CHAPTER I

INTRODUCTION

1
1.1 INTRODUCTION

Capital structure is one of the most puzzling issues in corporate finance literature
(Brounen & Eichholtz, 2001). The relationship between capital structure and profitability
is one that receives considerable attention in the finance literature. Each and every
business organizations need adequate fund to run its business effectively and efficiently.
A firm can raise fund from different sources and take different forms. Capital structure
theory deals with it. Thus the proportion of debt to equity is a strategic choice of
corporate managers. In finance, the most debatable topic is capital structure. The main
issue of debate revolves around the optimal capital structure. So capital structure refers to
the way a firm finances its assets through some combination of equity, debt, or hybrid
securities. A firm's capital structure is then the composition or 'structure' of its liabilities.
Profitability is the ability of a firm to generate net income on a consistent basis. Ratios
are used as a benchmark for evaluating the performance of a firm. Ratios help to
summarize large quantities of financial data and to make qualitative judgment about the
firm’s profitability. So Capital structure decision is the vital one since the profitability of
an enterprise is directly affected by such decision. Hence, proper care and attention need
to be given while determining capital structure decision.
This study shows the statistical analysis carried out seeking to discover is there any
relationship between capital structure and profitability of SME.
Of all the aspects of capital investment decision, capital structure decision is the vital one,
since the profitability of an enterprise is directly affected by such decision. Hence, proper
care and attention need to be given while making the capital structure decision. There
could be hundreds of options but to decide which option is best in firm's interest in a
particular scenario needs to have deep insight in the field of finance as use of more
proportion of Debt in capital structure can be effective as it is less costly than equity but
it also has some limitations because after a certain limit it affects company's leverage.
Therefore, a balance needs to be maintained.

2
 1.2 NEED FOR THE STUDY

To analyze the combinations of capital structure variables with profitability variables and
to find correlation between them . To understand as to what extent a firm should take
recourse of debt financing. It caters to large extent towards development of economy of
the nation. To increase capital employed and decrease debts.

3
 1.3 SCOPE OF THE STUDY

A study of capital structure and its impact on profitability involves examination of debt
and equity as well as total funds, return on equity and return on capital employed. The
scope of the study is confined to the sources that ULTRATECH Cement tapped over the
years under study i.e. 2013-2017. The time period considered for evaluating the study is
five years.

4
 1.4 OBJECTIVES OF THE STUDY

 To identify the relationship between capital structure and profitability of

ULTRATECH Cement.
 To find out an optimal capital structure that would be associated with the best
performance.
 To study the impact of capital structure on profitability using ROCE and ROE.
 To understand how a firm can create value through its financing decisions.
 To show how to take account of a firms financing mix in evaluating investment
decisions.

5
 1.5RESEARCH METHODOLOGY

1. Primary data

2. Secondary data

Primary data

Primary data are those which are collected for the first time and so are in crude form. But
secondary data are those which have already been collected .It is obtained from

 Personal interview
 survey

Secondary data

Secondary data is the data that have been already collected by and readily available from
other sources like

 Literature Reviews
 websites
 Text Books

6
 1.6 LIMITATIONSOF THE STUDY

 The present study is confined to ULTRATECH Cement.

 The study is analyzed with the help of correlation.
 The analysis was restricted to the data available in the balance sheet of
ULTRATECH Cement.
 As the time provided was just 45 days no in-depth research could be done on the
topic

7
 CHAPTER II

REVIEW OF LITERATURE

8
REVIEW OF LITERATURE

One of the most important financial decisions facing companies is the choice between
debt and equity capital (Glen & Pinto, 1994). This decision can effectively and
efficiently be taken when managers are first of all aware of how capital structure
influences firm profitability. This is because; this awareness would enable managers to
know how profitable firms make their financing decisions in particular contexts to remain
competitive. In the corporate finance literature, it is believed that this decision differs
from one economy to another depending on country level characteristics.

Dimitris, M. & Maria, P. (2008) investigated the relationship between capital structure,
ownership structure and firm performance across different industries using a sample of
French manufacturing firms. They found that a negative relationship between past
profitability and leverage and there will be a positive relation between profitability and
leverage. Peterson &Rajan (1994) found a significantly positive association between
profitability and debt ratios in a study designed to investigate the relationship. Ooi (1999)
argues that profitable firms are more attractive to financial institutions as lending
prospects. The reason is that, those firms are expected to have higher tax shields and low
cementruptcy costs. According to Scher et al. (1993), start-up firms with higher
anticipated profitability have higher debt to equity ratios. In a study developed to
investigate the relationship between profitability and firm leverage, Taub (1975) in a
regression analysis of four profitability metrics against debt ratio found a significantly
positive association between debt and profitability.

According to Bos&Fetherston (1993), capital structure affects both profitability &

riskiness of firms. These believe has been held by earlier researchers such as
Miller&Modigliani (1963) and Titman &Wessels, (1998). As a result, numerous
studies have been conducted by academic writers to examine the impact ofCapital
structure on firm profitability.

9
According to Champion (1999) &Leibestein (1966), companies can use more debt to
enhance their financial performance because of debt’s capability to cause managers to
improve productivity to avoid cementruptcy. The point here is that, debt must be repaid
while dividend payment is not obligatory and can even be postponed if the firm is
financially hard up. Furthermore Roden &Lewellen (1995) observed a significantly
positive association between profitability and total debt in a study developed to find out
the percentage of total debt in leverage buyouts. In a study designed to examine the effect
the effect of capital structure on profitability of listed firms on the Ghana Stock
Exchange, Abor (2005) has reported a significantly positive relationship between the
ratios of short term debtto total assets & profitability but a negative association between
the ratio of long term debt to total assets and profitability. The relationship between
capital structure and company profitability is always explained in the corporate finance
literature within the framework of “Pecking order theory”. Within this framework, firms
would always prefer internal sources of finance as opposed to external sources (Myers,
1984; Myers & Majulf, 1984). These authors argue that internal funding which is
specifically the use of retained earnings is cheaper as a source of finance relative to
external funding which is exclusively the use of debt and equity.
This preference is due to the cost that is associated with the information asymmetry that
exist between managers and outside market participants thus making external funding
expensive. Generally, the investors are of the view that managers would only issue over
valued shares and vice versa thereby raising cheap capital.

