Captial Structure Analsysis in Kesoram Industries Project

CAPITAL STRUCTURE ANALYSIS
With Reference to
“KESORAM INDUSTRIES LIMITED”
A PROJECT REPORT SUBMITTED TO OSMANIA UNIVERSITY

FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF
MASTER OF BUSINESS ADMINISTRATION
Submitted
By
K. Karunakar
096 -07-175
Department of Business Administration

RONALD ROSS P.G.COLLEGE
(AFFILIATED TO OSMANIA UNIVERSITY)
MANGALPALLY, IBRAHIMPATNAM,
RANGA REDDY (Dist)-501 510,
(2007-2009).
1
DECLARATION
I here by declare that the project report entitled “CAPITAL

STRUCTURE ANALYSIS OFKESORAM CEMENT INDUSTRIES
LIMITED” Basanthnagar, Karimnagar district. is an original one,
Submitted by me in a partial fulfillment of the Requirement for the award
of the degree of “Master of Business Administration” For the
Academic year 2007 - 2009.It has not been Submitted Elsewhere for the
award of any Degree Or diploma of Osmania University.
K.Karunakar
(096-07-175)
2
ABSTRACT
This paper offers an empirical look at the corporate performance

and capital structure of large enterprises from four emerging
market economies of Asia.
The paper combines two strands of business research: one from

the international business field on corporate performance and
country of origin; and the other from corporate finance research
on capital structure. We study 81 corporations from Hong Kong,
Malaysia, Singapore and Korea and find that both financial
performance and capital structure are influenced by the country
of origin. Specifically, we find that Hong Kong corporations have
significantly higher returns on equity and invested capital than
corporations from the other countries, possibly reflecting the
concentrated conglomerate business structure typical of Hong
Kong. The performance differences among firms from other
countries are in these emerging market economies
Not statistically significant. Firms from Korea have significantly

higher leverage than firms from the other countries. Leverage
itself does not seem to affect corporate performance. The evidence
lends only limited support to the extant capital structure theories
3
ACKNOWLEDGEMENT
I would like to convey my heartiest gratitude to several people, for their

support and guidance which helped me to complete this project. I wish to
take this opportunity to thank Mr. Maheshwar Reddy (Principal) for
permitting me to carry on this project. I also acknowledge my
thankfulness to Mr.T.Hareesh Kumar sir, internal guide for his valuable
suggestions and support in completion of this project. Last but not the
least, my endless appreciation goes to my family who has stood by my
side and given me moral support whenever I was low and boosted my
will power.
Thank you
4
CONTEXT OF THE STUDY
CHAPTERS P.NO
7 - 10
1. INTRODUCTION
A). NEED OF THE STUDY
B).OBJECTIVE OF THE STUDY
C).METHODOLOGY
D).LIMITATIONS OF THE STUDY
E).SCOPE OF THE STUDY
2. LITERATURE REVIEW 12-13

A).A COMPRATIVE ANALYSIS BETWEN
ICT AND NON- ICT FIRMS
B).AN ANALYSIS OFASIAN CORPORAT
3. COMPANY PROFILE 15-24

A).OVERVIEW OF CEMENT INDUSTRY
B).ORGANISTION PROFILE
C).KESORAM CEMENT –ADVANTAGES
4. THEORITICAL FRAME WORK OFCAPITAL 26-39

STRUCTURE
A).DETERMINTS OFCAPITAL STRUCTURE
B).THEORIES OF CAPITAL STRUCTURE
C).THE TRADITIONAL APPROACH
5. ANALYSIS &INTERPRETATION 41-58

A).EBIT-EPS ANALYSIS
B).CAPITAL STRUCTURE ANALYSIS
6. CONCLUSIONS & SUGGESSTIONS 60-61
7. BIBILIOGRAPHY 62-63
5
CHAPTER-I
INTRODUCTION
6
CAPITAL STRUCTURE
INTRODUTION:
Every organization requires funds to run and maintain its business

the required funds may be raised from short term sources or long term
sources or a combination both the sources of funds, so as to equip it self
with an appropriate combination of fixed assets and current assets.
Current assets to a considerable extent are financed with the help of short
term sources. Normally, firms are expected to follow a prudent financial
policy, as revealed in the maintenance of net current assets. These net
positive current assets must be financed by long term sources. Hence long
term sources of funds are required to finance for both.
 Long term assets (fixed assets)

 Net working capital (Positive Current assets).
A firm can easily estimate the required funds by a detailed study of

the investment decision. In other words, anticipation of the require funds
may be estimated analyzing the investments decision. Once anticipation
of require funds is completed then the next step is financial for the
manager to make decisions related to the finance or the selected
investment decisions. Generally capital is raised from the prime source
are
 Equity
 Debt
Then the questions are what should be the proportion of equity and
debt in the capital structure of a company.
As the objective of a firm should be directed towards the
maximization of the valve of the firm, the capital structure decision
should be examined from the point of its impact on the firm. If the valve
of the firm can be affected by capital structure, a firm would like to have
a capital structure, which maximizes the market valve of the firm. There
exist conflicting theories on the relationship between capital structure and
the valve of the firm.
Capital structure decisions are significant finance of the corporate
firm in that they influence the return as the risk of equity shareholders.
7
That there exist close Nexus between optimum judicious debt and
the market valve/valuation of the firm is well recognized in literature of
finance. While the excessive use of debt may endanger the every survival
of the corporate firms, the conservative policy may deprive its equity-
holders the advantage of debt as a cheaper source of finance to magnify
their rate of return. Following such an over-conservative policy runs
counter the basic objective of financial decision making to maximize the
wealth of equity holder.
Apart from financial risk return consideration, non-financial factors
are also likely to be very decisive in designing capital structure of the
corporate famous for instance use of debt, unlike equity doesn’t dilute the
controlling power of existing owners in brief, debt is not an unmixed
blessing and, hence a dilemma for the corporate finance manager.
ASSUMPTIONS:
 Firms employ only two types of capital, debt and equity.
 The firm has a policy of paying 100% dividends.
 The corporate and personal income taxes do not exist.
 The operating profit (EBIT) is not accepted to grow.
 The total assets are given and do not change.
 Business risk is constant over time and is assumed to be
independent of its capital structure.
NEED OF THE STUDY:
 The corporate and personal income taxes do not exist.
 The business risk is constant over time and is assumed to be

independent of its capital structure.
 The given the assumptions of perfect information and rationality.
 The business risk is equal among all firms with in similar operating
environment.
OBJECTIVE OF THE STUDY:
8
 To know over all the cost capital (KO) and the valve of the firm (V)
are independent of the capital structure.
 To know the capitalization rate of an equity and premium for financial

risk.
 To know cut off rate for investment purposes is completely

independent of the way in which an investment is financed.
 To make the impact of (Capital) not work in financial performance.
METHODOLOGY:
Methodology is a systematic procedure of collecting information in

order to analyze and verify a phenomenon. The collection of data through
two principle sources viz.
(1) Primary data

