MAJOR PROJECT REPORT

ON

Relationship Of profitability and Capital structure practices

Submitted in partial fulfillment of the requirements of

Bachelor of Business Administration (BBA)

Guru Gobind Singh Indraprastha University

Project guide: Submitted by:

Raghvir Kaur Name: Archit Aggarwal

Roll No. 11121401712

Jagannath International Management School ,

Vasant Kunj, NewDelhi

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BONAFIDE CERTIFICATE

This is to certify that this project report is a bonfire work of Archit Aggarwal Enrolment

number 11121401712 of BBA who carried out the summer training report titled

“Relationship Of profitability and Capital structure practices” .Under the supervision of

Ms. Raghvir Kaur

__________

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ACKNOWLEDGEMENT

It is with this sense of gratitude that I acknowledge the effort of a whole host of well wishers

who have in some way or the other contributed in their own special ways to the success of

this effort.

Individual effort alone I can never contribute in totality, to the successful completion of any

venture. Firstly, I would like to thank JAGANNATH INTERNATIONAL MANAGEMENT

SCHOOL for giving me an opportunity to work on a valuable project and Secondly ,Ms

Raghvir Kaur for allowing me to work on a very intrinsic part “Relationship Of

profitability and Capital structure practices”. I thank her for the ideas and basic concepts

she delivered and shared with me, as they helped me a lot in accomplishing this project of

mine .

_________________

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CERTIFICATE

This is to certify that Archit Aggarwal have completed the Project titled “Relationship Of

profitability and Capital structure practices” under the guidance of Ms Raghvir Kaur in

partial fulfillment of the requirement for the award of degree of Bachelor of Business

Administration at Jagannanth International Management School (GGSIPU), New Delhi .

This is an original piece of work & I have not submitted it earlier elsewhere.

Raghvir Kaur

________________

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DECLARATION

I hereby declare that the work entitled “Relationship Of profitability and Capital structure

practices” submitted to "Ms. Raghvir Kaur " is a record of an original work done by me

under her guidance of “Jagannath International Management School , Vasant kunj " and this

project work is submitted in the partial fulfillment of the requirement for award of graduate

degree in bachelor of business administration.

Signature

________________

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TABLE OF CONTENTS

S..No Content Page No.

Chapter 1 Introduction

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Chapter 2 Literature review

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Chapter 3 Conceptual discussion

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Chapter 4 Research and Methodology

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Chapter 5 Data analysis

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Chapter 6 Findings

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Chapter 7 Conclusion

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Chapter 8 Bibliography

57

Chapter 9 Appendix

58

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CHAPTER 1

INTRODUCTION

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CAPITAL STRUCTURE

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DEFINITION of 'Capital Structure'

A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

A company's proportion of short and long-term debt is considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered.

The term capital structure is used to represent the proportionate relationship between debt and equity.

The various means of financing represent the financial structure of an enterprise. The left-hand side of the balance sheet (liabilities plus equity) represents the financial structure of a company. Traditionally, short-term borrowings are excluded from the list of methods of financing the firm’s capital expenditure.

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Important Factors Affecting the Choice of Capital Structure

(1) Cash Flow Position:While making a choice of the capital structure the future cash flow position should be kept in mind. Debt capital should be used only if the cash flow position is really good because a lot of cash is needed in order to make payment of interest and refund of capital.

(2) Interest Coverage Ratio-ICR:With the help of this ratio an effort is made to find out how many times the EBIT is available to the payment of interest. The capacity of the company to use debt capital will be in direct proportion to this ratio.

It is possible that in spite of better ICR the cash flow position of the company may be weak. Therefore, this ratio is not a proper or appropriate measure of the capacity of the company to pay interest. It is equally important to take into consideration the cash flow position.

(3) Debt Service Coverage Ratio-DSCR:This ratio removes the weakness of ICR. This shows the cash flow position of the company.

This ratio tells us about the cash payments to be made (e.g., preference dividend, interest and debt capital repayment) and the amount of cash available. Better ratio means the better capacity of the company for debt payment. Consequently, more debt can be utilised in the capital structure.

(4) Return on Investment-ROI:The greater return on investment of a company increases its capacity to utilise more debt capital.

(5) Cost of Debt:The capacity of a company to take debt depends on the cost of debt. In case the rate of interest on the debt capital is less, more debt capital can be utilised and vice versa.

(6) Tax Rate:The rate of tax affects the cost of debt. If the rate of tax is high, the cost of debt decreases. The reason is the deduction of interest on the debt capital from the profits considering it a part of expenses and a saving in taxes.

For example, suppose a company takes a loan of 0ppp 100 and the rate of interest on this debt is 10% and the rate of tax is 30%. By deducting 10/- from the EBIT a saving of in tax will take place (If 10 on account of interest are not deducted, a tax of @ 30% shall have to be paid).

(7) Cost of Equity Capital:

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Cost of equity capital (it means the expectations of the equity shareholders from the company) is affected by the use of debt capital. If the debt capital is utilised more, it will increase the cost of the equity capital. The simple reason for this is that the greater use of debt capital increases the risk of the equity shareholders.

Therefore, the use of the debt capital can be made only to a limited level. If even after this level the debt capital is used further, the cost of equity capital starts increasing rapidly. It adversely affects the market value of the shares. This is not a good situation. Efforts should be made to avoid it.

(8) Floatation Costs:Floatation costs are those expenses which are incurred while issuing securities (e.g., equity shares, preference shares, debentures, etc.). These include commission of underwriters, brokerage, stationery expenses, etc. Generally, the cost of issuing debt capital is less than the share capital. This attracts the company towards debt capital.

(9) Risk Consideration: There are two types of risks in business:(i) Operating Risk or Business Risk:This refers to the risk of inability to discharge permanent operating costs (e.g., rent of the building, payment of salary, insurance installment, etc),

(ii) Financial Risk:This refers to the risk of inability to pay fixed financial payments (e.g., payment of interest, preference dividend, return of the debt capital, etc.) as promised by the company.

The total risk of business depends on both these types of risks. If the operating risk in business is less, the financial risk can be faced which means that more debt capital can be utilised. On the contrary, if the operating risk is high, the financial risk likely occurring after the greater use of debt capital should be avoided.

(10) Flexibility:According to this principle, capital structure should be fairly flexible. Flexibility means that, if need be, amount of capital in the business could be increased or decreased easily. Reducing the amount of capital in business is possible only in case of debt capital or preference share capital.