Although this proposition may not always be true, investors often demand higher returns
to compensate when there is a new issue thus making external funding relatively
expensive (Barclay & Smith, 2005). As a result, astute managers would ignore external
funding and use internal sources instead. Titman &Wessels (1988) contend that firms
with high profit levels, all things equal, would maintain relatively lower debt levels since
they can realize such funds form internal sources. Furthermore, Cassa & Holmes (2003)
and Hall et al. (2004) all found negative relationship between profitability and both long-
term debt and short-term debt ratios.

10
Bourke (1989) reported that capital ratios are positively related to profitability. Bourke
explained this by assuming that well capitalized cements may enjoy access to cheaper
and less risky sources of funds and better quality asset markets. Alternatively the
prudence implied by high capital ratios may also be maintained in their asset portfolio
decisions with consequent improvement in loan loss provision and hence profitability.
The effect of the capital structure on profitability is non-trivial, especially for cements
subject to regulatory requirements. Fischer, Henkel & Zechner (1989) show that
profitability is rather insensitive to the capital structure due to adjustment costs. Since
cements are active players on the global capital markets, they face relatively low
transaction costs for adjusting their capital structure.
Therefore it is likely that a cement’s tolerance with respect to deviations in its capital
structure from the target capital structure is very limited and that profits react fast to
holding an in-efficient capital structure.
In order to find the impact of capital structure on the profitability of a firm, a lot of
research has been undertaken so far by various researchers all over the world. The review
of some of the major studies has been undertaken so as to develop a clear understanding
about the relationship between capital structure and profitability. The review of such
major studies is as follows:
[ CITATION Chi02 \l 1033 ] Undertake a study and the findings of the study put forth that
Profitability and capital structure are interrelated. The study sample includes 35
companies listed in Hong Kong Stock Exchange.

[ CITATION Abo05 \l 1033 ] Investigates the relationship between capital structure and
profitability of listed firms on the Ghana Stock Exchange and find a significantly positive
relation between the ratio of short-term debt to total assets and ROE and negative
relationship between the ratio of long-term debt to total assets and ROE.

[ CITATION Gil \l 1033 ] Seeks to extend [ CITATION Abo05 \l 1033 ] findings regarding the
effect of capital structure on profitability by examining the effect of capital structure on
profitability of the American service and manufacturing firms. The Empirical results of
the study show a positive relationship between short-term debt to total assets and

11
profitability and between total debt to total assets and profitability in the service industry.
The findings of this paper also show a positive relationship between short-term debt to
total assets and profitability, long-term debt to total assets and profitability, and between
total debt to total assets and profitability in the manufacturing industry.

The other major studies undertaken by [ CITATION Mes03 \l 1033 ][ CITATION Had02 \l 1033 ]
[ CITATION Arb09 \l 1033 ][ CITATION Cha10 \l 1033 ][ CITATION Pan04 \l 1033 ] came up with
the findings which were conflicting in nature as some studies confirm positive
relationship between capital structure and profitability while other studies confirm
positive relationship between the variables. It is against this background that the present
study has been undertaken so as to facilitate the existing literature.

Capital structure is referred to as the way in which the firm finances itself through debts,
equity and securities. It is the composition of debt and equity that is required for a firm to
finance its assets. The capital structure of a firm is very important since it is related to the
ability of the firm to meet the needs of its stakeholders.
The Board of Directors or the financial manager of a company should always endeavor to
develop a capital structure that would lie beneficial to the equity shareholders in
particular and to the other groups such as employees, customers, creditors and society in
general [ CITATION pan09 \l 1033 ].

Provided the theoretical framework that links capital structure and market structure.
Contrary to the profit maximization objective postulated in industrial organization
literature, these theories, like the corporate finance theory, assume that the firm’s
objective is to maximize the wealth of shareholders and show that market structure
affects capital structure by influencing the competitive behavior and strategies of firms.

According to [ CITATION Bra86 \l 1033 ] firms in the oligopolistic market will follow the
strategy of maximizing their output for improving profitability in favorable economic
conditions. In unfavorable economic conditions, they would take a cut in production and
reduce their profitability.

12
Shareholders enjoy increased wealth in good periods, but they tend to ignore decline in
profitability in bad times as unfavorable consequences are passed on to lenders because
of shareholders’ limited liability status. Thus the oligopoly firms, in contrast to the firms
in the competitive markets, would employ higher levels of debt to produce more when
opportunities to earn high profits arise. The implied prediction of the output
maximization hypothesis is that capital structure and market structure have positive
relationship.

Mohanty (2000) made an attempt to test whether the predictions oftheoriesofCapital

Structure based on information asymmetry are applicable to Indian companies. They used
ordinary least square regression to test the relation of profitability, information
asymmetry and free cash flows on the leverage of Indian companies for the period of
three years from 1996 to 1998. They found out that most profitable companies opted for
low leverage, relationship between information asymmetry and leverage negative
opposite ofwhat Pecking Order Theory predicts, and could find no conclusive evidence
regarding relationship between free cash flow and leverage.

Most ofthe major empirical work done on Capital Structure (even related to testing of
various Capital Structure theories) until then was based on firms in the United States
alone and Rajan&Zingales (1995) wanted to test the robustness ofthese findings outside
the environment in which they were uncovered. Therefore, to make international
comparisons, they used the data from G-7 countries to find out whether the choice of
Capital Structure in other countries is based on factors similar to those influencing
Capital Structures ofU.S. They employed five different ratios -total liabilities to total
assets , total debt to total assets, total debt/ net assets, total debt / total (debt + equity) and
EBIT / interest expense as their measures ofleverage. The stock measures in ratios were
computed at book value and market value. The determinants of leverage selected for the
purpose of study were - tangibility of assets, the market to book ratio, firm size, and
profitability of firms. They concluded that at an aggregate level, firm leverage is more or
less similar across the G-7 countries and that factors that influenced Capital Structures in
U.S affected firm leverage in other countries as well.

13
AL Khalayleh, 2001 tested the relationship between accounting performance indicators
and market performance indicators for a sample of (40) Jordanian public companies listed
in Amman Security Exchange during the period between the year of 1984 to 1996. The
results showed a significant positive relationship between the market price per share with
the ratios of return on assets and return on equity.

