2.

2 NEEDS OF THE STUDY

Leverage is an important technique which helps the management to take sound, prudent,
financial and investment decisions. It also helps to evaluate business, financial, total risk of any
organization.
The task of choosing most suitable combination of different techniques in the light of the firms
anticipated securities for financing fund requirements earnings is facilitated by it. In matters
relating to investment also leverage technique is immensely helpful. It acts as a useful guideline
in setting the maximum limits by which the business of the firm should be expanded. For
example, the management is advised to stop expanding business the moment anticipated return
on additional investment falls short of fixed charge of debt.

2.3 SCOPE OF THE STUDY

Capital structure employed by the companies and its effect on the EPS has been studied
previously and also the different financial constraints of both the industries have been compared.
Particularly, it is in the scope of this project to analyze the differences in the effect of leverage on
the profitability of the firms in manufacturing and service industries.

2.4 LIMITATIONS OF THE STUDY

The study is limited to four year only. Generally twenty years data is ideal to form trend
analysis.

This is based on secondary data collected from the annual report of the company. It was
not possible to collect the primary data from the company's office.

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