(2) Secondary data
PRIMARY DATA:
It is the information collected directly without any reference. In the

study it was mainly interviews with concerned officers and staffs either
individually or collectively. Some of the information had verified or
supplemented with personal observation, the data collected through
conducting the personal interview with the officers of KESORAM
INDUSTRIES LIMITED.
SECONDARY DATA:
The secondary data was collected from already published sources

such as pamphlets annual reports, reports and internal records the data
includes: Collection of required data from annual reports of KESORAM
INDUSTRIES LIMITED. Reference from text books and relating to
financial management. Articles published in business details like the
economic times, business time etc.
9
SCOPE OF THE STUDY:
Since it will not be possible to conduct a micro level of all cement

industries in Andhra Pradesh, the study is restricted to KESORAM
CEMENT only.
LIMITATIONS OF THE STUDY:
 The data of study of project collected of investor or capital

structure may not applicable in the situations.
 The study of capital structure analysis of company financial

position may be affected or not.
 The calculations and methods adopted in my study may be carried

an appropriately.
 Due to time constant of 45 days, the data of the study may on way
net present overall view of the capital structure.
 It is dipped to judge the results-valve due to the change market

valves of the firm.
10
CHAPTER-2
LITERATURE REVIEW
11
1. Dynamic capital Structure: Comparative Analysis Between
ICT and Non-ICT Firms
Dany Aoun
affiliation not provided to SSRN
Junseok Hwang
Seoul National University - College of Engineering
Icfai Journal of Industrial Economics, Vol. 4, No. 2, pp. 7-26, May 2007
This paper develops a model of dynamic capital structure based on

a sample of NASDAQ listed firms and estimated the unobservable
optimal capital structure using a wide range of observable determinants.
The authors separate the firms into two categories - Information and
Communication Technology (ICT) and non-ICT - in order to test whether
the uniqueness of the former has any different implications. For a panel
of ICT and non-ICT firms listed on the NASDAQ stock exchange, the
results reveal that the leverage ratio of an ICT firm is more affected by
income variability, uniqueness, and the dot-com crisis compared to non-
ICT firms2.
2. Performance, capital structure and home country: An analysis of

Asian Corporations
R. Charles Moyer, Dean
Cameron University, School of Business, 2800 W. Gore Boulevard,

Lawton, OK 73505 USA
Babcock Graduate School of Management, Wake Forest University,

Winston-Salem, NC 27109 USA
Available online 1 April 2002.
12
3. Capital structure analysis of the fertiliser industry: a case study
Of IFFCO and Indo Gulf Corporation Ltd., India
Authors: Khatik, S.K.1; Singh, P.K.2
Source: International Journal of Financial Services Management, Volume

1, Numbers 2-3, 3 May 2006, pp. 173-189(17)
Capital structure, or what is generally known as capital mix, is very

important to control the overall cost of capital in order to improve the
earnings per share of share holders. After globalization and liberalization,
various financial sector reforms were started by governments, such as
reducing rates of interest etc., which directly affected the capital structure
planning of firms. Due to this situation, the fertiliser industry also
reorganized their capital structure. The financing of a capital structure
decision is a significant managerial decision. Initially, the company will
have to plan its capital structure at the time of its promotion.
Subsequently, whenever funds have to be raised for finance and
investment, a capital structure decision is involved. In this research
article, researchers try to evaluate the concept of capital structure, capital
structure planning and patterns of capital structure in IFFCO and Indo
Gulf Corporation Ltd. We found that both companies are using the
maximum possible long-term debt in their capital structure planning.
During the study period, both the companies raised more and more long-
term funds to meet their development and expansion needs because debt
is a cheaper source of finance, especially from 1994 1995 onwards when
rates of interest decreased regularly in the Indian capital market.
Keywords: ECONOMICS AND FINANCE JOURNALS; Accounting

and Finance
Document Type: Research article
13
CHAPTER – III
COMPANY PROFILE
OVERVIEW OF CEMENT INDUSTRY:
14
During the world war-I cement was declared an essential
commodity and it was brought under the defense of Indian rules,
controlling the price distribution of cement. Cement remained under price
and distribution control during the period 1939-45.After there world war-
II arrangement was made between cement manufactures reading price
and distribution of cement of avoid rate-war. In order t boost up sale of
cement and concrete association of India was formed.
During in the year 1947 India Standard Specification for

indigenous cement has applied in place of British standard Specification.
All cement manufactures were obliged to maintain quality of cement as
per the standard laid down in the specification. Norms for 1 day 3 day’s
strength as well as setting time was prescribed to safeguard the interest of
the customer. In 1956, cement control orders was promulgated and price
and distributed of cement was vested with standard trading corporation
and this arrangement continued up to 1966. For Govt. and function of
earlier being performed by STC was taken by cement allocation and Co-
ordination Organization formed by the cement manufactures and pricing
irregularities Govt. again brought under control which lasted up to 28th
Feb.1989.
It will thus be seen form the above that from the beginning cement
industry as whole barring for very short period, was constantly under the
control by the Govt.Cement manufacturing units were just carrying out
the instructions of the Govt. authorities regarding dispatching cement to
stipulated destination and on price fixed by the Govt. from time to time.
15
Results of Partial decontrol:
Installed capacity in 70’s was 2,13,29,000 tones, which was raised

to 4,19,03,000 tones in 80’s.number of other entrepreneurs entered the
cement field with latest technology. On account of partial decontrol the
financial position of existing units improved which attracted other
manufacturers in the cement manufacturing activities. The unpredicted
growth registered by cement industry after 1982-83 is only because of
partial decontrol.
Existing sick units turned into viable units. Cement manufactures
earned a good profit during 1982-83 to 1983-84, the part of which was
utilized for the modernization of cement plants and setting Research and
Development center. Cement was available to the public at reasonable
rates between Rs.60-70 per beg at free market. Black marketing of
cement disappeared to some extent.
Partial decontrol of cement by Government:
Cement industries had continuously been knocking doors of

government for relief and everything after an inordinate delay
government announced a meager increase in retention price. The increase
was so inadequate that the same could not take care of even partial
increases in cost of input on cement of Government. Action i.e., increases
in petroleum product rates, coal, power, and tariff consequently number
of cement units was of sick list. On 28th Feb 1982, Government declared
partial decontrol by introducing principles of levy and free sale cement as
it was existing in sugar industry. Under the new dispensations for existing
units the levy quota was fixed at 6.66% and for six units at 50% of
installed capacity.
Partial decontrol announcing by the Government gave a good relief
to the industry, as Cement industry was able to set off their loss on
cement of levy sales out of free sales. Uniform pricing system for levy
cement after partial decontrol.
16
From 1982:
Rs.335 Per ton for Ordinary Portland Cement.
(OPC) and Portland Stage Cement (PSC).
Rs.320 Per ton for Portland Pozzolona Cement (PPC)
From 1984:
Rs.375 Per ton for OPC and PSC.
Rs.360 Per ton for PPC.
From 1986:
Rs.399.50 Per ton for OPC and PSC
Rs.384.50 Per ton for PPC.
Complete decontrol of Cement
However things were not as smooth as expected. Most of old units

were having out dated technology and consequently cost of cement
production as compared to the retention price fixed by the Govt. was very
high.
In the sale area they had to complete with new units having latest
technology and comparatively less share of levy obligations, Govt. had
also increased excise duty which partially these units had to absorb to
complete with new units.
More new units started adding which brought the ear of

competition, which was earlier absent. Cost of inputs like railway and
road freight, tariff went up day by day and once a better looking cement
area against started going back.
Government continued changing basis of levy, free sale quota.

