

workers are taken into consideration.

STAFF

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Staff of the company has hired able people, trained them well and assigned them to

the right jobs. Employees are the functional unit of the organization. Their selection, training,

placement and induction everything is important for the organization.

The company deals with the process by which employees are recruited, deployed and

develop their current position, future up-gradation are doing, selection, training, rewards,

recognition, retention, motivation and assignment to appropriate work are considering.

FTL there are various departments under which employees work, they are very

dedicated towards work. The employees are specialized in their respective field of work.

There are many welfare schemes in company in order to encourage the workers. As such they

are very active and learning oriented.

The employees demographics are as under:-

Total employees- 575

Company staffs- 65

Company employees-110

Trainees-85

Contractees-315

SKILL

A skill is the ability, knowledge, understanding and judgment to accomplish a task.

Skills may be defined as what the company does best; the distinctive capabilities and

competencies that reside in the organization.

The job requirements, type of job and important of job gives rise to different skills in

the different jobs and different departments of the company. The skills differ with respect to

performance of the job for instance- in quality control they need an engineer and in

HR.Department they require post graduate with specialization in HRM.

The manpower at FTL a huge and capable. The workers are very skilled so the

company is capable of accepting and performing any type of the orders and executing it will

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before schedule and to the expecting of the customers. The employees are well-versed skills

on their particular job performance. The training is provided for the employees where

employees will get to learn all innovative things about the process.

• Technical skill.

• Human skill.

• Training.

SHARED VALUE

It refers to the core of fundamental values that are widely shared in the organization

and serve as guiding principles that are important. The values and believes of the company

ultimately guide employees to-wards valued behavior. The values might well include simple

goal statements in determining corporate destiny. To fit the concept, most people in the

organization must share the values.

FTL believes in the philosophy of continuous improvement in all the aspects of its

operations. The organization has the common goals of having production of 500 crores in

next 3years.

The company considers employees are the greatest of its assets. Production and

productivity comes only to employee welfare FTL believes that productivity comes only next

to employee welfare. The company’s focus on the customer and creating culture of

interdependence are embodied in its mission statement.

SWOT ANALYSIS

STRENGH OPPERTUNITIES

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WEAKNESS THREADS

Strategic management is concerned with establishing proper organization

environment fit. It involves watching the organization factors with the environment factor.

Strategic management therefore, involves analysis of the organization factors.

SWOT means analysis and assessment of comparative strengths and weakness of a

firm in relation with their competitors and environment opportunities and threats, which a

company may likely to face SWOT analysis is as such a systematic study and identification

on of those aspects and strategies that best suit the individual company position in a given

situation . it should be based on logic and rational thinking such that a proper strategy

improves an organization business strengths and opportunities and at the same time reduce its

weakness and threats .

The SWOT analysis of FTL is given below;

STRENGTHS;

• Brand equity of “DUNLOP”

• Necessary infrastructures and additional capacities created to cuter to the marketing

requirement.

• The company has increase its presence in all the markets viz, original equipment

replacement exports.

• Consistent quality and after sales service with full fledged R&D backup.

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• Flexibility in production.

• Excellent manpower.

• 95%capacity utilization.

• 30%shre in the replacement market.

• Obtained ISO certificate for the good quality of the production.

• Successful and fast absorption of international technology to suit Indians and needs.

WEAKNESS;

• Dependence on original equipment customers.

• Loss of flexibility in pricing of the products due to severe cultroat computation.

• Non-participation in OEM,S like TVS , Honda motors, etc and fast growing

companies.

• Very less expenditure on R&D.

• Less range of tyre in 4 wheelers.

• Out dated labour laws.

OPPORTUNITIES;

• Projected growth trajectory of the automobile industry, indicating increase in the

OEM demand.

• Rise in replacement market demand.

• Extensive distribution network to cater to the requirements of the replacement market.

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• Increased business from existing and new clients including exports markets for two/

three wheeler tyres.

• THREATS;

• cheaper imports of tyre, especially from china

• Cyclical nature of the automobile industry.

• Volatility in the prices of rubber, synthetic rubber, carbon black and other petroleum

based raw materials, which accounts for nearly 90% of the total raw material

consumed.