The study of a company’s optimal capital structure dates back to 1958 when Franco

Modigliani and Merton Miller published their Nobel Prize winning work “The Cost of
Capital, Corporation Finance, and the Theory of Investment.” As an important premise of
their work, Modigliani and Miller illustrated that under conditions where corporate
income taxes and distress costs are not present in the business environment, the use of
financial leverage has no effect on the value of the company. This view, known as
the Irrelevance Proposition theorem, is one of the most important pieces of academic
theory that has ever been published.
Unfortunately, the Irrelevance Theorem, like most Nobel Prize winning works in
economics, require a number of impractical assumptions that need to be accepted to apply
the theory in a real world environment. In recognition of this problem, Modigliani and
Miller expanded their Irrelevance Proposition theorem to include the impact of corporate
income taxes, and the potential impact of distress cost, for purposes of determining the
optimal capital structure for a company. Their revised work, universally known as the
Trade-off Theory of capital structure, makes the case that a company’s optimal capital
structure should be the prudent balance between the tax benefits that are associated with
the use of debt capital, and the costs associated with thepotential for cementruptcy for the
company. Today, the premise of the Trade-off Theory is the foundation that corporate
management should be using to determine the optimal capital structure for a company.

According to Richard Loth, return on capital employed (ROCE) ratio, expressed as a

percentage, complements the return on equity (ROE) ratio by adding a company's debt
liabilities, or funded debt, to equity to reflect a company's total "capital employed". This

14
measure narrows the focus to gain a better understanding of a company's ability to
generate returns from its available capital base.
By comparing Earnings Before Interest and Tax (EBIT) or net operating profit to the sum
of a company's debt and equity capital, investors can get a clear picture of how the use
of leverage impacts a company's profitability. Financial analysts consider the ROCE
measurement to be a more comprehensive profitability indicator because it gauges
management's ability to generate earnings from a company's total pool of capital.

Return on capital employed (ROCE) is the book return generated by a company's

operations. It is calculated as operating profit after normalized tax divided by capital
employed or as the NOPAT margin (net operating profit after tax/sales) multiplied by
asset turnover (sales/capital employed). Return on equity (ROE) is the ratio of net profit
to shareholders' equity.

The leverage effect of debt is the difference between return on equity and return on
capital employed. It derives from the difference between return on capital employed and
the after-tax cost of debt and is influenced by the relative size of debt and equity on the
balance sheet. From a mathematical standpoint, the leverage effect leads to the following
accounting tautology:

The leverage effect works both ways. Although it may boost return on equity to above the
level of return on capital employed, it may also dilute it to a weaker level when the return
on capital employed falls below the cost of debt.
Book return on capital employed, return on equity and cost of debt do not reflect the
returns required by shareholders, providers of funds and creditors. These figures cannot
be regarded as financial indicators because they do not take into account risk or
valuation, two key parameters in finance. Instead, they reflect the historical book returns
achieved and belong to the realms of financial analysis and control.

15
The leverage effect helps to identify the source of a good return on equity, which may
come from either a healthy return on capital employed or merely from a company's
capital structure, i.e. the leverage effect. This is its only real point.
In the long run, only a healthy return on capital employed will ensure a decent return on
equity. As we shall see, the leverage effect does not create any value. Although it may
boost return on equity, it leads to an increase in risk that is proportional to the additional
profit.

Return on Equity: Cost recovery and the elimination of subsidies would only force
MFIs to shed the poorest from their portfolios of borrowers because they are precisely the
most difficult and costly to attend, Hulme et al (1996). These findings are circuitously
relates with the return on equity as net income is considered in return on equity excluding
grants or donations. Whereas, MFIs generate lower return on equity compared to
commercial cements in developing countries, a fact which they explain as being ‘‘due to
their very low levels of leverage”, Christen and McDonald (1998). The return on equity is
an inevitable measure of profitability, ZeynepUgur (2006). Finally supporting evidence
to ZeynepUgur(2006) can be found in Befekadu B. Kereta’s (2007) studies. Stating,
MFIs are operational sustainable measured by return on equity and the industry's profit
performance is improving over time. Meanwhile, Michael Tucker and Gerard Miles
declared stating, there is a possibility that self sufficient MFIs with positive return on
equity may be attaining those results by reducing levels of services to the poorest of the
poor, those with the greater needs.

Debt / Equity (Leverage): Firms with higher leverage positions tend to have a capital
structure that translates into a better performance, Modigliani et al (1958). This states that
high leverage and profitability are positively correlated. Nevertheless, Rhyne et al (1992)
observed somewhat different approach to Modigliani et al (1958); They stated that
institution which have high capital structure with equity, is tend to be more profitable.
Jonathan Conning (1999) once more confirms Rhyne and Otero’s (1992) study of capital
structure. The financial viability does not mean that a MFI depends on its own funds,
Nimal Sanderatne (2003). Abor (2005) postulates that, short term debt ratio is positively

16
correlated with return on equity. In fact Abor (2005) affirmed their findings pertaining to
SMEs. High leverage is related to higher profit efficiency Berger et al (2006), While,
Felipe Portocarrero Maisch, et al (2006) identified that, it is important for an MFI to
create a capitalization plan before beginning to look for new shareholders. The creation
of this capitalization plan is step one in the process of issuing debt or equity.
Rappaport’s (1986:43) studies in the 1970’s revealed that although the earnings of
Standard & Poor’s 400 companies decreased dramatically during the 1970’s, their ROEs
actually increased through increased levels of asset turnover and gearing. The markets,
however, were not misled by this apparent ‘better performance’. Consequently the market
returns during this period were generally very poor, or ‘dismal’, according to Rappaport.

Around 1989 when Reimann (1989:3) published his work, ROE was used extensively
for measuring whether value was being created for shareholders. The reason behind the
adoption of ROE as a measure was that it gave more reliable results than earnings per
share (EPS) (Reimann, 1989:18). As it is important to consider how investors value the
shares of a company Reimann (1989:7) considered a number of strategy consulting firms
and found that they focus their measurements on the spread between ROE and the cost of
equity. If the spread is positive, it indicates that a company has advantageous growth
opportunities. Reimann (1989:8) also identified changes to accounting conventions
(policies) as being a problem when using ROE as a performance measure. It was also
recognised that financial measures such as ROE may be too short-term and that longer-
term measures, perhaps more qualitative, must be adopted as well. Reimann (1989:18)
found that ROE still left 66 percent of the variation in share prices unexplained,
indicating a large degree of unreliability.

Another problem with the use of ROE, as identified by Finegan (1991:33) is that it does
not consider the timing of cash flows. For that reason the free cash flow model is often
cited as a better means to determine whether shareholder value is being created. Finegan
(1991:45) also stated that investors ‘go far beyond earnings in evaluating performance’.
Therefore the managers of a company cannot rely on earnings figures alone to measure

17
performance, unless they want to wait for investors’ reactions to see how they are
performing.