Earlier it was on capacity basis of which was subsequently linked to
actual production sick units were also identified. Gradually levy quota
was reduced and during 1986 the concept of levy/non levy was removed
from cement and control on price and distribution was lifted
17
ORGANISTION PROFILE
LOCATION:
Kesoram cement industry is one of the leading manufacturers of
cement in India. It is a day process cement plant. The plant capacity is
8.26 lakh tones per annum. It is located at Basanthnagar in Karimnagar
district of AP. Basanthnagar is 8Km away from Ramagundam Railway
Station, linking Madras to New Delhi. The chairman of the company is
Shri B.T.Birla
HISTORY:
The first unit at Basanthnagar with a capacity of 2.1 lakh tones per
annum incorporating humble suspension preheated system was
commissioner during the year 1969. The second unit was setup in the
year 1971 with a capacity of 2.1 lakh tones per annum went on stream in
the year 1978. The coal for this company is being supplied from
Singareni Collieries and the power is obtained from APSEB. The power
demand for the factory is about 21Mw. Kesoram has got 2 DG sets of 4
MW each installed in the year 1987. Kesoram cement has set up a 15KW
captor power plant to facilitate for uninterrupted power supply for
manufacturing of cement at 24th August 1997 per hour 12MW, actual
power is 15 MW.
Birla Supreme in popular brand of Kesoram cement from its prestigious

plant of Basanthnagar in AP which has outstanding track record. In
performance and productivity serving the nation for the last two and half
decades. It has proved its destination by utilization. Kesoram offers a
choice a top quality portioned cement for light, heavy construction and
allied applications. Quality is built every fact of the operations.
The plant lay out is rational to begin with the limestone is rich in
calcium carbonate a key factor that influence the quality of final product.
The day process technology uses in the latest computerized monitoring
overseas the manufacturing process. Samples are sent regularly to the
Bureau of Indian Standards. National council of construction and
building material for certification of derived quality norms.
18
The company has vigorously under taking different promotional
measures for promoting their product through different media, which
includes the use of newspapers, magazine, hoarding etc.Kesoram cement
industry distinguished itself among all the cement factories in Indian by
bagging the National Productivity Award consecutively for two years i.e.,
for the year 1985-87. The federation of AP Chamber & Commerce and
Industries (FAPCCI) also conferred on Kesoram Cement. An award for
the best industrial promotion expansion efforts in the state for the year
1984. Kesoram also bagged FAPCCI awarded for “Best Family Planning
Effort in the State” for the year 1987-88.
One among the industrial giants in the country today, serving the
nation on the industrial front. Kesoram industry Ltd. has a checked and
eventful history dating back to the 20’s when the Industrial House of
Birla’s acquired it. With only a textile mill under its banner 1924, it grew
from strength and spread its activities to newer fields like Rayon, Pulp
and Transparent paper, Pipes, Refractors, tires and other products.
Looking to the wide gap between the demand and supply of virtual
commodity cement, which play in important role in National building
activity the Govt. of India, had de-licensed the cement industry in the
year 1966 with a review to attract private entrepreneur to argument the
cement production. Kesoram rose to the occasions and dividend to set up
a few cement plants in the country.
Kesoram cement undertaking marketing activities extensively in

the state of Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharastra
and Gujarat. In AP sales Depts., are located in different areas like
Karimnagar, Warangal, Nizambad, Vijayawada and Nellore. In other
state it has opened around 10 depots.
The market share of Kesoram Cement in AP is 7.05%. The market

share of the company in various states is shown as under.
STATE MARKET SHARE
Karnataka 4.09%
Tamilnadu 0.94%
Kerala 0.29%
Maharastra 2.81%
19
Process and Quality control:
It has been the endeavor of KESORAM to incorporate the World’s

latest technology in the plant and today the plant has the most
sophisticated.
X-ray Analysis:
Fully Compared XRF and XRD X-RAY Analyzers keep a constant

round the clock vigil on quality.
Supreme performance:
One of the largest Cement Plants in Andhra Pradesh, the plant

incorporates the latest technology in cement making. It is professionally
managed of the Cement Manufacturing Company enjoying the
Confidence of the consumers. Kesoram has outstanding track record in
performance and productivity with quite a few national and state awards
to its credit.
BIRLA SUPREME, the 43 Grade Cement, is a widely accepted
and popular brand in the market, commanding a premium. However to
meet the specific demands of the consumer, Kesoram bought out the 53
grade BIRLA SUPREME-GOLD, which has special qualities like higher
fineness, quick setting, high compressive strength and durability.
Supreme Strength:
Kesoram Cement has huge captive Limestone Deposits, which

make it possible to feed high grade limestone consistently. Their natural
Grey color is anion-born ingredient and gives good shade. Both the
products offered by Kesoram, i.e., BIRLA SUPREME-43 Grade and
BIRLA SUPREME GOLD-53 Grade cement are outstanding with much
higher compressive strength and durability. The following characteristics
show their distinctive qualities.
Comprehensive Opc 43 gris Birla Supreme Opc 53 gris Birla Supreme

Strength 8112 1989 43 Grade 1226987 Gold 53gr
3 days mpa Mm.23 31+ Mm.27 38+
7days mpa Mm.23 42+ Mm.37 48+
28 days mpa Mm.43 50+ Mm.53 60+
20
D.C.S SYSTEM:
Clinker making process is a key step in the overall cement making

process. In the case of BIRLA SUPREME/GOLD, the clinker-making
process is totally computer control. The Distributed Control System
(DSC) constantly monitors the process and ensures operating efficiency.
This eliminates variation and ensures consistency in the quality of
Clinker.
SUPREME PROCESS:
Closed-Circuit Cement grinding process involving high efficiency

separators manufactures BIRLA SUPREME. This ensures uniform and
high quality in cement, which in turn contributes to its superior strength
and optimum setting time.
PHYSICAL CHARACTERISTICS:
Opc 43 gris Birla Supreme 43 Opc 53 gris Birla Supreme
8112-89 Grade 12269-87 Gold 53gr
setting time
a.Intial (mats) Min 30 120-180 Min 30 130-170
b. Final (mats) Max 600 180-240 Max 600 170-220
Fineness 2/Kg Mm 225 270-280 Mm 225 300-320
Soundness Max 10 1.0-2.0 Max 10 0.5-1.0
a.le-chart(mm) Max 0.8 0.04-0.08 Max 0.08 0.04-0.02
b.autoclave(%)
SUPREME EXPERTISE:
The best Technical Team, exclusive to Kesoram, mans the plant