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ANALYSIS OF FINANCIAL STATEMENT

BALANCESHEET AS AT 30th September, 2012

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PARTICULARS NOTE 2012 2013

1.EQITY AND LIABILITIES(1) Shareholders fundsa. Share Capitalb. Reserves & surplusc. Money Received against share warrants

(2) Share Application Money Pending Allotment

(3) Non-current Liabilitiesa. Long-Term borrowingb. Deferred Tax Liabilities (Net)c. Other Long Term Liabilitiesd. Long Term Provisions

(4) Current Liabilitiesa. Short-Term Borrowingb. Trade Payablesc. Other Current Liabilitiesd. Short Term Provisions

Total Equity & Liabilities

II. ASSETS(1)Non-Current Assetsa. Fixed Assets

i. Tangible Assetsii. Intangible Assets

iii. Capital Work-in-progressb. Non-current Investmentsc. Long Term Loans & Advances

(2) Current Assetsa. Inventionsb. Trade Receivablesc. Cash & Bank Balanced. Short-Term Loans & Advances

Total Assets

12

33A3B3C3D

44A4B4C4D

3873.6323540.76_

1704.2717972.74_

27414.39_

47437.491483.073746.481057.99

12282.9911687.427013.651095.98

19677.01_

19726.77763.502606.451186.92

23313.827970.455945.293441.73

113219.45 84631.94

6

78

9101112

48043.1920.1516109.281107.5223930.35

9536.466851.712448.855171.94

19497.00_4372.138863.0023698.29

9139.9711383.372779.964898.22

113219.45 84631.94


STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED ON 30 th

SEPTEMBER, 2012

PARTICULARS NOTE 2011 2012

Revenue from operationsOther Income

Total Revenue

ExpensesCost of materials consumedManufacturing ExpensesPurchase of Stock-in-tradeCharges in inventories of finished goods,Work-in-progress & stock-in-tradeEmployee Benefit ExpenseFinancial CostsDepreciation & Amortization ExpensesOther Expenses

Total Expenses

Profit before exceptional & extraordinary items & taxExceptional Items

Profit before extraordinary items & tax

Extraordinary Items

Profit before tax

Tax expense:(1) Current tax(2) Deferred tax

Profit/Loss from the period from continuing operations

Profit(Loss) from the discontinuing operationsTax expense of discontinuing operations Profit/Loss from the discontinuing operations

Profit/Loss for the period

Earning per equity share:(1) Basic(2) Diluted

1314

1515A

1617181920

21

90595.66951.39

90072.77828.44

91547.05 90901.21

53292.054981.159738.17

436.765422.044172.011805.5210180.99

53756.955441.2911539.59

-2585.564928.501752.03852.3310261.51

90028.69 85946.64

1518.36 4954.576697.28 _

-5178.92 4954.57

_ _

-5178.92 4954.57

_719.57

2019.5636.55

-5898.49 2898.46

___

___

-5898.49 2898.46

-7.617.61

8.508.50

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LEARING EXPERIENCE

Internship at Falcon Tyres Ltd. was a rewarding experience. During in plant training

period I have learnt the organization basics. And 10weeks of experience at FTL has taught

the important of soft skill for a management student. The most significant lessons, which

have learnt from the organization, employees are the most valuable assets of the organization

and it is very important to keep them satisfied.

Being in the organization for four weeks, I have learnt the following disciplines:

o Managerial knowledge such as planning, organizing, directing, controlling and

decision making.

o Got the product knowledge at Falcon types.

o The company has given high priority for quality and also customer

satisfaction.

o More care was taken by the top managers towards workers regarding their

health and safety.

o No outsiders are allowed into the company without permission letter and

security people take due care of this, which indicates the important given by

the company towards security of employees, organization and secrecy.

o All infrastructural facilities and safety measures are provided to the workers at

work place to avoid accidents.

o The company follows an internal recruitment process through promotions on

the basis of this promotes employee satisfaction lot.

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GENERAL INTRODUCTION

Capital structure refers to a business's balance of debt and equity financing.