If at any given time company has more capital than as necessary then both the above-mentioned capitals can be repaid. On the other hand, repayment of equity share capital is not possible by the company during its lifetime. Thus, from the viewpoint of flexibility to issue debt capital and preference share capital is the best.

(11) Control:

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According to this factor, at the time of preparing capital structure, it should be ensured that the control of the existing shareholders (owners) over the affairs of the company is not adversely affected.

If funds are raised by issuing equity shares, then the number of company’s shareholders will increase and it directly affects the control of existing shareholders. In other words, now the number of owners (shareholders) controlling the company increases.

This situation will not be acceptable to the existing shareholders. On the contrary, when funds are raised through debt capital, there is no effect on the control of the company because the debenture holders have no control over the affairs of the company. Thus, for those who support this principle debt capital is the best.

(12) Regulatory Framework:Capital structure is also influenced by government regulations. For instance, banking companies can raise funds by issuing share capital alone, not any other kind of security. Similarly, it is compulsory for other companies to maintain a given debt-equity ratio while raising funds.

Different ideal debt-equity ratios such as 2:1; 4:1; 6:1 have been determined for different industries. The public issue of shares and debentures has to be made under SEBI guidelines.

(13) Stock Market Conditions:Stock market conditions refer to upward or downward trends in capital market. Both these conditions have their influence on the selection of sources of finance. When the market is dull, investors are mostly afraid of investing in the share capital due to high risk.

On the contrary, when conditions in the capital market are cheerful, they treat investment in the share capital as the best choice to reap profits. Companies should, therefore, make selection of capital sources keeping in view the conditions prevailing in the capital market.

(14) Capital Structure of Other Companies:Capital structure is influenced by the industry to which a company is related. All companies related to a given industry produce almost similar products, their costs of production are similar, they depend on identical technology, they have similar profitability, and hence the pattern of their capital structure is almost similar.

Because of this fact, there are different debt- equity ratios prevalent in different industries. Hence, at the time of raising funds a company must take into consideration debt-equity ratio prevalent in the related industry.

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Net Profit Ratio

Overview

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized. As such, it is one of the best measures of the overall results of a firm, especially when combined with an evaluation of how well it is using its working capital. The measure is commonly reported on a trend line, to judge performance over time. It is also used to compare the results of a business with its competitors.

Net profit is not an indicator of cash flows, since net profit incorporates a number of non-cash expenses, such as accrued expenses, amortization, and depreciation.

The formula for the net profit ratio is to divide net profit by net sales, and then multiply by 100. The formula is:

(Net profit / Net sales) x 100

The measure could be modified for use by a nonprofit entity, if the change in net assets were to be used in the formula instead of net profit.

Example of the Net Profit Ratio

 For example, the Ottoman Tile Company has $1,000,000 of sales in its most recent month, as well as sales returns of $40,000, a cost of goods sold (CGS) of $550,000, and administrative expenses of $360,000. The income tax rate is 35%. The calculation of its net profit percentage is:

$1,000,000 Sales - $40,000 Sales returns = $960,000 Net sales

$960,000 Net sales - $550,000 CGS - $360,000 Administrative = $50,000 Income before tax

$50,000 Income before tax x (1 - 0.35) = $32,500 Profit after tax

($32,500 profit after tax / $960,000 Net sales) x 100 = 3.4% Net profit ratio

Issues with the Net Profit Ratio

The net profit ratio is really a short-term measurement, because it does not reveal a company's actions to maintain profitability over the long term, as may be indicated by the level of capital investment or expenditures for advertising, training, or research and development. Also, a company may delay a variety of discretionary expenses, such as maintenance, to make its net profit ratio look better than it normally is. Consequently, you should evaluate the net profit ratio alongside a variety of other metrics to gain a full picture of a company's ability to continue as a going concern.

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Another issue with the net profit margin is that a company may intentionally keep it low in accordance with a low-pricing strategy that aims to grab market share in exchange for low profitability. In such cases, it may be a mistake to assume that a company is doing poorly, when in fact it may own the bulk of the market share precisely because of its low margins. Conversely, the reverse strategy may result in a very high net profit ratio, but at the cost of only capturing a small market niche.

Another strategy that can artificially drive down the ratio is when a company's owners want to minimize taxes, and so accelerate the recognition of taxable income into the current reporting period. This approach is most commonly found in a privately held business, where there is no need to impress outside investors with the results of operations.

Similar Terms

The net profit ratio is also known as the profit margin.

DEFINITION of 'Gross Profit Margin'

A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

Calculated as:

 

Where:COGS = Cost of Goods Sold

Also known as "gross margin

The gross margin is not an exact estimate of the company's pricing strategy but it does give a good indication of financial health. Without an adequate gross margin, a company will be unable to pay its operating and other expenses and build for the future. In general, a company's gross profit margin should be stable. It should not fluctuate much from one period to another, unless the industry it is in has been undergoing drastic changes which will affect

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the costs of goods sold or pricing policies

For example, suppose that ABC Corp. earned $20 million in revenue from producing widgets and incurred $10 million in COGS-related expense. ABC's gross profit margin would be 50%. This means that for every dollar that ABC earns on widgets, it really has only $0.50 at the end of the day.

This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.

Definition of "Earnings Per Share - EPS"

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

 

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

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An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.

DEFINITION OF 'TOTAL DEBT TO TOTAL ASSETS'Total debt to total assets is a leverage ratio that defines the total amount of debt relative to assets. This enables comparisons of leverage to be made across different companies. The higher the ratio, the higher the degree of leverage, and consequently, financial risk. This is a broad ratio that includes long-term and short-term debt (borrowings maturing within one year), as well as all assets – tangible and intangible.

 

For example, assume hypothetical company Levered Co. has $40 million in long-term debt, $10 million in short-term debt, and $100 million in total assets. Levered Co. would therefore have a total debt to total assets ratio of 0.5. On the other hand, if rival LowLevered Co. has $5 million in long-term debt, $5 million in short-term debt, and $50 million in total assets, its total debt to total assets ratio would be 0.2.

From the above example, 50% of Levered Co.’s assets have been financed by debt, while only 20% of LowLevered Co.’s assets were. Levered Co. has a much higher degree of leverage than LowLevered Co., and therefore a lower degree of financial flexibility.

This is because debt servicing payments have to be made under all circumstances, otherwise the company would breach debt covenants and run the risk of being forced into bankruptcy by creditors. While other liabilities such as accounts payable and long-term leases can be negotiated to some extent, there is very little “wiggle room” with debt covenants. Therefore, a company with a high degree of leverage may find it more difficult during a recession than one with low leverage. It should be noted that total debt measure does not include short-term liabilities like accounts payable and long-term liabilities such as capital lease and pension plan obligations. 