and monitors the process, to blend the cement in just the required
propositions, to make BIIRLA SUPREME/GOLD OF Rock Strength.
18 BILLION TONES OF SOLID FOUNDATION: Staying at the

top for over a Quarter Century, is no less an achievement. In fact,
Kesoram is synonymous with for over 28 Years. Over the year, Kesoram
has dispatched 18 million tones of cement to the nook and corners of the
country and joined hands in strengthen the Nation. No one else in Andhra
Pradesh has this destination. The prestigious World Bank aided
Ramagundam Super Thermal Power project of NTPC and Mannair Dam
Of Pochampad Project in AP are a couple of projects for which Kesoram
Cement was exclusively used: to cite an example.
CHEMICAL CHARACTERISTICS:
21
Opc 43 Birla Birla
gris Supreme 43 Opc 53 gris Supreme
81132-89 Grade 12269-87 Gold 53 gr.
Loss of
Inflection
% Max 5 <1.6 Max 4.0 <1.5
Insoluble
residue % Max 2.0 <0.8 Max 2.0 <0.6
Magnesium
Oxide % Max 6.0 <1.3 Max 6.0 <1.3
Lime
Saturation
Factor 0.66-1.02 0.8-0.9 0.8-1.02 0.88-0.9
Alumna:
Iron ratio Mm 0.66 1.5-1.7 Mm 0.66 1.5-1.7
Sulfuric
Anhydride
% Max 2.5/3 1.6-2.0 Max 2.5/3 1.6-2.0
Alkalis
Chlorides Max 0.05 Max 0.01 Max 0.05 Max 0.4
KESORAM CEMENT –ADVANTAGES:
1. Helps in designing sleeker and more elegant. Structure, giving

greater flexibility in design concept.
2. Due to its fine quality, super fine construction can be achieved.
3. Its gives maximum strength at minimum use of cement with water

in the water cement ratio, especially the 53 grade Birlas Supreme
Gold.
Mm c:fa:ca Water w/c ratio

Pcc 1:4:8 30 Lts 0.6
M10 1:3:6 28 Lts 0.56
M15 1:2:4 27Lts 0.54
M20 1:1.5.5 26 Lts 0.52
M25 1:1:2 24 Lts 0.487
22
4. Improve durability is achieved, the permeability reduces and the
volumetric changes are also reduced.
5. Better water proofing is achieved due to low heat of hydration as

the shrinkage will be less, which means fewer cracks.
6. Better finish is achieved due to fineness and hence better

workability. Thus plastering becomes easier with better finish.
7. Faster construction is possible as both Birla Supreme and Birla

Supreme-Gold achieve their high early strength in just 24 hours
and hence the form work ca easily be removed: the improving the
efficiency and saving in cost and time.
Feathers in Kesoram’s cap:
Kesoram has out standing track record, achieving over 100% capacity
utilization, I productivity and energy conservation. It has proved its
destination by bagging several national and state awards, noteworthy
being.
NATIONAL:
1. National productivity award for 1985-86.
2. National productivity award for 1986-87.
3. National award for mines safety for 1985-86.
4. National award for mines safety for 1986-87
5. National award for mines safety for 1985-86.
STATE:
1. A.P State productivity award for 1988.

2. State award for best industrial management 1988-89.
3. Best industrial productivity award of FAPCCI (Federation of A.P
Chamber of Commerce and Industry) 1991.
4. Best management award of the State Govt. 1993.
5. FAPCCI award for the workers welfare, 1995-96.
I.S.O 9002:
All quality system of Kesoram have been certified under
I.S.O.9002/I.S.4002, which proves the worldwide acceptance of the
products. All quality systems in production and marketing of the product
have been certified by B.I.S under ISO 9002/ ISI 4002.
ECO-FRIENDLY:
23
Kesoram has been doing its best for protecting the environment
and maintaining the ecological balance in the area. Appropriate pollution
control equipments have been installed in the plant. Lot of a forestation
measures have been taken and green belts developed and lacks of tree
have been Planted in a around the factory, mines township and in the
nearby area. Thanks to the massive tree plantation driver over the years,
Basanthnagar has become a paradise with lush greenery, beautiful
landscapes and avenues. The tree plantation is so dense that it has
virtually drowned the township.
It’s but natural that the ambient temperature in the township is now
less by 3-4 C, compared to the near by Ramagundam, one of the hottest
spot in the country.It’s in the fitness of the things that Kesoram’s senior
president Shri.K.C.JAIN has been recommended by the state government
to the Central Government for the prestigious “Vrikshamitra” national
award.
CAPTIVE POWER:
For uninterrupted power supply, a captive thermal power plant of

15MW capacity has been installed at Kesoram.This would ensure
consistency in the supply of cement even during power-cut periods. This
is in addition to the D.G sets generating 8 MW of power.
24
CHAPTER-IV
THEORITICAL FRAME WORK OF

CAPITAL STRUCTURE
25
DEFINITION AND SYMBOLS:
BASIC SYSMBOLS:
S=Total market valve of money.

B= Total market valve of debt.
I= Total interest payments.
V= Total market valve of the firm.(VS+B).
NI=Net income available to equity holders.
BASIC DEFINITION:
1. Cost of debt=Interest/Market value DebtX100
Valve of debt (B) =I/K1
2. Cost of equity (Ke) = (DI/Po) +g (if there is income tax)

Where DI= net divided;
3. Overall cost of=EBIT/value of the companyX100
Po=current market price of shares

g=br(r=rate of return)
(If there is no IT) Ke= (E 1(X) N) = (EBIT-I orNI)/s

Per share basis (PO) =E1/K
Total basis(s) =PON=(EBIT-1)/Ke
Weighted average cost of capital:
K0=W1K1=W2K2 (w1, w2 are relative weight) or