Businesses have two options for financing the purchases of equipment, expenses and

materials necessary for their operations. They can raise money from investors, which is

equity financing, or they can borrow from banks and creditors -- leverage or debt financing.

Most businesses engage in a degree of both, paying careful attention to the costs associated

with either source. Relying too heavily on equity increases the cost to investors and cuts into

return. But relying too much on debt puts the business in a more precarious position and

comes with the substantial costs of interest.

Capital structure means the mixture of share capital and other long term liabilities. In

the company, we know that liability of each shareholder is limited but how much be the total

liability of shareholder is the important question? It can be decided by choosing best capital

structure. In capital structure, we include equity share capital, preference share capital,

debenture and long term debt. Suppose, our company’s capital structure may show 50%

equity share capital, 30% preference shares capital and 20% of debentures. But all company’s

capital structure may not be equal because different business needs different type of capital.

Some of companies want to become smart. They slowly decrease equity share capital and

increase loan excessively which may be very risky because these company has to pay fixed

cost of interest and has to manage repayment of loan after some time.

In order to run & manage a company in an efficient manner Funds are needed from

the initial stage that promotional stage to the end .Finance plays a very important role in

company’s life .This is because, if the funds are insufficient the business suffers .But, if the

funds are not properly managed the entire organization suffers .Therefore, it is very essential

to estimate correctly the current & future need of capital. By doing this, an organization can

have an optimum capital structure which intern helps the organization to conduct its activities

smoothly without any stress.

STATEMENT OF PROBLEM

Capital structure decision is not an easy task. The choice of firm’s Capital structure is

a marketing problem. The capital structure affects the company’s EPS, EBIT, and financing

trend so the study of capital structure is necessary. The optimum financing affect the

company’s performance or not.

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Capital structure refers to the way corporation finance its assets through some

combination of equity debt. Capital structure planning here by it focuses on the idea firms

only planning their capital. This analysis can be extended to look weather there is impact an

optimal capital structure the one which maximizes the value of the firm. The company is

facing the problem of improper of capital structure, debt acquires the major part in capital

structure it increase the company’s cost of debt.

SCOPE OF THE STUDY

To study of the capital structure involving an examination of long term as well as

short term sources that a company taps in order to meets its requirement

To capital structure influences the shareholder’s return & risk.

To identify the finance resources of the company.

The dividend decision bearing on the capital structure of the company.

The capital structure affect the company’s EPS & EBIT.

The new financing decision of the company may affect its debt-equity mix or ratio.

OBJECTIVS OF THE STUDY

To know the effect of capital structure planning on company’s profit.

To study the capital structure of the company.

To examine the leverage analysis of company.

METHODOLOGY OF THE STUDY

Data is obtained from various reports available with company. The information

collected through secondary sources of data, which included company’s reports, manuals, and

websites.

LIMITATION OF THE STUDY

These were the constrains which have faced at the time of study

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As the study was mainly based on the published information it is bound to suffer from

certain limitations.

The ratio analysis & other tools used might contain few general limitations of the

financial statement such as yearend figures are considered for conclusion.

CAPITAL STRUCTURE

MEANING OF CAPITAL STRUCTURE

The term capital structure is used to represent the proportionate relationship b/w debt

& equity. Estimation of capital requirement is necessary but the formation of capital structure

is important.

The term capital structure refers to “the relation between various long term form of

financing such as equity share capital, preference share capital & debenture”.

Capital structure refers to the way corporation finance its assets through some

combination of equity debt.

The term capital structure refers to the relationship between the various long term

sources financing such as equity capital, preference capital and debt capital. Deciding the

suitable capital structure is the important decision of the financial management because it is

closely related to the value of the firm.

According to Prasanna Chandra “the composition of a firm’s financing consists of

equity, preference and debt”.

Types of capital structure:

1. Simple capital structure

2. Compound capital structure

3. Complex capital structure

1. Simple capital structure: A simple capital structure consists of single security base as a

source of found to finance the activities of a concern.

2. Compound capital structure: In compound capital structure a combination of two

security base in the form of equity and preference capital or equity share capital and

debenture are used as a sources of funds.