Copeland, Koller and Murrin (1996:105) argue that ROE is a short-term performance
measure and that too much focus on it can lead a company to overlook long-term growth
opportunities that might increase shareholder value. A company may also be able to
improve its ROE, while at the same time earning a return that is below its weighted
average cost of capital (WACC), and thereby destroy value.

Return on equity (ROE) versus economic value added (EVA) Jensen and Meckling
(1999:13) claim that, even though many companies use ROE, it is susceptible to
manipulation when managers have rights to make decisions over the level of investment.
They recognise the use of EVA, but clearly indicate that it is also not the best measure.
This is because projects with negative EVA in early years will not be chosen if managers
are evaluated on current EVA figures, even though the future annual EVA is enough to
justify the investment. At this point, it may be advisable to briefly review the definition
of EVA. EVA is the economic profit of a company, after taking into account the full cost
of capital. It is determined as follows: EVA = (ROIC – WACC) x IC where ROIC =
Return on invested capital WACC = Weighted average cost of capital IC = Invested
capital (at the beginning of the year) EVA can also be determined by subtracting the cost
of equity from the earnings: EVA = Earnings – (ke x equity) where ke = Cost of equity
Today, ROE is still used extensively for measuring company performance. However,
Black et al. (2001:50) found that it is not consistent with the creation of shareholder
value. The main disadvantage of ROE is that it is affected by a company’s gearing levels.
Gearing and asset turnover can influence the ROE so that higher gearing and higher asset
turnover, which are not necessarily beneficial, can cause ROE to be higher. The example
in Table 1 illustrates how ROE can be increased by increasing debt, even if the company
is destroying value. The movement of the WACC at the different levels of financial
gearing (0%, 20%, 40%, 60% and 80% of net assets) is in line with the contemporary
approach of Miller and Modigliani’s theory on capital structure (Hawawini&Viallet,
1999:362). The model shows how ROE can be increased by using more debt relative to

18
equity, even at very high levels of debt. In contrast, the EVA is highest at a moderate
level of long term debt (40% of assets) and, not surprisingly, it is also at this financial
structure where the WACC is lowest (and the value of the firm would be highest).
Thomas and Lipson, as cited by Black et al. (2001:53), found through their research as far
back as the 1980s that the coefficient of determination (r2 ) of ROE to market/book ratios
was 19 percent, which indicated that changes in market to book ratios cannot be reliably
explained by ROE. However, Black et al. (2001:257) found that ROE was still a key
measure, as the concept of shareholder value reinforces the message that returns on
invested capital (equity) must be improved and cost of capital must be reduced. Black et
al. (2001:299) reported that even though some Japanese companies have realised the
shortcomings of using ROE to measure shareholder wealth, most still believe that ROE is
the best indicator of shareholder value. One company that does not believe in the use of
ROE is the Japanese firm ‘Hoya’. They adapted EVA to suit their specific needs and calls
it shareholder value added (SVA). However, they do believe that maximising SVA on the
long run will also increase ROE. Their opinion is that their SVA measure and ROE are
not contradictory, but rather complementary. Stewart III (2003:63) from Stern Stewart
& Co claims that the main cause for problems in value measurement lies therein that
accounting has become “unhinged” from value. Accounting has become a tool to make
earnings reports look better. It has the effect that accounting measures cannot be relied
upon for value measurement. Another problem that Stewart III (2003:66) identifies is
specifically related to the use of ROE for measuring value. ROE ignores the cost of
equity while equity is not a free resource and has a cost the same as the interest charged
on debt. That leads to companies often reporting profits while they are really not creating
value or even destroying value. That is why the concept of economic profit or residual
value is seen to be a better measure. Its calculation is as follows: Economic profit =
Accounting profit - Cost of equity. An example of a firm that concentrated its focus on
earnings and ROE is Enron (Stewart III, 2003:68). The management of Enron were
apparently so focused on earnings per share (EPS) and ROE that they started to use debt
to a large extent. Leverage increased remarkably, but still the managers did not want to
tap into equity markets to relieve financial stress, afraid that it will have an adverse
impact on earnings figures. However, positive earnings figures did not create value for

19
shareholders and did not prevent the company from going down. Table 2 presents a
summary of some research results over the period 1991 to 1999 regarding the relationship
between different internal performance measures (EVA, ROE and EPS) and market
value. ‘N/A’ was used to indicate that the relevant information was not available.

Copeland (2002:48) states that research by ‘Monitor Corporate Finance’ indicated that
financial metrics such as earnings, earnings per share growth and EVA do not correlate
with the total return to shareholders. He believes that market expectations are a better
measure of shareholder value. Expectation-based management uses the difference
between actual and expected performance as a measure linked to the total return to
shareholders. Copeland (2002:48) did a survey on data from the S&P 500 companies
from 1992 to 1998 and found little correlation between their short-term total return to
shareholders and their short-term EPS, growth in earnings, EVA, and their percentage
change in EVA. However, he found a highly significant correlation between the total
return to shareholders and analysts’ expectations of earnings. This expectations-based
measure (expected earnings) showed an r 2 of 42% relative to the total shareholders’
return. Copeland (2002:51) argues that a business unit that earns more than its cost of
capital and thus has a positive EVA, only creates value (market value) if it earns more
than expected. So, for example, if a company has a WACC of 15% and it is expected to
earn 30% but actually earns 25%, it under-performs in terms of the expectations and
therefore destroys value. The reason for this is that the expectation of a 30% return has
already been discounted into the current share price.

JagannadhaRao (1991) in his study states that there is poor state of financial
performance of the company is the cumulative result of unfavourable factors such as
continuous low capacity utilization of the units, fall in sugar recovery in some of the
units, poor operational performance, high cane price advised by the State Government
and paid up by the company, low levy price of sugar. Remedy for the poor financial
performance is rather a stupendous task. Not all-sided approach is required: better the
operational performance of the sugar units particularly the sick units, paying reasonably

20
high cane price, reducing the cost of production by improving capacity utilization, and
taking advantage of free quota to make good the losses suffered due to low levy price.