K0= (I-NJ)/ (v=EBJT/V
Where V=EBIT/K0
26
Determinants of Capital Structure:
1. Cost of borrowings (CB): When the cost of borrowing

increases, the dependence on borrowed funds is likely to decline. As a
result, the leverage ratio is expected to have a negative relationship with
the cost of borrowing. The cost of borrowing can be measured as total
interest payment as percentage of total borrowings of total borrowings of
the firm.
2. Cost of Equity (CE): If the cost of equity increases, the firm is

likely to depend more on debt than equity capital. Therefore, the leverage
ratio can be accepted to be an increasing function of the cost of equity.
This variable can be measured as the ratio of dividend payment to share
capital of the company.
3. Size of the Firm (SF): It has been suggested by a number of

authors that the size of the firm is likely to be positively related to the
leverage ratio. The rational behind this view is provided by Warner
(1977), and Angchua and McConnell (1982). They have argued that the
ratio of direct bankruptcy costs to have firm’s valve decreases as the
valve of firm is said to be negligible is also argued that the larger firms
are more diversified and they have easily access to the Capital Markets,
and borrow more favorable interest rates. Also Chung (1993) argued that
the larger firms have lower agency costs associated with the assets
substitution and under investment problems which mostly arise from the
conflicting interests of shareholders? Further, the similar firms are more
likely to be liquidated when they are in financial distress. All, such
considerations suggest a positive relationship between the firm size is
measured as the volume of total assets of firm and the leverage ratio.
4. Probability (PR): Myers (1977) suggested that the firms prefer

retained earnings as their main source of financing. Their second
preference is for debt financing followed by new equity issues, which
might be due to the significant transaction cost of issuing new equity. It is
suggested that the observed capital structure of the firm would reflect the
cumulative requirements for external financing. An unusually profitable
firm with a slow growth rate will end up with an unusually low leverage
low ratio compared with the industry average in which it operatives. On
the other hand, an unprofitable firm in the same industry will end up with
a relatively high leverage ratio. The profitability of the firm enables it to
use retained earnings over external finance and therefore, one should
accept a negative.
27
Association between the profitability of the firm and its debt ratio.
Barton and Gordon (1988) have also argued that a firm with high rates
would maintain a relatively lower debt level because of its ability to
finance itself with internally generated funds. This is consistent with the
proportion that the management of firm desire flexible and freedom from
the profitability of the firm. Which can be measured as the ratio of
operating income to total assets, will be negatively related to the debt
level of the firm?
5. Growth Rate (GR): The growing firms need more funds. The
greater the future need for the funds, the more likely that the firm will
retain earnings or issue debt. A firm is except to rarely on debt financially
to rely on debt financing to maintain its debt ratio as its equity increases
due to the large retention of earnings. Thus the firm’s debt level and
growth rate are expected to have a positive relationship. This variable can
be measured as the annual growth rates are expected to have a positive
relationship. This variable can be measured as the annual growth rate of
total assets of the company.
6. Collateral Valve of Assets (CVA): Some capital structure

theories have argued that the type of assets owned by the firm affects its
capital structure choice. Scott (1977) ahs suggested that by selling the
secured debt, the firms can increase the valve of their equity by taking
away the wealth without payment, from their existing unsecured debtors.
By issuing debt secured by assets, the firm can avoid higher interest costs
and high issuing cost. For these reasons the firms with assets that can be
used as collateral may be expected to issue more debt. Therefore, the
collateral valve attribute can be one of the determinants of capital
structure of the firm. This variable can be measured as the ratio of
accounts receivable plus net fixed assets to total assets, and it can be
expected to be positively related with the leverage ration.
7. Liquidity (LQ): Liquidity ratios are mostly used to judge a

firm’s ability to meet its short term obligations. The liquidity ratio may
have conflicting affects on the capital structure decisions of the firm.
First, the firm with higher liquidity rations might have relatively higher
debt rations. This is due to greater ability to meet short-term obligations.
Form this viewpoint one should accept a positive relationship between
the firm liquidity position and its debt ratio. However, the firms with
greater liquid assets may use these assets to finance their investments. If
this happens there will be a negative relationship between the firm’s
liquidity ratio and debt ratio. We include the liquidity as the argument in
our capital structure determination model. It is measured as the ratio of
28
current assets to current liabilities and the direction of its effect on capital
structure is allowed to be empirically determined.
8. Non-Debt Tax Shields (NDTS): DeAndelo and Masulis (1980)

presented a model of optimal capital structure that incorporated the
impact of corporate taxes personal taxes and non-debt related corporate
tax shields such as deprecation, investment tax credits, etc. They argued
that to use less borrowed capital. NDTS [Operating Income-Interest
Payments-(tax payments/corporate tax rate)]/Total assets. The
relationship between the non-debt tax shields and leverage ratio can be
expected to be negative.
THEORIES OF CAPITAL STRUCTURE:
Different kinds of theories are have been

1. Net Income Approach(NI)
2. Net Operating Income Approach(NOI)
3. The Traditional Approach
4. Modigliani and Millar Approach(MM)
1. Net Income Approach (NI): This approach introduced by ‘Durand’.

A firm can minimize weighted average cost of capital and increase
the valve of the firm and share valve in the market.
This approach is based upon the following assumptions:

(I) The cost of debt is less than the equity.
(ii) There are no taxes.
(iii) The risk percentages of inversion are not changed by
The use of the debt.
Degree of leverage:
The reasons for assuming cost of debt is less then cost of Equity
are that interest rates are lower then divided rates due to element of risk
and the benefit of tax as the interest is a deductible expenses.
The total market valve of a firm on the basis of NI is:

V=S+D
29
V=Total market valve of firm.
S=Total market valve of equity shares
(or)
NI/Equity capitalization rate.
D=market valve of debt.
Weighted Average Cost of Capital can be calculated as:

KO=EBIT/V
0.1
Ke
Ko
Cost of Capital 0.05
Degree of leverage:
The reasons for assuming cost of debt is less than the cost of equity
are the interest rates are lower than dividend rates due to elements of risk
and benefit of tax as the interest is a deductible expenses.
The total market value of firm on the basis of NI is:
V = S+D
V = Total market value of firm
S= Total market value of equity share
(or)
NI/Equity capitalization rate
D=Market value of debt.
Weighted average cost of capital can be calculated as
KO = EBIT/V
30
2. Net Operating Income Approach: This theory suggested
by‘Durand’. It is opposite to the NI approach .Here Change in the
capital structure of a company does not effect in the market valve of
the firm and the weighted cost of capital remains constant whether the
debt-equity mix is 50:50 or 20:80 or 0:100. This theory presumes that:
(i) The market capitalizes the valve of the firm as a whole

(ii) The business risk remains constant.
(iii) There are no corporate taxes.
The valve of the firm can be determined as:
V=EBIT/KO
KO=Overall cost of capital
Y
Ke(0/0)
Ko(0/0)
Ki(0/0)
O X
Leverage and cost of

capital(NOI)
The market valve of equity is:

S=V-D
S=Market value of equity shares
V=Total market value of firm
D=Total market value of debt
31
3. The Traditional Approach:
The traditional approach also known, as ‘Intermediate Approach’

is a compromise between the two extremes of income approach and
net operating Income approach. According to this theory, the valve of
the firm can increase initially or the cost of capital can be decreased
by use more debt is a cheaper sources of funds than equity. Thus, a
proper debt-equity mix can reach the capital structure When the
increased cost of equity can’t be offset by the advantage of low cost
debt. Thus the overall cost of capital according to this theory, decrease
up to a certain point, remains more are less unhinged for moderate
increase in debt thereafter, and increase or rise beyond a certain point.
Ko
Ke
Kd
Traditional Approach
5. Modigliani -Miller (MM) Approach:
The MM thesis relating to the relationship between capital

structures, cost structures, cost of capital and valuation is a kin to the
NOT approach, in other words, does not provide operational
32
justification for the irrelevance of the Capital Structures. The MM
proportion supports the NOT approach relating to the independence of
the independence of the capital of the degree of leverage level of debt-
equity ratio.
In (Rs)
V
(0/0)Ko
Vo
Degree of Leverage (B/V)
Basis Proportions:
1) The over all cost of capital (KO) and the valve of the firm (V) are
independent of the capital structure.
2) Ke is equal to the capitalization rate of a pure equity stream plus

premium for financial risk\to the difference to the pure equity
capitalization (Ke) time the ratio of debt to equity.
3) The cut off rate for investment purposes is completely

independent of the way in which an investment is financed.
Assumption:
a) Perfect capital market the implication of a perfect capital
market is that.
 Securities are infinitely divisible.
 Investors are free to busy/sell securities.
 Investors can borrow without restrictions;
 There is no transaction cost.
 Investors are rational.
b) Given the assumption of perfect information and rationally.
c) Business risk is equal among all firms with in similar
Operating environments.
Capital Structure Planning and Policy:
33
Introduction: Capital structures refer to the mix of long-term of
sources of the funds, such as debentures, long-term debt and preference
shares. Some companies do not plan there capital structure they may face
considerable difficulties in raising funds to finance there activities. May
also fail to economize the use of their funds.
Features of an appropriate capital structure: The capital should be

planned generally keeping in view the interest of the equity shareholders,
being the owners of the owners of the company. An appropriate capital
structures should have the following features:
• Return
• Risk
• Flexibility
• Capacity
• Control
Approach to establish capital structure:

There are 3 most common approaches to decide about a firm’s capital
structures.
1. EBIT-EPS APPROACH: For analyzing the impact of debt on EPS.
2. VALUATION APPROACH: To know value of the company.
3. CASH FLOW APPROACH: For analyzing the firm’s ability to

Serve debt.
Practical Considerations in determining capital structures:

• Concern for dilution of control
• Desire to maintain operating flexibility.
• Ease of marketing capital inexpensively.
• Capital for economics of scale.
• Agency costs.
34
1. INVESTMENTS:
Total investments, as on 31st March, 2008 is Rs.4782.66
Lakhs as against Rs.2887.28 Lakhs as on 31st March, 2007.
2. FINANCIAL:
TURN OVER AND PROFIT:
KESORAM INDUSTRIES LIMITED recorded a turnover
of Rs. 344032.16 Lakhs during 2007-08 as against
Rs.251645.89 Lakhs during 2006-07.Net profit after Tax is
Rs. 38335.04 Lakhs as compared to Rs.26568.32 Lakhs
during the previous year i.e.2006-07
CAPITAL STRUCTURE:
The authorized share capital of KESORAM
INDUSTRIES LIMITED is Rs.12000.00 Lakhs. The issued,
subscribed and paid up capital 575435 shares of Rs.10/- each
allotted as fully paid up with out payments being received in
cash pursuant to a scheme of amalgamation and 5949480
shares of Rs.10/- each allotted as fully paid up bones shares
by way of capitalization of reserve, 400000 shares of Rs.10/-
each Rs.3.75/- per share received in cash and balance
credited as bonus by way Capitalization of Reserve
45743318 ordinary Shares of Rs.10/- each fully paid
Rs.4574.16 Lakhs.
3. SECURED LOANS
1. TERM LOANS from
a) Rs.50833 Lakhs from State Bank of India.
b) Rs.4880 Lakhs from State Bank of Hyderabad.
c) Rs.1632 Lakhs from State Bank of Bikaner & Jaipur
d) Rs.3256 Lakhs from State Bank of Indore.
e) Rs1221 Lakhs from State Bank of Mysore.
2. FROM SCHEDULED Banks 12650.96 Lakhs
35
UNSECURED LOANS:
a) By Fixed Deposits Rs.164.22 Lakhs

b) By Security Deposits from selling agents and others
Rs.12246.08 Lakhs
c) Short term Loans Rs.11511.06 Lakhs
d) Interest free loan from State Industrial & Investment
Corporation of Maharastra Ltd. Rs.16.05 Lakhs.
4 .RESERVES AND SURPLES:
A) CAPITAL RESERVE:
During the year the company has not transferred
any capital.
B) GENERAL RESERVE:
Rs.4000 Lakhs have been transferred from profit & Loss
A/C during the year. The closing balance as on
31st march 2008 is Rs.31391.5 Lakhs
. C) FOREIGN PROJECT RESERVE:
During the year, the company did not make Foreign
Project Reserve.
CAPITALISATION STATEMENT
Rs. In Lakhs
SL.NO Particulars As on 31-03-2008

Debt:
a)Short term 97106.02
A b)Long term Debt 24375.36
C Total Debt 121481.38

a)Equity Share Capital
B b)Results and Surplus 4574.16 93617
Total Equity 98191.16
Total Valve of the company Debt/Equity

C Ratio 1.23%
36
5. SHARE CAPITAL:
The company did not raise any Capital during the year under report. The
authorized Capital Company is 1,20,00,00,000 Equity Shares of Rs.10/-
each. The ISSUED AND, SUBSCRIBED, PAID-UP CAPITAL of the
company is 4, 57, 43,318 Equity shares of Rs.10/- each fully paid.
YEAR TOTAL DIVIDEND PAID TOTAL PAID

UP CAPITAL
2007-08 2943.45 4574.16
2006-07 2086.35 4574.16
2005-06 1546.76 4574.16
2004-05 1303.97 4574.16
2003-04 1290.11 4574.16
2002-03 1036.11 4574.66
5000
4500
4000
3500
3000 TOTAL DIVIDEND PAID
2500
TOTAL PAID UP
2000 CAPITAL
1500
1000
500
0
2006-07 2005-06 2004-05 2003-04 2002-03
37
6. DIVIDENDS:
KESORAM INDUSTRIES LIMITED pays Interims dividend. The
Company paid Interims dividend of Rs.2086.35 Lakhs to the equity Share
holders for the financial year of 2006-07.
BOARD OF DIRECTORS MEETING

The Board of Directors annual General meeting of KESORAM
INDUSTRIES LIMITED held on 14th March, 2007. They declared
interims dividend for the financial year2006-07. The interim dividend
paid on
4, 57, 43,318 Ordinary Shares face valve of Rs.10/- each @ Rs.4/- per
share.
FOR THE YEAR ENDED MARCH, 2007
DIVIDEND REPORT
(Rs. In Lakhs)
Particulars 2008 2007 2006 2005 2004

Share Capital 4574.16 4574.16 4574.16 4574.16
Face valve(Rs) 4574.16 10/- 10/- 10/- 10/-
Rate of Dividend
Final - - - - -
Interim 4/- 4/- 4/- 4/- 4/-
Amount of dividend
Final _ - - - -
In term 1829.73 1372.29 1143.5 1143.5
38
7. PROFIT:
Profit before Depreciation & Tax Rs.64180.08 Lakhs during the current
year 2007-08 against previous year 2006-07 was Rs.40008.97 Lakhs.
Provision for Income Tax for the year 2007-08 Rs.16500 Lakhs as
against previous year 2006-07 Rs.7500 Lakhs.Profit after Tax works out
Rs. 26568.32 Lakhs in 2007-08 against Rs.26568.32 Lakhs for the year of
2006-07.
8. EPS Calculation:
Particulars 2005-06 2006-07 2007-08