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One shortcoming of the total debt to total assets ratio is that it does not provide any indication of asset quality, since it lumps all tangible and intangible assets together. Continuing from the above example, assume Levered Co. took on the $40 million of long-term debt to acquire a competitor, and booked $20 million as goodwill for this acquisition. Let’s say the acquisition does not perform as expected and results in all the goodwill being written off. In this case, the ratio of total debt to total assets (which amounts to $80 million) would be 0.63.

Like all other ratios, the trend of the total debt to total assets should also be evaluated over time. This will help assess whether the company’s financial risk profile is improving or deteriorating.

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Theories of Capital Structure

The capital structure decision can affect the value of the firm either by changing the expected earnings or the cost of capital or both.

The objective of the firm should be directed towards the maximization of the value of the firm the capital structure, or average, decision should be examined from the point of view of its impact on the value of the firm.

If the value of the firm can be affected by capital structure or financing decision a firm would like to have a capital structure which maximizes the market value of the firm. The capital structure decision can affect the value of the firm either by changing the expected earnings or the cost of capital or both.

If average affects the cost of capital and the value of the firm, an optimum capital structure would be obtained at that combination of debt and equity that maximizes the total value of the firm (value of shares plus value of debt) or minimizes the weighted average cost of capital. For a better understanding of the relationship between financial average and the value of the firm, assumptions, features and implications of the capital structure theories are given below.

Assumptions and Definitions:

In order to grasp the capital structure and the cost of capital controversy property, the following assumptions are made:

Firms employ only two types of capital: debt and equity.

The total assets of the firm are given. The degree of average can be changed by selling debt to purchase shares or selling shares to retire debt.

The firm has a policy of paying 100 per cent dividends.

The operating earnings of the firm are not expected to grow.

The business risk is assumed to be constant and independent of capital structure and financial risk. The corporate income taxes do not exist. This assumption is relaxed later on.

The following are the basic definitions:

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The above assumptions and definitions described above are valid under any of the capital structure theories. David Durand views, Traditional view and MM Hypothesis are tine important theories on capital structure.

1. David Durand views:

The existence of an optimum capital structure is not accepted by all. There exist two extreme views and a middle position. David Durand identified the two extreme views – the Net income and net operating approaches.

a) Net income Approach (Nl):

Under the net income (Nl) approach, the cost of debt and cost of equity are assumed to be independent of the capital structure. The weighted average cost of capital declines and the total value of the firm rise with increased use of average.

b) Net Operating income Approach (NOI):

Under the net operating income (NOI) approach, the cost of equity is assumed to increase linearly with average. As a result, the weighted average cost of capital remains constant and the total of the firm also remains constant as average changed.

Thus, if the Nl approach is valid, average is a significant variable and financing decisions have an important effect on the value of the firm, on the other hand, if the NOI approach is correct, then the financing decision should not be of greater concern to the financial manager, as it does not matter in the valuation of the firm.

2. Traditional view:

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The traditional view is a compromise between the net income approach and the net operating approach. According to this view, the value of the firm can be increased or the cost, of capital can be reduced by the judicious mix of debt and equity capital.

This approach very clearly implies that the cost of capital decreases within the reasonable limit of debt and then increases with average. Thus an optimum capital structure exists and occurs when the cost of capital is minimum or the value of the firm is maximum.

The cost of capital declines with leverage because debt capital is chipper than equity capital within reasonable, or acceptable, limit of debt. The weighted average cost of capital will decrease with the use of debt. According to the traditional position, the manner in which the overall cost of capital reacts to changes in capital structure can be divided into three stages and this can be seen in the following figure.

Criticism:

1. The traditional view is criticised because it implies that totality of risk incurred by all security-holders of a firm can be altered by changing the way in which this totality of risk is distributed among the various classes of securities.

2. Modigliani and Miller also do not agree with the traditional view. They criticise the assumption that the cost of equity remains unaffected by leverage up to some reasonable limit.

3. MM Hypothesis:

The Modigliani – Miller Hypothesis is identical with the net operating income approach, Modigliani and Miller (M.M) argue that, in the absence of taxes, a firm’s market value and the cost of capital remain invariant to the capital structure changes.

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Assumptions:

The M.M. hypothesis can be best explained in terms of two propositions.

It should however, be noticed that their propositions are based on the following assumptions:

1. The securities are traded in the perfect market situation.

2. Firms can be grouped into homogeneous risk classes.

3. The expected NOI is a random variable

4. Firm distribute all net earnings to the shareholders.

5. No corporate income taxes exist.

Proposition I:

Given the above stated assumptions, M-M argue that, for firms in the same risk class, the total market value is independent of the debt equity combination and is given by capitalizing the expected net operating income by the rate appropriate to that risk class.

This is their proposition I and can be expressed as follows:

According to this proposition the average cost of capital is a constant and is not affected by leverage.

Arbitrary-process:

M-M opinion is that if two identical firms, except for the degree of leverage, have different market values or the costs of capital, arbitrary will take place to enable investors to engage in ‘personal leverage’ as against the ‘corporate leverage’ to restore equilibrium in the market.

Proposition II: It defines the cost of equity, follows from their proposition, and derived a formula as follows:

Ke = Ko + (Ko-Kd) D/S

The above equation states that, for any firm in a given risk class, the cost of equity (Ke) is equal to the constant average cost of capital (Ko) plus a premium for the financial, risk, which, is equal to debt-equity ratio times the spread between the constant average of ‘capita’ and the cost of debt, (Ko-Kd) D/S.

The crucial part of the M-M hypothesis is that Ke will not rise even if very excessive raise of leverage is made. This conclusion could be valid if the cost of borrowings, Kd remains

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constant for any degree of leverage. But in practice Kd increases with leverage beyond a certain acceptable, or reasonable, level of debt.

However, M-M maintain that even if the cost of debt, Kd, is increasing, the weighted average cost of capital, Ko, will remain constant. They argue that when Kd increases, Ke will increase at a decreasing rate and may even turn down eventually. This is illustrated in the following figure.

Criticism:

The shortcoming of the M-M hypothesis lies in the assumption of perfect capital market in which arbitrage is expected to work. Due to the existence of imperfections in the capital market/arbitrage will fail to work and will give rise to discrepancy between the market values of levered and unlevered firms.