Kakani et al.( 2001) examined the determinants of firm performance for 566 Indian
firms. They tool ROA, ROCE, cash flow ratio, Sales to asset, gross profit 52 margin, net
profit margin, return on Net worth etc., as dependent variable and size, age, leverage,
working capital ratio, business group affiliation etc., as determinants of firm performance
and found that size, market expenditure and international diversification had a positive
relation with market valuation for firms. A firms ownership composition, particularly the
level of equity ownership by domestic financial Institutions and Dispersed public
shareholders, and the leverage of the firm were important factors affecting its financial
performance.

Krishna Prasad Upadhyay (2004) used different types of financial ratios to check up
the financial performance of the selected finance companies. Basically in this study he
used solvency ratio, liquidity ratio, efficiency ratio, profitability ratio and valuation ratio.
Different measures like return on investment, return on equity, return on assets, earning
per share, dividend per share, and asset utilization ratio are used to assess the profitability
of the companies. He concluded his study stating that the solvency position of both
companies is not sound and credit creation capacity is good in both the companies in
aggregate.

Woo Gon Kim, Baker Ayoun (2005) the study attempts to investigate the technique
applied in this industry. Hospitability – related industry segments may comprise hotels,
restaurants, airlines, and other amusement and recreational 53 services. The objective of
the study is to provide information to a variety of entities that might be interested in
comparing major financial characteristics of companies on its different segments. The
researcher used financial ratios, time series and Multivariate analysis of variances’ test as
statistical tools. The study concludes that increased volatility of hospitability industry due

21
to unpredictable external environment for the past four to five years. More volatile trends
are depicted for the other three segments over the time period of this study.

BalaRamaswmy, Darrylong and Mattew C.H. Yeung (2005) has found empirical
evidence that firm size and the firm ownership are important determinants of financial
performance in the Malaysian palm oil sector-findings lend support to industry analysts
who have highlighted that profitability is higher in privately owned firms.

MyungKo and Carlos Dorantes (2006) investigates the impact of information security
breaches on firm performance. To evaluate the financial impact of security breaches
related to confidential information, the “matched sample comparison group” method is
used. The researcher used ratios and two cost related ratios and percentage of change in
sales and operating income to see if these measures are better indicators for identifying
differences in performance considering the context of this study. Profit ratios have been
the most commonly used as performance measures.

Jose M. Moneva, Juana M. Rivera-Lirio, (2007) Maria J. Munoz-Torres analyses the

mission statements and the sustainability reports, of a sample of 52 Spanish listed firms.
Some traditional financial and economic-indicators are used to analyze the company’s
financial performance. Results show a not very high level of the stakeholder approach in
Spanish companies a high level of publication and quality of sustainability reports and,
finally, a positive and not significant relationship between these variables and a positive
financial performance.

Efendioglu. M (2010) explores the impact of strategic planning on financial performance

of major industrial enterprises of Turkey. This paper is one of the few studies to examine
the strategic planning process in a sample of firms from a transitional economy. It can be
considered a longitudinal study because it examines a set of institutions to identify
changes in their performance overtime, as they incorporate the use of strategic tools in a
dynamic competitive environment. The research sample was drawn from the Turkish
chamber of industry database which listed the top 500 manufacturing firms in 2006. The

22
findings of this study provide a contribution to our understanding of the nature and
practice of strategic planning in Turkish companies and possibilities of correlations
between their efforts and performance.

Mahdi Salehi, MehrdadAlipour and MortezaRamazani (2010), the objective of the

article is to establish the extent to which just-in-time may effect to Iranian company’s
financial performance. The researcher used regression analysis as statistical tool.
Eventually the researcher concludes that the application of the JIT system in Iran
increases the financial and non financial performance of the companies. Because of the
weakness in performing the JIT, they cannot benefit from it. The researchers strongly
suggest that the barriers of performing the JIT system must be identified and removed as
soon as possible, so that the Iranian companies increase their financial performances.

Shrabanti pal (2012) also carried out a study on financial performance of Indian steel for
a period from 91 – 92 to 2010 – 11 to examine the financial performance of the Indian
steel companies and establish the linear relationship between liquidity, leverage,
efficiency and profitability of the selected companies. Multiple regression analyzes is
conducted on fifteen financial ratios selected from different segment like liquidity ratio,
solvency ratio, activity ratio and profitability ratio. He concluded his research that the
company should concentrate to improve the overall liquidity, solvency and efficiency to
enhance the profitability to the maximum otherwise the profitability of the companies
will be affected in other way.

Shaji.UandG.Ganesan (2012) made an attempt to study the overall financial

performance of selected public sector drug and pharmaceutical enterprises in India with
the help of some statistical measures(i.e) mean, standard deviation, coefficient of
variance, linear multiple regression analysis and test of hypothesis. The study revealed
that the industry will witness an increase in the market share. The sector is poised not
only to take new challenge but to sustain the growth momentum of the post decade.

23
TariqZafar.S.MandS.M.Khalid (2012) this study is carried out and it is focused on
analyzing the financial performance of Maruti Suzuki and Tata motors in automobile
industry. The objective of the study is to understand and analyze qualitative and
quantitative performance of Maruti and Tata Company and to investigate their risk
factors, their market position and their collective impact on profitability. For the purpose
of the study secondary data are used for the period 59 2006 – 2010 and it has been
collected from published reports, magazine, annual report and website of the companies.
It has been analyzed on the basis of their financial ratios, further Standard deviation, co-
efficient of variation, the sum of mean values and average score are calculated. The study
concludes that Maruti has better strategic position in comparison with its competitor in all
the respective ratios and has secured first rank. Tata has secured second position.

Jayarajasingh.J John Samuel (2012) the study is concerned with financial analysis to
evaluate the financial performance of India Cements limited Sankari West. The
evaluation of financial performance was for period of 10 years from 2000-01 to 2009-
2010. In this study, the financial performance of the company is analyzed on variance
fronts of profitability, liquidity and turnover. The study concludes that overall
performance of the India cements Ltd., is good and the study will help for the company to
identify the inefficiency area.

Roden and Lewellen (1995) employed a sample of 48 U.S. firms during 1981-1990 and
found a positive relation between profitability and capital structure. Analogous results
were also observed by Champion (1999), Ghosh, Nag, and Sirmans (2000), Hadlock and
James (2002). They all concluded that firms with highly profitable firms use high-level of
debts.

A negative link between capital structure and firm‟s performance was also witnessed by
Fama and French (2002). They observed that highly profitable firms with lower risk of
financial distress are actually less levered which contradicts with the trade-off theory.