Net Profit After
Tax (Rs.in Lakhs) 4570.92 26568.32 38335
No. of Equity 45743.31 45743.31
shares 8 8 45743.318
EPS 9.99 58.08 83.8
Face Valve of
Share 10/- 10/- 10/-
9. WORKING RESULTS:
Particulars 2003-04 2004-05 2005-06 2006-07 2007-08

156572.1 170901.5 187781.5 251645.8 344032.16
Turnover in Lakhs 5 3 5 9
Interest 3149.73 2041.1 2278.97 2991.29 5210.72
Depreciation 5359.18 5349.2 5157.17 5830.64 8926.89
PBT 8299.5 4351.28 8092.92 34178.32 55253.19
Provision for tax 2000 1000 3400 7500 16500
PAT 6299.5 3351.2 4570.92 26568.3 38335
Dividend & Tax 1143.5 1143.5 1372.29 1829.73 2558.5
39
CHAPTER-V
ANALYSIS AND INTERPRETATION
40
2007-08 FINANCIAL YEARS
1. Capitalization Information
Particulars Rs. In lakhs
Debt:
A. a)Secured loans 97106.02
b)Un secured loans 24375.36
Total debt 121481.38
Equity Capital:
B. a)Equity share capital 4574.16
b)Reserves andsurplus 93617
Total Equity Capital 98191.16
Total Value:
C. a)Capital Employed 219672.54
Total Value of the 219672.54

Company
D. Debt/Equity Ratio 1.23
41
2. EBIT-EPS ANALYSIS
particulars 2007-08(Rs. In Lakhs)

EBIT 60658.93
Less: Interest 5405.74
Profit before Tax 55253.19
Less: Provision for Tax 16500.00
Less: Provision for Fringe 418.19
Benefit
Profit After Tax 38335
Proposed/Interim Dividend 6943
& Tax
Earning Per Shares(EPS) 38335/4574.3318X10=83.80
[(PAT/Share capital)X 10]
Overall cost of=EBIT/value of the companyX100

Ko=60658.93/219672.54X100=27.67%
Cost of debt=Interest/Market value DebtX100

KD= 5405.74/121481.38X100=4.45%
3. Ratios 2007-08
Return on capital employed 48.12%
Return on Net worth 39.04%
Debt/Equity ratio 1.21
42
Interpretation:
i) Total net value of KESAVARAM INDUSTRIES LIMITED

was increased in the year 2007-08 from87280.00 to121481.
ii) Equity capital of the KESAVARAM INDUSTRIES LIMITED
Same as the previous year. The value is 4574.16 Lakhs.
iii) Debt Equity ratio was recorded as1.23 in the year 2007-08.
iv) Net worth of the company 39.04 in the financial year 2007-08.
v) Earning per share of the company was Rs.83.80.
SOURCE OF FINANCE
The total investment on 31st March, 2008 is Rs. 3026.02 Lakhs. The
source of investments is given below.
KESORAM INDUSTRIES LIMITED’S Sources of Finance as 31st

March, 2008
Total Investment Rs. 3026.02 Lakhs
GOVERNMENT SECURITIES 0.13

BONDS 29.64
FULLY PAID SHARES 2899.02
PARTIALLY PAID SHARES 6.12
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
43
2006-07 FINANCIAL YEAR
Particulars Rs. In
lakhs
A. Debt:
a)Secured loans 64319.00
Total debt 87289.00
B. Equity Capital:
a)Equity share capital 4574.16
b)Reserves and surplus 60869.28
C. Total Value:
a)Capital Employed 152732
Total Value of the 152732

Company
44

EBIT 37528.63
Benefit
Profit After Tax 26568.32
Proposed/Interim Dividend 2086.35

& Tax
Earning Per Shares(EPS) [(26568.32/4574.3318)X10]=58.08


KO=37528.63/152732X100
KO=24.57%

Kd=3350.30/87289.00X100
Kd=3.83%
3. Ratios 2006-07
Return on capitalemployed 40.85%

45
Interpretation:
i) Total net value of KESORAM INDUSTRIES LIMITED was increased

in the year 2006-07 from 62135.45 to 87280.00.
ii) Equity capital of the KESORAM INDUSTRIES LIMITED was same
as the previous year. The value is 4574.16 Lakhs.
iii) Debt Equity ratio was recorded as 0.98 in the year 2006-07.
iv) Net worth of the company 40.59% in the financial year 2006-07.
v) Earning per share of the company was Rs.58.08.
SOURCE OF FINANCE
The total investment on 31st March, 2007 is Rs.2887.28 Lakhs. The


March, 2007
Total Investment Rs.2887.28 Lakhs

BONDS 19.64
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
46
2005-06 FINANCIAL YEAR
Particulars Rs. In
lakhs
Debt:
Total debt 62135.43
Equity Capital:
Total Value:
C. a) Capital Employed 103740.48
b) Value Added

Company
Debt/Equity Ratio 1.45
D.
47

EBIT 11368.29
Benefit
& Tax

Ko=11368.29/103740.48X100
Ko=10.95%

Kd= 3275.37/62135.43X100
Kd=5.27%
3. Ratios 2005-06

Current ratio 2.8
48
Interpretation:
i) Total debt value of KESORAM INDUSTRIES LIMITED was

increased in the year 2005-06 from 50455.24 to 62135.45.
ii) Equity capital of the KESORAM INDUSTRIES LIMITED was
same as the previous year. The value is 4574.16 Lakhs.
iii) Debt/Equity ratio was recorded as 0.99 in the year 2005-06.
iv) Net worth of the company 10.98% in the financial year.
2005-06.
v) Earnings per share of the company were Rs.9.99.
SOURCE OF FINANCE


March, 2006

BONDS 19.64
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
49
Debt:
Total debt 50455.23

Equity Capital:

Total Value:
C. a)Capital Employed 88169.82

Company
50

EBIT 7116.02
Less: Provision for Tax 1000
Less: Provision for Fringe -
Benefit
& Tax

Ko=7116.02/88169.82 X 100
KO=8.07%

KD= 2764.74/50455.23X100
KD=5.47%
3. Ratios 2005-06

Current ratio 2.73
51
Interpretation:

iv) Net worth of the company 8.88% in the financial year 2004-05.
v) Earnings per share of the company was Rs.7.33.
SOURCE OF FINANCE


March, 2005

BONDS 19.64
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
52

A. Debt:
Total debt 44663.73

B. Equity Capital: 4574.16
b)Reserves and surplus

C. Total Value:
a)Capital Employed 79512.00
Total Value of the

Company 79512.00
D.
Debt/Equity Ratio 1.28
53
Particulars 2003-04(Rs. In Lakhs)