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CHAPTER 2: COMPANY PROFILE

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COMPANY PROFILE

JINDAL STEEL TATA STEEL

JINDAL STEELJindal Steel and Power Limited (JSPL) is an Indian steel and energy company based in New Delhi, India.[3] With turnover of approx. US$ 3.3 billion,[3] JSPL is a part of about US$18 billion diversified Jindal Group conglomerate. JSPL is a leading player in steel, power, mining, oil and gas and infrastructure in India. The company produces steel andpower through backward integration from its own captive coal and iron-ore mines.

In terms of tonnage, it is the third largest steel producer in India. The company manufactures and sells sponge iron, mild steel slabs, ferro chrome, iron ore, mild steel, structural, hot rolled plates and coils and coal based sponge iron plant.

Jindal SAW Ltd is a part of O.P. Jindal Group, one of the country's topmost industry and indigenous steel producers and exporters. It was started in 1984, when it became the first company in India to manufacture Submerged Arc Welded (SAW) Pipes using the internationally acclaimed U-O-E technology.

From beginning operations with a single product at a single location in 1984, Jindal SAW today offers 'Total Pipe Solutions' to the world. As part of the $15 billion O.P. Jindal Group, the company is firmly on its way to new markets and areas of growth. With its subsidiary, Jindal ITF, it is powering ahead in its enterprises with respect to water management, waterborne transportation, waste-to-energy and rail infrastructure. Moreover, its unstinting support to Svayam, an initiative of S.J. Charitable Trust is making a positive difference in making public infrastructure accessible to all.

To move ahead of the competition, the need of the hour is to focus on the basics, master it and then excel in other aspects. Jindal SAW does this all with a promise that meets the most exacting of international standards and passes stringent quality checks. Thus, reinforcing the company's commitment to superior levels of excellence.

Every requirement and need of the market is addressed by Jindal SAW's exhaustive range of products. The latest advances in technology and manufacturing processes ensure that the product is always there when the need arises. Moreover, the proximity of plants to ports further ascertains that there is no lag in timelines being met. All leading to a firm relationship with customers that surpasses commercial transactions, and stands the test of time.

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Jindal SAW Ltd. is in a commanding position in India’s tubular market, being the leader with a turnover of Rs. 7500 Crore.

It has diversified from a single product company to a multi-product company, manufacturing large diameter submerged arc pipes and spiral pipes for the energy transportation sector; carbon, alloy and stainless steel seamless pipes and tubes manufactured by conical piercing process used for industrial applications; and Ductile iron (DI) pipes for water and wastewater transportation. Besides these, the company also provides various value added products like pipe coatings, bends and connector castings toits clients.

Jindal SAW has gained the confidence and trust of its stakeholders - from employees, associates, shareholders and people whose lives have benefitted by the company's endeavors.

With its vision of sustainable development, Jindal SAW has played a leading role in developing livable cities across the world - that in turn has helped transform the lives of people staying in them.

Jindal SAW helps residents and organizations in numerous cities by ensuring timely transportation of oil,gas and water. The pipes produced by the company are energy efficient, reduce dependence on fossil fuels, and help conserve natural resources like water.CompanySecretaryCompany sectary

Sh. Sunil Jain

Director

Smt. Savitri Devi Jindal ChairpersonSh. P. R. Jindal Vice ChairmanSh. Indresh Batra Managing DirectorMs. Sminu Jindal Managing DirectorSh. Devi Dayal DirectorDr. S. K. Gupta DirectorSh. Kuldip Bhargava DirectorDr. Raj Kamal Agarwal DirectorSh. Ravinder Nath Leekha DirectorSh. Girish Sharma DirectorSh. H. S. Chaudhary Whole Time Director

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Corporate officeJindal Centre,12, Bhikaiji Cama Place,New Delhi - 110066Rged.office Internal auditor A1, UPSIDC Industrial Area,Nandgaon Road, Kosi KalanDistrict Mathura, 281403 (U.P.)

InternalAuditorsSatutory auditor Internal auditorM/s T. R. Chadha & Co.Chartered AccountantsM/s Singhi & Co.Chartered Accountants

StatutoryAuditorsSatutory auditor M/s N. C. Aggarwal & Co.Chartered Accountants

BankersBankersState Bank of PatialaState Bank of IndiaPunjab National BankCanara BankAxis Bank Ltd.Credit Agricole & Investment Bank Ltd.HDFC Bank Ltd.ICICI Bank Ltd.Ing Vysya Bank Ltd.Standard Chartered BankState Bank of MysoreState Bank of TravancoreSyndicate BankUnited Bank of IndiaKarnataka Bank Ltd.

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Employees

As on 21 January 2014, the company had 7,189 employees, out of which 271 were women (4%) and 7 were employees with disabilities (0.1%).[2] During the FY 2013-14, it incurred INR 5.52 billion on employee benefit expenses.[2]

Initiatives

Jindal PantherTM TMT RebarsJSPL has forayed into construction retail industry with the launch of Jindal PantherTM TMT Rebars. Panther entry into retail is spurred with an aim to provide quality reinforced bars to housing segment. These rebars are manufactured in 1.0 MTPA capacity TMT Rebar mill at Patratu, Jharkhand supplied by Siemens of USA.[10]

Jindal Institute of Power Technology (JIPT)JIPT was establisghed to develop a pool of technically trained power plant professionals for power utilities of India and abroad. The course authorizes the pass outs to operate OR undertake Maintenance of any part or whole of a generating stations of capacity 100 MW & above together with the associated sub stations. It is recognized by Central Electricity Authority (CEA), Ministry of Power as Category-l Institute. It is promoted by Jindal Education & Welfare Society, which is supported by Jindal Power Limited. The Institute possesses a Simulator of 250 MW/600 MW generating units. JIPT is located inside the 4X250, 4X600 MW Jindal Tamnar Thermal Power Plant in Tamnar, Raigarh, Chhatisgarh.

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TATA STEEL

Tata Steel is a top ten global steel maker and the world’s second most geographically diversified steel producer.

Established in 1907 as Asia's first integrated private sector steel company, Tata Steel Group is among the top-ten global steel companies with an annual crude steel capacity of over 29 million tonnes per annum. It is now the world's second-most geographically-diversified steel producer, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of Rs. 1, 48,614 crores in FY 14, has over 80,000 employees across five continents and is a Fortune 500 company.

Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500 people.[2] Its largest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel maker Corus which was the largest international acquisition by an Indian company till that date. It was ranked 486th in the 2014 Fortune Global 500 ranking of the world's biggest corporations.[5] It was the seventh most valuable Indian brand of 2013 as per Brand Finance.[6]

Tata Steel is part of the Tata Group, India’s largest industrial conglomerate.  Both Tata and Tata Steel have a long history of charitable donations and social responsibility, with Tata spending approximately 4% of the Company’s profit after tax on corporate social responsibility initiatives. Tata Steel Endeavour’s to improve the quality of life in the communities in which the Company operates.  Tata Steel’s charitable projects have touched the lives of over 800,000 people in India.

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India, and a subsidiary of the Tata Group. It was the 11th largest steel producing company in the world in 2013, with an annual crude steel capacity of 25.3 million tonnes, and the second largest private-sector steel company in India (measured by domestic production) with an annual capacity of 9.7 million tonnes after SAIL

On 16 February 2012 Tata Steel completed 100 years of steel making in India. Tata Steel’s larger production facilities comprise those in India, the UK, the Netherlands, Thailand, Singapore, China and Australia.  Operating companies within the Group include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), Tata Steel Singapore and Tata Steel Thailand. The Tata Steel Group’s vision is to be the world’s steel industry benchmark in “Value Creation” and “Corporate Citizenship” through the excellence of its people, its innovative approach and overall conduct. Underpinning this vision is a performance culture committed to aspiration targets, safety and social responsibility, continuous improvement, openness and transparency.

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 In 2008, Tata Steel India became the first integrated steel plant in the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Management. In 2012, Tata Steel became the first integrated steel company in the world, outside Japan, to win the Deming Grand Prize 2012 instituted by the Japanese Union of Scientists and Engineers. Indian Operations Tata Steel founded India’s first industrial city, now Jamshedpur, where it established India’s first integrated steel plant in 1907. The Jamshedpur Works currently comprises of a 9.7 mtpa crude steel production facility and a variety of finishing mills. Two new Greenfield steel projects are planned in the states of Jharkhand and Chhattisgarh. Kalinganagar project is underway, it is set to augment production capacity by 3 MnTPA in the first phase. Mines and collieries in India give the Company a distinct advantage in raw material sourcing. Iron Ore mines are located at Noamundi (Jharkhand) and Joda (Odisha) both located within a distance of 150 km from Jamshedpur. The Company’s captive coal mines are located at Jharia and West Bokaro (Jharkhand). European Operations Tata Steel Europe (erstwhile Corus) has a crude steel production capacity of 18 mtpa. Tata Steel Europe has manufacturing operations in Western Europe, plants in UK, Netherlands, Germany, France and Belgium, backed by a sophisticated global network of sales offices and service centres. South East Asian Operations Tata Steel started its operations in SEA in 2004 with investments in NatSteel Singapore (Tata Steel Singapore) and Millennium Steel (Tata Steel Thailand). With over 40 years of Steel making experience, Tata Steel Singapore is one of the most prominent steel producers in the Asia Pacific region. It caters to the growing construction industry through its manufacturing presence in Singapore, Thailand, China, Malaysia, The Philippines and Australia. Tata Steel Thailand is the largest producer of long steel products in Thailand.

Tata Group Profile

Sustainable development cannot be achieved by a single enterprise or even by the entire business community in isolation. It is a pervasive philosophy to which every stakeholder in society and participant in the global economy must willingly subscribe.

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The Tata group comprises over 100 operating companies in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals. The group has operations in more than 100 countries across six continents, and its companies export products and services to 150 countries.

  The total revenue of Tata companies, taken together, was $96.79 billion (around Rs.

527,047 crore) in 2012-13, with 62.7 percent of this coming from business outside India. Tata companies employ over 540,000 people worldwide. Brand Finance, a UK-based consultancy firm, valued the Tata brand at $18.16 billion and ranked it 39th among the top 500 most valuable global brands in their BrandFinance® Global 500 - 2013 report.

  The Tata name has been respected in India for more than 140 years for its adherence

to strong values and business ethics. The group has always believed in returning wealth to the society they serve. Two-thirds of the equity of Tata Sons, the Tata promoter holding company, is held by philanthropic trusts that have created national institutions for science and technology, medical research, social studies and the performing arts.

  Anchored in India and wedded to traditional values and strong ethics, Tata companies

are building multinational businesses that will achieve growth through excellence and innovation, while balancing the interests of shareholders, employees and civil society

Board of Directors

The operations and successes of the Tata Steel Group are taken care of by its capable management and Board of Directors. At the helm of affairs are the Company’s Directors, whose profiles offer a brief introduction and help get acquainted with them.

Mr.CyrusPMistry

Chairman, Not- independent, Non-Executive DirectorMr. Cyrus P. Mistry is the Chairman of Tata Sons. He is a graduate of Civil Engineering from Imperial College, UK, and has a M.Sc. in Management from London Business School.  

29

Mr.SubodhBhargavaIndependent, Non - Executive DirectorMr. Subodh Bhargava is a Mechanical Engineer from the University of Roorkee. He was the Group Chairman and Chief Executive Officer and on the Board of Eicher Group of Companies. He is now the Chairman Emeritus of the same group. He is on the Board of Tata Steel Limited since 2006.  

Mr.O.P.BhattIndependent, Non-Executive DirectorMr. O. P. Bhatt is a graduate in Science and a post graduate in English Literature (Gold Medalist). In his last assignment, from July 1, 2006 to March 31, 2011, he was the Chairman, State Bank Group, which includes State Bank of India, India’s largest commercial bank; five associate banks in India; five overseas banks; SBI Life, the country’s largest private life insurer; SBI Capital Markets, India’s leading investment bank; SBI Fund Management; and other subsidiaries spanning diverse activities  

Mr.KoushikChatterjeeGroup Executive Director (Finance and Corporate)Mr. Koushik Chatterjee is an Honours Graduate in Commerce from Calcutta University and a Fellow Member of the Institute of Chartered Accountants of India. A Wholetime Director on the Board, he was appointed as the Group Executive Director (Finance and Corporate) w.e.f. September 19, 2013.  

Mr.IshaatHussainNot Independent, Non - Executive DirectorMr. Ishaat Hussain graduated in economics from St Stephens College, New Delhi. He is a fellow of the Institute of Chartered Accountants in England and Wales (FCA). Mr. Hussain joined the Board of the Indian Tube Company (a Tata Steel associate company) in 1979.  