24
Capital structure is the combination of a firm‟s long-term debt, specific short-term debt,
common equity, preferred equity and retained earnings which are used to finance its
overall operations and growth. Capital structure is a very important financial decision as
it is directly related to the risk and return of a firm. Any immature capital structure
decision can result in high cost of capital; thereby lowering firm‟s value while effective
capital structure decision can do the opposite. Some scholars also defined capital
structure in their own ways. The term „capital structure‟ is defined by Weston and
Brigham (1979) as the permanent financing of the firm represented by long-term debt,
preferred stock and net worth. According to Van Horne and Wachowicz (1995), capital
structure is the mix of a firm‟s permanent long-term financing represented by debt,
preferred stock, and common stock equity. From the above discussion, it is clear that
capital structure combines mainly equity and long-term debt. Traditionally capital
structure does not consider short-term debt. Since many years, both researchers and
academicians are performing theoretical and empirical studies on capital structure, but it
drew attention to the financial economists after Modigliani and Miller‟s (1958)
“irrelevance theory of capital structure” (hereafter referred to as MM theory). All
researches suggests that there is an optimal capital structure; the one that maximizes the
value of the firm and simultaneously minimizes the cost of capital thus striking a balance
between risk and return. However, it is not yet possible to provide financial managers
with a precise methodology for determining a firm‟s optimal capital structure
(Gitman&Zutter, 2010). After MM propositions, many studies were focused in finding
the optimal capital structure. Even though MM theory is based on some unrealistic
assumptions, for instance, the assumption of perfect capital markets, this theory provides
us a basis to perform research on capital structure. Hitherto four major theories of capital
structure emerged; such as the trade-off theory, agency costs theory, pecking order
theory, and market timing theory. According to Modigliani and Miller (1958), under
perfect capital markets assumption, the capital structure has no impact on firm‟s value.
This theory is criticized by many researchers objecting that there are no perfect capital
markets in reality, although later they revised their earlier theory by incorporating tax
benefit and argued that under market imperfection where interest payments are tax
deductible, firm value will increase with the level of financial leverage (Modigliani

25
&Miller, 1963). Capital structure decisions can have important implications for the value
of the firm and its cost of capital (Firer et al, 2008). Poor capital structure decisions can
lead to an increased cost of capital thereby lowering the net present value (NPV) of many
of the firm‟s investment projects to the point of making many investment projects
unacceptable (known as the underinvestment problem). Effective capital structure
decisions will lower the firms overall cost of capital and raise the NPV of investment
projects leading to more projects being acceptable to undertake and consequently
increasing the overall value of the firm (Gitman, 2003).Despite the importance that
capital structure can play in adding value to the firm decades worth of theoretical
literature and empirical testing have not been able to give guidance to practitioners with
regards to the choice between debt and equity in their capital structures (Frank and
Goyal, 2009). From the above discussion, one important thing is obvious that the basic
drive of all the theories of capital structure is to recognize whether the capital structure
has any impact on firm‟s performance or not. Extensive empirical researches have been
performed to study the relationship between capital structure and firm‟s performance
although Bangladesh has very little contribution in this literature. Therefore, this effort is
attempted by us. However, this study aims to examine the relationship between capital
structure choices and firms performance and profitability.

Trade-off Theory

Trade-off theory states that the company will borrow when the marginal value of tax
shields on additional debt is just offset by an increase in the present value of possible
costs of financial distress (Brigham and Houston, 2001). According to Myers (2001), a
company will have debt at a certain level, and the tax shields (tax saving) from additional
debt is similar to the cost of financial distress. The cost of financial distress leads to the
costs of cementruptcy or reorganization, and creates the agency costs that arise because
the company’s creditworthiness is in doubt.

When determining the capital structure, the trade-off theory includes several factors such
as taxes, agency costs, and cost of financial distress (Amidu, 2007). It also incorporates

26
the assumptions of market efficiency and symmetric information as the benefit of using
debt. The optimal debt is reached when tax shields reaches a maximum amount of the
cost of financial distress (Myers, 2001).

The tradeoff theory states that profitability is positively related to capital structure. The
theory predicts that the profitable companies will use more debt because they are possible
to have a high tax burden and low risk of cementruptcy (Ooi, 1999 cited in Amidu,
2007).However, there are a lot of empirical evidences which are contradicted with the
trade-off theory. Myers (2001) argued that there is an inverse correlation between
profitability and financial leverage. It is supported by the same findings from Rajan and
Zingales (1995) for G7 countries. The authors stated that in the short run, dividends and
investment are fixed. However, if debt financing is the dominant mode of external
financing, the changes in profitability will be negatively correlated with the change of
leverage. In addition, the increasing of company size should make strong negative
influence on profitability (Rajan and Zingales, 1995). Similarly, Titman et al (1988)
found that there is a significant and negative relationship between profitability and debt
ratios.

Pecking Order Theory

Pecking order theory assumes that the purpose of a company is to maximize the
shareholders’ wealth. This theory states that there is a hierarchy in choosing sources of
financing (Smart et al, 2004).

A company will prefer to use internal financing than external financing. The internal
financing is from the retained earnings that are earned by doing operational activities.

The company will choose securities with lower risks, if it needs external financing.

There is a constant dividend policy where the company will decide a constant amount of
dividend payment. The amount of dividend payment is not influenced by the company’s
loss or profit.

The company will use portfolio of investment to anticipate insufficient cash because of
the dividend policy, fluctuation in profitability, and investment opportunities.

27
This theory states that the main problem of determining the capital structure of a
company is asymmetric information between managers and investors (Amidu, 2007). In
fact, this theory argues that the manager of a company will act on the existing
stakeholder’s interests (Abor, 2005). Consequently, the new investors will have a
perception that the manager does not support their interests.

The evidences of pecking order theory are as follow. According to MacKie-Mason

(1990), the importance of asymmetric information gives a reason for companies to care
about those who provide the funds because different fund providers would have different
access to information about the company and different ability to monitor the company’s
behavior. This is consistent with the pecking order theory since private debt will require
better information about the firm than public debt. Sunder et al (1999) asserted that
companies follow the pecking order in their financing decisions where companies with a
positive financial deficit are more likely to issue debt.