EBIT 8642.85
Benefit
& Tax

Ko=8642.85/79512X100
Ko=10.86%

Kd= 3432.28/44663.73X100
Kd=7.86%
3. Ratios 2003-04

Current ratio 2.51%
Debt/Equity ratio 1.28%
54
Interpretation:

iv) Net worth of the company 18.07% in financial year 2003-04.
V) Earnings per share of the company was Rs.13.77.
SOURCE OF FINANCE


March, 2004

BONDS 19.64
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
55

A. Debt:
Total debt 44090.20
B. Equity Capital: 4592.66

b)Reserves and surplus
C. Total Value:
a)Capital Employed 77966.60

Company
56
Particulars 2002-03(Rs. In Lakhs)

EBIT 78992.57
Benefit
& Tax

Ko=7899.57/77960X100
Ko=10.13%
Kd= 4659.58/44090.20X100
Kd=10.5%
3. Ratios 2005-06
Current ratio 2.06
57
Interpretation:
i) Total debt valve of KESORAM INDUSTRIES LIMITED was

44090.21 Lakhs.
ii) Equity Capital of the KESORAM INDUSTRIES LIMITED was

4592.66 Lakhs.
iii) Debt Equity Ratio was recorded as 1.12 in the financial year
2002-03.
iv) Net Worth of the company was 8.03% in the year 2002-03.
v) Earning per share of the company was Rs.6.04 Lakhs.
58
CHAPTER-VI
CONCLUSIONS & SUGGESSTIONS
59
CONCLUSION:
After analyzing the financial position of KESORAM

INDUSTRIES LIMITED and evaluating its Capital Structure Analysis in
respect of Ratio Analysis and source and utilization of founds. The
following conclusions are drawn from the project preparation.
The progress of KESORAM INDUSTRIES LIMITED shows that

Equity Capital to Rs.41605.00 Lakhs from during the year 2007-08 and
the Net worth of the Company 39.04%.
Regarding Capital Structure Analysis Equity Capital was decreased

from 2002-03 to 2007-08 and t0otal Debt Valve increased from 87289.00
to 121481.00 Lakhs during the year.
Regarding Capital Structure Analysis Turn Over was increased and

decreased in the year 2006-07 and profit after tax was increased during
the year 2007-08.
Regarding Capital Structure Analysis Equity Ratio was decreased

from 1.23 to 1.33 and current ratio decreased from 2.8to 2.39.
From the above study can be said that the KESORAM

INDUSTRIES LIMITED financial position on Capital Structure Analysis
is quite satisfactory.
60
SUGGESTIONS
The KESORAM INDUSTRIES LIMITED is one of the private

sector cement Company in India. It is a profitable Company.
Now-a-days the cement industry playing a major and important

role in the construction field, these are for construct Homes, Flyovers,
Industries etc. Now-a-days cement industry facing of challenge like
 Regional requirements
 Regional cement demands
 Lack of resources
With all the above problems cement industry has to produce the
Cement with profits.
I want to express my views with few points, they are
1) KESORAM INDUSTRIES LIMITED has been maintaining

Constant Equity Share Capital Since 2004, this has to improve.
2) Offer additional shares to investors from profits instead of giving

Dividend. With this, there is a chance to increase reserves and surplus.
3) Debt/Equity Ratio in KESORAM INDUSTRIES LIMITED is 0.98%

this is more than the idle ratio of debt. But if the proportion of Debt!
Equity (0.5 and not less than 0.5) will decrease from 0.98 to 0.5. It would
decrease the responsibility. Investments through Equity from rural people
i.e. rural investments are important.
61
CHAPTER-VII
BIBILOGRAPHY
62
BIBLIOGRAPHY
Reference Books:
I.M.Pandey -Financial Management
M.Y.Khan & P.K.Jain - Financial Management
Journals:
Finance India Journals
Web Site:
www.kaa-kesoram3sancharnet.in
www.communication@kasoramcement.com
www.hyderabad@kesoramcement.com
63

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CAPITAL STRUCTURE ANALYSIS

“KESORAM INDUSTRIES LIMITED”

A PROJECT REPORT SUBMITTED TO OSMANIA UNIVERSITY

MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

I here by declare that the project report entitled “CAPITAL

This paper offers an empirical look at the corporate performance

The paper combines two strands of business research: one from

Not statistically significant. Firms from Korea have significantly

I would like to convey my heartiest gratitude to several people, for their

2. LITERATURE REVIEW 12-13

3. COMPANY PROFILE 15-24

4. THEORITICAL FRAME WORK OFCAPITAL 26-39

5. ANALYSIS &INTERPRETATION 41-58

6. CONCLUSIONS & SUGGESSTIONS 60-61

Every organization requires funds to run and maintain its business

 Long term assets (fixed assets)

A firm can easily estimate the required funds by a detailed study of

NEED OF THE STUDY:

 The corporate and personal income taxes do not exist.

 The business risk is constant over time and is assumed to be

 The given the assumptions of perfect information and rationality.

OBJECTIVE OF THE STUDY:

 To know the capitalization rate of an equity and premium for financial

 To know cut off rate for investment purposes is completely

 To make the impact of (Capital) not work in financial performance.

Methodology is a systematic procedure of collecting information in

(1) Primary data

It is the information collected directly without any reference. In the

The secondary data was collected from already published sources

Since it will not be possible to conduct a micro level of all cement

LIMITATIONS OF THE STUDY:

 The data of study of project collected of investor or capital

 The study of capital structure analysis of company financial

 The calculations and methods adopted in my study may be carried

 It is dipped to judge the results-valve due to the change market

This paper develops a model of dynamic capital structure based on

2. Performance, capital structure and home country: An analysis of

R. Charles Moyer, Dean

Cameron University, School of Business, 2800 W. Gore Boulevard,

Babcock Graduate School of Management, Wake Forest University,

Available online 1 April 2002.

Of IFFCO and Indo Gulf Corporation Ltd., India

Authors: Khatik, S.K.1; Singh, P.K.2

Source: International Journal of Financial Services Management, Volume

Capital structure, or what is generally known as capital mix, is very

Keywords: ECONOMICS AND FINANCE JOURNALS; Accounting

Document Type: Research article

OVERVIEW OF CEMENT INDUSTRY:

During in the year 1947 India Standard Specification for

Installed capacity in 70’s was 2,13,29,000 tones, which was raised

Partial decontrol of cement by Government:

Cement industries had continuously been knocking doors of

Complete decontrol of Cement

However things were not as smooth as expected. Most of old units

More new units started adding which brought the ear of

Government continued changing basis of levy, free sale quota.

Birla Supreme in popular brand of Kesoram cement from its prestigious

Kesoram cement undertaking marketing activities extensively in

The market share of Kesoram Cement in AP is 7.05%. The market

STATE MARKET SHARE

It has been the endeavor of KESORAM to incorporate the World’s

Fully Compared XRF and XRD X-RAY Analyzers keep a constant