Dr.KarlUlrichKoehlerNot Independent, Non-Executive DirectorDr. Karl-Ulrich Koehler was appointed as a Director of the Company with effect from 12th November 2010. He has been Chief Executive Officer and Managing Director of Tata Steel Europe Limited since October 1, 2010. He was appointed Chief Operating Officer of Tata Steel Europe Limited in February 2010. 

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Mr.D.K.MehrotraIndependent, Non-Executive DirectorMr. D. K. Mehrotra is an Honours Graduate in Science from the University of Patna. He is the former Chairman of Life Insurance Corporation of India (LIC). He was appointed a Director on the Board of Tata Steel Limited with effect from October 22, 2012. Mr.T.V.NarendranManaging Director - Tata Steel India and South East AsiaMr. T.V. Narendran is a Mechanical Engineer from REC (NIT), Trichy. He joined Tata Steel after completing his MBA from IIM Calcutta in 1988. He is a Chevening Scholar and has also attended the Advanced Management Programme in CEDEP - INSEAD, Fontainebleau, France. He became the Managing Director of Tata Steel India and South East Asia on November 1, 2013.  

Mr.AndrewM.RobbIndependent, Non - Executive DirectorMr. Andrew M. Robb is a Fellow Member of the Chartered Institute of Management Accountants and holds a Joint Diploma in Management Accounting.  

Mr.JacobusSchravenIndependent, Non - Executive DirectorMr. Jacobus Schraven was appointed as an Additional Director of the Company with effect from May 17, 2007. He was appointed a non-executive Director and Deputy Chairman of Corus Plc. in December 2004. Mr. Schraven, in 2005 was appointed a Member and Chairman of the Supervisory Board of Corus Nederland BV. Until June 2005 he was President of the Confederation of The Netherlands Industry and Employers (VNO-NCW).  

Ms.MallikaSrinivasanIndependent, Non-Executive DirectorMs. Mallika Srinivasan graduated in management studies from the Wharton School of Business, University of Pennsylvania, after her post graduate studies in Econometrics from the University of Madras. She joined Tractors and Farm Equipment Limited (TAFE) in 1985 and is presently its Chairman and Chief Executive Officer. She is also on the Board of AGCO Corporation, USA, TATA Global Beverages Limited and the Indian School of Business.  

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Mr.NusliNevilleWadiaIndependent, Non-Executive DirectorMr. Nusli Neville Wadia is foremost among famous Indian industrialists. He is the Chairman and Director on the Board of several companies. Taking over responsibilities from his father Mr. Neville Wadia, he made The Wadia Group and Bombay Dyeing among the most respected and widely diversified business houses in the corporate world.  

Acquisitions

NatSteel in 2004: In August 2004, Tata Steel agreed to acquire the steel making operations of the Singapore based NatSteel for $486.4 million in cash.[14] NatSteel had ended 2003 with turnover of $1.4 billion and a profit before tax of $47 million.[14] The steel businesses of NatSteel would be run by the company through a wholly owned subsidiary called Natsteel Asia Pte Ltd.[14] The acquisition was completed in February 2005.[15][16] At the time of acquisition, NatSteel had a capacity of about 2 million tonnes per annum of finished steel.[16]

[17]

Millennium Steel in 2005: Tata Steel acquired a majority stake in the Thailand-based steelmaker Millennium Steel for a total cost of $130 million. It paid US$73 million to Siam Cement for a 40% stake and offered to pay 1.13 baht per share for another 25% of the shares of other shareholders.[18][19] For the year 2004, Millennium Steel had revenues of US$406 million and a profit after tax of US$29 million.[17] At the time of acquisition, Millennium Steel was the largest steel company in Thailand with a capacity of 1.7 million metric tonnes per annum, producing long products for construction and engineering steel for auto industries.[17] Millennium Steel has now been renamed to Tata Steel Thailand and is headquartered in Bangkok.[20] On 31 March 2013, it held approx. 68% shares in the acquired company.[2]

Corus in 2007: On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch company, Corus to buy 100% stake at £4.3bn ($8.1 billion) at 455 pence per share.[21] On 19 November 2006, the Brazilian steel company Companhia Siderúrgica Nacional (CSN) launched a counter offer for Corus at 475 pence per share, valuing it at £4.5 billion. On 11 December 2006, Tata preemptively upped its offer to 500 pence per share, which was within hours trumped by CSN's offer of 515 pence per share, valuing the deal at £4.9 billion. The Corus board promptly recommended both the revised offers to its shareholders. On 31 January 2007, Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at £6.7 billion ($12 billion).In 2005, Corus employed around 47,300 people worldwide, including 24,000 in the UK.[21] At the time of acquisition, Corus was four times larger than Tata Steel, in terms of annual steel production.Corus was the world's 9th largest producer of Steel, whereas Tata Steel was at 56th position. The acquisition made Tata Steel world's 5th largest producer of Steel.[21]

See also: Tata Corus acquisition

2 Rolling mill companies in Vietnam in 2007: Tata Steel through its wholly owned Singapore subsidiary, NatSteel Asia Pte Ltd, acquired controlling stake in two rolling mill companies located in Vietnam: Structure Steel Engineering Pte Ltd (100% stake) and Vinausteel Ltd (70% stake). The enterprise value for the acquisition was $41 million. With this acquisition, Tata Steel got hold of two rolling mills, a 250k tonnes per year bar/wire rod mill operated by

32

SSE Steel Ltd and a 180k tonnes per year reinforcing bar mill operated by Vinausteel Ltd. [22]

[23]

Operations

The Tata Centre in Kolkata, India

Tata Steel is headquartered in Mumbai, Maharashtra, India and has its marketing headquarters at the Tata Centre in Kolkata, West Bengal. It has a presence in around 50 countries with manufacturing operations in 26 countries including: India, Malaysia, Vietnam, Thailand, UAE, Ivory Coast, Mozambique, South Africa, Australia, United Kingdom, The Netherlands, France and Canada.[24]

Tata Steel primarily serves customers in the automotive, construction, consumer goods, engineering, packaging, lifting and excavating, energy and power, aerospace, shipbuilding, rail and defence and security sectors.[25]

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CHAPTER 3:

LITERATURE REVIEW

The Relationship between Capital Structure & Profitability

34

By Prof. (Dr). T. Velnampy & J. Aloy NireshUniversity of Jaffna, Sri Lanka.