Agency Theory

This theory stated that management is the agent on behalf of shareholders, the owner of a
company. The shareholders expect management to accommodate their interests. Costs,
which emerge because of controlling activities of management, are called agency costs
(Morri and Beretta, 2008). It illustrates that company’s capital structure is determined by
agency costs, which includes the costs for both debt and equity issue. Agency costs exist
due to the conflicts of interest between the owners of the companies and managers. The
costs which are related to equity issue may be included as the monitoring expenses for
the equity holders, and the bonding expenses for the agent (Niu, 2008). Agency costs are
the costs to justify whether management acts consistently according to contractual
agreement of company with the shareholders (Jensen and Meckling, 1976). In addition,
the agency costs of debt include the opportunity costs which are caused by the impact of
debt on the investment decisions of the company (Hunsaker, 1999 cited in Niu, 2008).

There are two types of conflicts: conflicts between shareholders and managers, and
conflicts between shareholders and bondholders (Jensen and Meckling, 1976).

28
Shareholders-managers conflicts

This kind of conflict is from the separation of ownership and control. If managers do not
own 100% of the company, they can only get a fraction gain from their investment
activities and bear the whole cost of these activities at the same time (Harris and Raviv,
1991). The shareholders-managers conflicts take several forms (Jensen and Meckling,
1976). First, different shareholders’ interests in a company’s value maximization makes
managers prefer to do less work and to have greater additional facilities, such as luxuriant
office and corporate jets, etc (Eriotis, 2007; Niu, 2008). Second, since the debt forces
managers to pay cash, the managers reduce the company’s free cash flow by purchasing
additional facilities. They may prefer choosing short-term projects because these
investments could produce positive short-term earnings and improve their reputation
quickly (Niu, 2008). Third, managers may choose less risky investments and lower
leverage to reduce the possibility of cementruptcy. Lastly, managers aim to stay in their
positions, and therefore, they wish to minimize the possibility of employment
termination. In addition, management may resist takeovers and change corporate control
irrespective of their influences on shareholder values (Niu, 2008).

Managers and shareholders may also have different preferences on making decisions.
According to Harris and Raviv (1991) managers will continue operate the company’s
businesses although liquidation is preferred by shareholders. Furthermore, Stulz (1991)
argued that managers are preferable to investing most funds in projects, whereas the
shareholders want dividends to be paid.

Shareholder-bondholder conflicts

These conflicts arise when the shareholders make decisions to transfer wealth from
bondholders to shareholders. Indeed, the bondholders are aware of any situation that
could occur. Hence, they will demand a higher return on their bonds or debts (Niu, 2008).
Bondholders receive only the specific payment in the debt contract and no cash flow
outside the specific payment. High risk projects reduce the expected payment to
bondholders. It is called asset substitution problem (Myers, 1977). When the bondholders
have money paid in advance to the stockholders, the stockholders will have an incentive

29
for taking on high risk projects than what the bondholders would prefer. The bondholders
recognize the incentive and will state a higher price for debt capital
(BalakrishnanandFox, 1993).

There are some positive net present value projects which shareholder will accept if the
company is fully equity financed, but they will refuse when the company is financed by
debt partially (Balakrishnan and Fox, 1993). While the payment to the investment may be
large enough for being profitable, they may not be sufficient for repaying the debt
holders. Therefore, the lenders will get rights for the positive payment while the
stockholders will get nothing. This problem is called “the under-investment problem”
(Balakrishnan and Fox, 1993). These problems are serious for assets which give the
company the option for undertaking growth opportunities in the future. The larger of
company’s investment in such assets, the lower it will choose debt financimg. It indicates
that there is negative relationship between growth and capital structure (Balakrishnan and
Fox, 1993).

CONCEPTUALISATION

CONCEPTUALISATION MODEL

CAPITAL
STRUCTURE
PROFITABILITY

 DEBT/EQUITY  RETURN ON
 DEBT/TOTAL CAPITAL
FUNDS EMPLOYED
 RETURN ON
EQUITY

30
 CHAPTER III

COMPANY PROFILE

31
HISTORY OF INDIAN CEMENT INDUSTRY

By stating production in 1914 the story of story of Indian cement is a stage of continuous
growth. Cement is derived from the Latin word “cementam”.

Egyptians and Romans found the process of manufacturing cement. In England during
the first century the hydraulic cement has become more versatile building material. Later
on, Portland cement was invented and the invention was usually attributed to Joseph
Aspdin of England.

India is the world’s 4th largest cement produced after china, Japan and U.S.A the south
industries have produced cement for the first time in 1904. The company was setup in
Chennai with the installed capacity of 30 tones per day. Since then the cement industry
has progressing leaps and bounds and evolved into the most basic and progressive leaps
and 1950-51. The capacity of production was only 3.3 million tones. So far annual
production and demand have been growing a pace at roughly 78 million tones with an
installed capacity of 87 million tones.

In the remaining two year of 8th plan an additional capacity of 23 million tones will
actually come up.

India is will endowed with cement grade limestone (90 billion tones) and coal (190
billion tones). During the nineties it had a particularly impressive expansion with growth
rate of 10 percent.

The strength and vitality of Indian cement industry can be gauged by the interest shown
and supports give by World Cement. Considering the excellent performance of the
industry in utilizing the loans, achieving the objectives and targets. The World Cement
examining the feasibility of providing a third line of credit for further upgrading the
industry in varying areas, which will make it global. With liberalization policies of Indian
government. The industry is posed for a high growth rates in nineties and the installed
capacity is expected to cross 100 million tones and production 90 million tones by 2005
AD.

32
The industry has fabulous scope for exporting its product to countries like the U.S.A.,
U.K., Bangladesh Nepal and other several countries. But there are not enough wagons to
transport cement for shipment.

Cement – the product:

The natural cement is obtained by burning and crushing the stones containing clayey,
carbonate of time and some amount of carbonate of magnesia. The natural cement is
brown in color and its best variety is known as “ROMAN CEMENT’. It sets very
quickly after addition of water.

It was in the eighteenth century that the most important advances in the development of
cement were which finally led to the invention of Portland cement.

In 1756. John Sedation showed that hydraulic lime which can resist the action of water
can be obtained not only from hard lime stone but from a limestone which contain
substantial proportion of clayey.

In 1796, Joseph Parker found that module of argillaceous limestone made excellent
hydraulic cement when burned in the usual manner. After burning the product was
reduced to a powder. This started the natural cement industry.

The common verity of artificial cement is known as normal setting cement or ordinary
cement. A mason Joseph Asp din of Leeds of England invented this cement in 1824. He
took out a patent for this cement called it “PORTLAND CEMENT” because it had
resemblance in its color after setting to a variety of sandstone, which is found a
abundance in Portland England.