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3. Complex capital structure: A complex capital structure is made up of multi security base,

consisting of equity, preference debenture and loans from financial institutions.

CAPITAL STRUCTURE PLANNING

INTRODUCTION

Effective business management requires careful planning and decision-making about

the balance of debt and equity used in financing the business. The key for business owners is

to evaluate their company's particular situation and determine its optimal capital structure. An

optimal capital structure is one that strikes a balance between risk and return and maximizes

the price of the stock while simultaneously minimizing the cost of capital.

Companies use both debt and equity to finance their activities and the mix of debt and

equity constitute a business’s capital structure. Companies choose between debt and equity

depending on their current and expected future profitability. In general, the use of debt can

put certain financial constraints on a business, but in exchange it allows greater returns for the

companies current equity holders. The cost of debt often is cheaper than the cost of equity,

but the use of debt can have a potentially negative effect on the overall future financing cost

of a company.

Capital structure planning refers to the designing of an appropriate capital structure in

the context of facts & circumstances of each firm. Planning the capital structure means

selecting a desired debt-equity combination in advance. The initial capital structure is

determined at the time the firm is promoted. So, this structure should be designed very

carefully. Deciding the suitable capital structure is the important decision of the financial

management because it is closely related to the value of the firm.

Capital structure is the permanent financing of the company represented primarily by

long-term debt & equity. A widely used financial technique to design an appropriate capital

structure is EBIT-EPS analysis. As a method of capital structure planning, it essentially

involves the comparison of alternatives of financing under various assumptions of EBIT. The

choice of combination of sources with the capital structure would be one which, for a given

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level of EBIT, would ensure the largest EPS. Alternatively the choice of combination should

ensure the maximum market price per share (MPS) = EPS* P/E ratio

Advantages of Equity Financing

• Equity financing do not create any obligation to pay a fixed rate of dividend.

• Equity financing can be issued without creating any charge over the assets of the

company.

• It is a permanent source of capital and the company has not to repay it except under

liquidation.

• The investments do not increase a company’s fixed costs or fixed payment burden.

• Equity financing do not require a pledge of collateral.

Disadvantages of Equity Financing

• If only equity financing issued, the company cannot take the advantage of trading on

equity.

• As equity capital cannot be redeemed, there is a danger of over capitalization.

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• Equity financing can put obstacles in management by manipulation and organizing

themselves.

• During prosperous periods higher dividends have to be paid loading to increase in the

value of shares in the market and speculation.

• Investors who desire to invest in safe securities with a fixed income have no attraction

for such shares.

Advantages of debt financing

• Debt financing generate and retain greater investment returns for a company’s

equity holders.

• Borrowing costs from the use of debt usually are less expensive than those on

equity financing, because debt holders enjoy greater guarantees about the

safety of their investments than equity holders.

• Lower cost debt financing improving its profit margins.

• The use of debt also has a tax advantage compared to equity financing.

• Debt financing is that allows the founders to retain ownership and control of

the company.

• It provides owners with a greater degree of financial freedom than equity

financing.

Disadvantages of debt financing

• To the use of debt is the financial distress that debt can exert on a company.

• The debt financing is that it requires making regular payment of principal and interest.

• Debt financing is that its availability is often limited to established businesses.

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EBIT-EPS ANALYSIS

The EBIT-EPs analysis is one of the important tools in the hands of financial manager

to get an insight into the firm’s capital structure. The earnings before interest & tax (EBIT) &

earnings per share (EPS) analysis useful in examining the effect of financial leverage to

analyze the behavior of EPS with varying levels of EBIT under alternative financial plans. A

capital structure may consist of debt & equity in different proportions. When EBIT and EPS

analysis is used, the stress is to select the financial plan that will give the highest value of

EPS. Fundamentally, there is no conflict between the two approaches, i.e., financial leverage

and EBIT analysis.

EBIT analysis shows the effect of financial leverage on EPS. Thus, both the

approaches can be simultaneously used for decision-making.

LEVERAGES

Leverages a business term that refers to borrowing. If a business is “leveraged” it

means that the business has borrowed money to finance the purchase of assets. The other way

to purchase assets is through use of owner funds or equity.