Capital structure decision is the vital one since the profitability of an enterprise isdirectly affected by such decision. The successful selection and use of capital is one of the key elements of the firms’ financial strategy. Hence, proper care and attention need to be given while determining capital structure decision. The purpose of this study is to investigate the relationship between capital structure and profitability of ten listed Srilankan banks over the past 8 year period from 2002 to 2009.The data has been analyzed by using descriptive statistics and correlation analysis to find out the association between the variables. Results ofthe analysis show that there is a negative association between capital structure and profitability except the association between debt to equity and return on equity. Further the results suggest that 89% of total assets in the banking sector of Sri Lanka are represented by debt, confirming the fact that banks are highly geared institutions. The outcomes of the study may guide banks, loan-creditors and policy planners to formulate better policy decisions as far as the capital structure is concerned.

The Relationship between Capital Structure and Profitability

35

Dr. Mohammad Fawzi Shubita Assistant Professor Department of Accounting Amman Arab University Amman – Jordan

Dr. Jaafer Maroof alsawalhah Assistant Professor Head of Accounting Department Philadelphia University Amman – Jordan This study seeks to extend Abor’s (2005), and Gill, et al., (2011) findings regarding the effect of capital structure on profitability by examining the effect of capital structure on profitability of the industrial companies listed on Amman Stock Exchange during a six-year period (2004-2009). The problem statement to be analyzed in this study is: Does capital structure affect the Industrial Jordanian companies? The study sample consists of 39 companies. Applying correlations and multiple regression analysis, the results reveal significantly negative relation between debt and profitability. This suggests that profitable firms depend more on equity as their main financing option. Yet recommendations based on findings are offered to improve certain factors like the firm must consider using an optimal capital structure and future research should investigate generalizations of the findings beyond the manufacturing sectors.

THE EFFECT OF CAPITAL STRUCTURE ON PROFITABILITY OF FINANCIAL FIRMS LISTED AT NAIROBI STOCK EXCHANGE

36

BY SAMUEL KIPKORIR KOECH

Registration No. D53/CTY/PT/23232/2011

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (FINANCE), IN THE DEPARTMENT OF BUSINESS ADMINISTRATION, KENYATTA UNIVERSITY NOVEMBER 2013

Capital is the financing for a business and is made up of, primarily, owners’ funding and funding from lenders. The combination of the sources of business funding is referred to, as the capital structure of that business. Capital structure is thus the mix of company’s long term debt, specific short term debt, common equity and preferred equity; that is, how a firm finances its overall operations and growth using different sources of funding. This is composed of equity (rights issue) and debt financing (credit market through corporate bonds etc). This research sought to investigate the effect of capital structure on profitability of financial firms listed at Nairobi Stock Exchange during the period 2008-2012. The success of financial institutions in Kenya’s dynamic business environment depend on their ability to effectively determine the optimum and appropriate capital mix that is necessary to ensure that the shareholders get returns. It is worth noting that financial institutions depend on their ability to identify, assess, monitor and manage risks in a sound and sophisticated way. In order to assess and manage risks, financial firms must have effective ways of determining the appropriate amount of capital that is necessary to absorb unexpected losses arising from their market, credit and operational risk exposures. The sector has recorded double-digit growth in profits for most of the past decade, when the economic growth has averaged at about five per cent. Factors such as amount of debt, the risks associated with indebtedness, interest rates and debt equity combination could affect the financial performance of firms. This research investigated the effect of capital structure on financial performance in relation to these factors. In respect of the above objectives of the study, data was collected by a review of documents, annual reports of the companies and the Nairobi Stock Exchange reports. Data collected was analysed using Statistical Packages for Social Sciences (SPSS) which gave descriptive analysis. The data was then be summarised and presented using tables. The study revealed that capital structure is inversely related to performance as revealed by the regression results of debt and return on equity. The results show that the mean values of debt/equity ratio and debt to total funds were 591.52% and 86.9% respectively. The mean value of debt/equity ratio suggests that debt is 5.915 times higher than equity capital. The debt/equity ratio is normally safe up to 2. It shows the fact that listed financial institutions in Kenya depend more on debt rather than equity capital. The mean value of debt to total funds ratio indicates 86.9% of the total capital of listed banks in Kenya is made up of debt. This has re-emphasized the fact that banks are highly levered institutions. The co-efficient values were found to be negative for the association between debt to equity and interest. This reveals that an increase in the level of debt finance increases the interest payments thus resulting in a

37

decline in profitability. Arising from this observation it can be postulated that capital structure choice among listed financial firms support the pecking order theory that firms prefer raising capital, first from retained earnings, second from debt, and third from issuing new equity. The study noted that banks generally play a crucial role in the economic development of every country. One critical decision banks face is the debt-equity choice. Among others, this choice is necessary for the profit determination of firms. What this means is that banks that are able to make their financing decisions prudently would have a competitive advantage in the industry and make superior profits. However, it is essential to recognize that this decision can only be wisely taken if banks know how debt policy influences their profitability.

The Effect of Capital Structure on Profitability of Energy American Firms:

38

Mohamed M. Khalifa Tailab

(Finance and Investments, Lincoln University, CA, U.S.)

This paper empirically aims to analyze the effect of capital structure on financial performance. Two main sets of variables were used: For profitability, return on assets (ROA) as the ratio of net income to total assets, and return on equity (ROE) as the ratio of net income to total shareholders’ equity were adopted as a proxy for financial performance; and to indicate capital structure, short-term debt, long-term debt, total debt, debt to equity ratio, and firm’s size were used. A sample of 30 Energy American firms for a period of nine years from 2005 – 2013 was considered. Secondary data were collected from financial statements which were taken from Mergent online. The data were analyzed by using Smart PLS (Partial Least Square) version 3. Multiple regressions indicated that 10% of ROE and 34% of ROA were predicted by the independent variables. Findings also presented that the total debt has a significant negative impact on ROE and ROA, while size in terms of sales has significantly negative effect only on ROE of the American firms. However, a short debt significantly has a positive influence on ROE. An insignificant either negative or positive relationship was observed between long term debt, debt to equity and size in terms of total assets and profitability. A generalization of the results is limited because of the small sample size. For future research, the author suggests addressing a longer period of time with a large sample size of firms. It would be more accurate if future studies included more independent variables such as taxation and concentration.

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CHAPTER 4:

RESEARCH OBJECTIVES

AND

METHODOLOGY

40

RESEARCH OBJECTIVES METHODOLOGY TO STUDY ABOUT THE CAPITAL STRUCTURE TO KNOW THE PROFITABLITY PATTEN OF THE COMPANIES TO KNOW THE RELATIONSHIP OF PROFITABLITY AND CAPITAL

STRUCTURE

METHODOLOGY

No of companies – 2 companies are taken for study

JINDAL STEEL TATA STEELPeriod of study-

Last 5 years

That is 2014, 2013, 2012, 2011, 2010

Analytical tool -

Ratio analysis

Presentation methord –

Tables, graphs, shapes, clip art, charts

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CHAPTER 5 – DATA INTERPRATION

42

Jindal steel

Jindal SteelYear 2014 2013 2012 2011 2010Net profit 1,291.95 1,592.55 2,110.65 2,064.12 1,479.68Gross profit 54568 59,944 67,932 63320 58,616Earning per share 14.12 17.04 22.58 22.09 15.89

Debt/assets 63.4 61.1 56.9 56.8 55.4

2010 2011 2012 2013 20140

100

200

300

400

500

600

700

800

capital structure of jindal steelgross profit

Jindal SteelYear Capital structure of Jindal Steel Gross profit ratio2014 63.4 347.192013 61.1 400.832012 56.9 509.462011 56.8 661.362010 55.4 797.77

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2010 2011 2012 20130

10

20

30

40

50

60

70

capital structurenet profit

Jindal SteelYear Capital structure of Jindal Steel net profit ratio2014 63.4 8.882013 61.1 10.642012 56.9 15.822011 56.8 21.552010 55.4 20.13

44

2010 2011 2012 2013 20140

10

20

30

40

50

60

70

capital structureearning per share

Jindal SteelYear Capital structure of Jindal Steel Earnings per share2014 63.4 14.122013 61.1 17.042012 56.9 22.582011 56.8 22.092010 55.4 15.89

45

Tata steel

Tata SteelYear 2014 2013 2012 2011 2010Net profit 6,412.19 5,062.97 6,696.42 6,865.69 5,046.80Gross profit 164110 123212 126,850 168,130 81,695Earning per share 66.02 52.13 68.95 71.58 56.37Debt/assets 0.299 0.319 0.310 0.357 0.404

2010 2011 2012 2013 20140

100

200

300

400

500

600

700

capital structure of tata steelgross profit

Tata SteelYear Capital structure of TATA Steel Gross profit ratio2014 29.9 195.852013 31.9 440.132012 31 373.812011 35.7 419.142010 40.4 658.02

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2010 2011 2012 20130

5

10

15

20

25

30

35

40

45

capital structure of tata steelnet profit

Tata SteelYear Capital structure of TATA Steel Net profit ratio2014 29.9 15.372013 31.9 13.252012 31 19.732011 35.7 23.352010 40.4 20.23

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2010 2011 2012 2013 20140

10

20

30

40

50

60

70

80

capital structure of tata steelearning per share

Tata SteelYear Capital structure of TATA Steel Earnings per share2014 29.9 66.022013 31.9 52.132012 31 68.952011 35.7 71.582010 40.4 56.37

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COMPARISON

2010 2011 2012 2013 20140

10

20

30

40

50

60

70

capital structure of jindal steelcapital structure of tata steel

Year capital structure of jindal steel

capital structure of tata steel

2014 63.4 29.92013 61.1 31.92012 56.9 312011 56.8 35.72010 55.4 29.9

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2010 2011 2012 20130

5

10

15

20

25

net profit of tata steelnet profit of jindal steel

Year net profit ratio of tata steel net profit ratio of jindal steel2014 15.37 8.882013 13.25 10.642012 19.25 15.822011 23.35 21.552010 20.23 20.13

50

2010 2011 2012 2013 20140

100

200

300

400

500

600

700

800

900

gross profit of jindal steelgross profit of tata steel

Year gross profit ratio of jindal steel gross profit ratio of Tata steel2014 403.02 195.852013 423.41 440.132012 509.46 373.812011 626.1 419.142010 742.63 658.02

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2010 2011 2012 2013 20140

10

20

30

40

50

60

70

80

earning per share of tata steelearning per share of jindal steel

Year earning per share of tata steel earning per share of Jindal steel2014 66.02 14.122013 52.13 17.042012 68.95 22.582011 71.58 22.092010 56.37 15.89

Jindal SteelYear 2014 2013 2012 2011 2010Net profit 1,291.95 1,592.55 2,110.65 2,064.12 1,479.68Gross profit 54568 59,944 67,932 63320 58,616Earning per share 14.12 17.04 22.58 22.09 15.89

Debt/assets 63.4 61.1 56.9 56.8 55.4

Tata SteelYear 2014 2013 2012 2011 2010Net profit 6,412.19 5,062.97 6,696.42 6,865.69 5,046.80Gross profit 164110 123212 126,850 168,130 81,695Earning per share 66.02 52.13 68.95 71.58 56.37Debt/assets 0.299 0.319 0.310 0.357 0.404

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Chapter 6:

FINDINGS

53

Jindal Steel

While studying the profitability ratio of Jindal Steel we can say that-

Capital structure has increased rapidly over last 5 years. This means that company has raised more debt on same assets or has sold out assets

This interne increase the fixed cost that is increase in interest on debt and that reduce profit that is net profit

As interest paid is being deducted from gross profit to obtain net profit

This might also increase EPS as number of share become less compared to capital and profit generated.

But during past 5 years both gross profit and EPS have declined.

So by observing this we can say that company is not performing good

As it declining , not even surviving.

TATA Steel

While studying the profitability ratio of Jindal Steel we can say that-

Capital structure has declined rapidly over last 5 years. This means that company has reduced debt on same assets or has increased assets through owner fund

This interne reduce the fixed cost as it reduce fixed interest on debt and increase profit that is net profit

As interest paid is being deducted from gross profit to obtain net profit

This might also decrease EPS as number of share become more compared to capital and profit generated.

But during past 5 years both gross profit and EPS have increased.

So by observing this we can say that company is performing very good

As it not only surviving but also growing and expanding.

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Chapter 7:

CONCLUSION

55

While we compare profitability ratios of Jindal Steel with TATA Steel we got to a conclusion that

As we compare capital structure of both the companies we see that Jindal Steel is constantly increasing debt to total assets while TATA Steel is constantly decreasing there debt to total assets

By this we can say that Jindal steel is taking more and more risk but on other hand TATA Steel is playing on a safe side by reducing risk with less return.

But when we compare gross profit, net profit and EPS then we see that

gross profit, net profit and EPS , all of these of TATA Steel are increasing as compared to Jindal Steel in which all these are rapidly declining

by which we come to a conclusion that TATA Steel is performing very good as compared to Jindal steel which is actually declining.

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