One way to determine leverage is to calculate the Debt-to-Equity ratio showing how

much of the assets of the business are financed by debt and how much by equity.

Leverage is not necessarily a bad thing. Leverage is useful to fund company growth

and development through the purchase of assets. But if the company has too much borrowing,

it may not be able to pay back all of its debts.

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

that are highly leveraged may be at risk of bankruptcy if they are unable to make payments

on their debt; they may also be unable to find new lenders in the future.

TYPES OF LEVERAGES

• Operating leverage

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• Financial leverage

• Total/Combined leverage

Operating Leverage

The percentage of fixed costs in a company’s cost. Generally, the higher the operating

leverage, the more a company’s income is affected by fluctuation in sales volume. The

higher income vs. sales ratio results from a smaller portion of variable costs, which means

the company, does not have to pay as much additional money for each unit produced or

sold.

Operating Leverage= Contribution (sales – Variable Cost)

Operating profit (Contribution – Fixed Cost)

OR

Contribution

EBIT

Financial Leverage

The use of borrowed money to increase production volume, and thus sales and

earnings. It is measured as the ratio of total debt to total assets. The greater the amount of

debt, the greater the financial leverage. Since interest is a fixed cost (which can be written

off against revenue) a loan allows an organization to generate more earnings without a

corresponding increase in the equity capital requiring increased dividend payments

(which cannot be written off against the earnings). However, while high leverage may be

beneficial in boom periods, it may cause serious flow problems in recessionary periods

because there might not be enough sales revenue to cover the interest payments. Called

gearing in UK see also investment leverage and operating leverage.

Financial Leverage = PBIT

PBT

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Total/ Combined Leverage

A leverage ratio that summarizes the combined effect the degree of operating leverage

(DOL), and the degree of financial leverage has on earnings per share (EPS), given a

particular change in sales. This ratio can be used to help determine the most optimal level

of financial and operating leverage to use in any firm.

Combined Leverage = Operating Leverage × Financial Leverage

Return on Investment (ROI)

ROI analysis is one of the several commonly used financial metrics for evaluating the

financial consequences of business investments, decisions or actions. ROI analysis

compares the magnitude and timing of investment gains directly with the magnitude and

timing of investment costs. A high ROI means that investment gains compare favorably

to investment costs.

In the last few decades, ROI has become a central financial metric for asset purchase

decisions (for example computer systems, factory machines, or service vehicles) approval

and funding decisions for projects and programs of all kinds (such as marketing

programs, recruiting programs and training programs) and more traditional investment

decisions (such as the management of stock portfolios or the use of venture capital).

ROI = Net Income

Debt & equity

Return on Equity (ROE)

Return on equity is a measure of how well a company used reinvested earnings to

generate additional earnings, equal to a fiscal year’s after- tax income (after preferred

stock dividends but before common stock dividends) divided by book value, expressed as

a percentage. It is used as a general indication of the company’ s efficiency; in other

words, how much profit it is able to generate given the resources provided by its

stockholders. Investors usually look for companies with returns on equity that are high

and growing.

ROE = Net Income

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Equity share holder fund

RATIO ANALYSIS

Ratio Analysis is a form of financial statement analysis that is used to obtain a quick

indication of a firm’s financial performance in several key areas. The ratios are

categorized as Short-term solvency ratios, Debt management ratio, Asset management

ratios, Profitability ratios &Market value ratios.

Ratio Analysis as a tool possesses several important features. The data, which are

provided by financial statements, are readily available. The computation of ratios

facilitates the comparison of firms which differ in size. Ratios can be used to compare a

firm’s financial performance with industry averages. In addition, ratios can be used in a

form of trend analysis to identify areas where performance has improved or deteriorated

over time.

RATOS

1. Fixed asset coverage ratio

2. Interest coverage ratio

3. Debt equity ratio

4. Debt to total asset ratio

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STUDY ON CAPITAL STRUCTUREdocshare04.docshare.tips/files/13666/136665051.pdf · 2017. 3. 5. · STUDY ON CAPITAL STRUCTURE MRF , APPOLO TYRE , CEAT and JK TYRE ltd industries , which