The manufacture of Portland cement was started in England around 1825. Belgium and
Germany started the same 1855. America started the same in 1872 and India started in
1904. The first cement factory installed in Tamilanadu in 1904 by South India limited
and then onwards a number of factories manufacturing cement were started. At present
there are more than 150 factories producing different types of cement.

33
Composition of Cement: The ordinary cement contains two basic ingredients, namely,
argillaceous and calcareous. In argillaceous materials the clayey predominates and in
calcareous materials the calcium carbonate predominates.

A good chemical analysis of ordinary cement along with desired range of ingredients.

Ingredients Percent Range

Lime (Cao) 62 62-67

Silica (sio2) 22 17-25

Alumina (Al2o3) 5 3-8

Calcium sulphate(CaSo4) 4 3-4

Iron Oxide (Fe2O3) 3 3-4

Magnesia(MgO) 2 1-3

Sulphar(S) 1 1-3

Alkalis 1 0.2-1

34
Industry Structure and Development:

With a capacity of 115 million tones of large cement plant, Indian cement industry is the
fourth largest in the world. How ever per capita consumption in our country is still at
only 100 Kgs against 300 Kgs of developed countries and offers significant potential for
growth of cement consumption as well as addition to cement capacity. The recent
economic policy announcement by the government in respect of housing, roads, power
etc., will increase cement consumption

Opportunities and Threats:

In view of low per capita consumption in India, there is a considerable scope for growth
in cement consumption and creation of new capacities in coming years. The cement
industry does not appear to have adequately exploited cement consumption in rural
segment where damaged where damaged growth is possible.

Landed cost of cement (with import duty) continues to be higher than home market prices
but with reduced import duty, increasing imports, may pose a serious threat to the
domestic cement industry.

Outlook:

The recent change in the budget 2003-04 relating to fiscal incentives for, individual
housing and reduction in borrowing cost for this purpose and with the government
reaffirmation to accelerate the reform process. Infrastructure development should
logically get priority leading to increase in demand of cement in coming years. The
addition capacity of cement in the pipeline is limited and therefore the demand and
supply situation is expected to be more favorable and cement prices are likely to firm up.

35
Risk and Concerns:

Slow down of Indian economy or drop in growth rate of agriculture may adversely affect
the consumption. The recent increase in railway freight coupled with diesel / petrol price
like will increase the cost of production and distribution, as being bulky, cement is freight
intensive increase in Limestone royalty also adds to the cost of production, which is
considerably higher than corresponding costs of many other developing countries.

In our country there is a need to undertake a massive Program of house construction

activity into the rural and urban areas. It is impossible to construct a house without
cement and steel, in other words, cement is one of the basic construction materials and
therefore it is one of the vital elements for the economic development of the nation.

India in spite of being the 4th biggest producer of cement in the world has still a very low
per capital consumption of cement.

Cement companies 51Nos

Cement plant 99Nos

Installed company 64.8 mt.

Total investment (approx) Rs. 10, 000 crores

Total manpower Over 1.25 lakhs

Management Award the Government of Andhra Pradesh. Ultratech is also conscious of

its social responsibilities. Its rural and community development programs include
adoption of two nearby villages, running an Agricultural Demonstration Farm, a Model
Dairy Farm etc., impressed by these activities, FAPCCI chose Ultratech to confer the
Award for “Best efforts of an industrial unit in the state to develop rural economy” twice,
in the year 1994 as well as in 1998. Ultratech also has to its credit the National Award
(Shri S.R Rangta Award for Social Awareness) for the year 1995-96, for the Best Rural
Development Efforts made by the company. In the same year Ultratech also got the
FAPCCI Award for “Best Workers Welfare” Ultratech got the first Prize for Mine
Environment and Pollution Control for year 1999 too, for the 3 rdyear in succession in

36
July, 2003 Ultratech annexed the “Vane Mithras” Award from the Government of
Andhra Pradesh.:

Quality conscious and progressive in its out look , ULTRATECH CEMENT is an

OHSAS 08001 company and also joined the select brand of ISO 9001-2002 companies.

The first unit was installed at Basanth Nagar with a capacity of 2.5 lakhs TPA (tones per
annum) incorporating humble supervision, preheated system, during the year 1969.

The second unit followed suit with added a capacity of 2 lack TPA in 1971.

The plant was further expanded to 9 lack by adding 205 lack tones in August, 1978, 1.13
lack tones in January, 1987 and 0.87 lack tones in September,1981. In the most general
sense of the word, a cement is a binder, a substance which sets and hardens
independently, and can bind other materials together. The word "cement" traces to the
Romans, who used the term "opus caementicium" to describe masonry which resembled
concrete and was made from crushed rock with burnt lime as binder. The volcanic ash
and pulverized brick additives which were added to the burnt lime to obtain a hydraulic
binder were later referred to as cementum, cimentum, cäment and cement. Cements used
in construction are characterized as hydraulic or non-hydraulic.

The most important use of cement is the production of mortar and concrete—the bonding
of natural or artificial aggregates to form a strong building material which is durable in
the face of normal environmental effects.

Concrete should not be confused with cement because the term cement refers only to the
dry powder substance used to bind the aggregate materials of concrete. Upon the addition
of water and/or additives the cement mixture is referred to as concrete, especially if
aggregates have been added.

It is uncertain where it was first discovered that a combination of hydrated non-hydraulic

lime and a pozzolan produces a hydraulic mixture (see also: Pozzolanic reaction), but
concrete made from such mixtures was first used on a large scale by Roman
engineers.They used both natural pozzolans (trass or pumice) and artificial pozzolans
(ground brick or pottery) in these concretes. Many excellent examples of structures made

37
from these concretes are still standing, notably the huge monolithic dome of the Pantheon
in Rome and the massive Baths of Caracalla. The vast system of Roman aqueducts also
made extensive use of hydraulic cement. The use of structural concrete disappeared in
medieval Europe, although weak pozzolanic concretes continued to be used as a core fill
in stone walls and columns.

Modern cement

Modern hydraulic cements began to be developed from the start of the Industrial
Revolution (around 1800), driven by three main needs:

Hydraulic renders for finishing brick buildings in wet climates

Hydraulic mortars for masonry construction of harbor works etc, in contact with sea
water.

38
COMPANY PROFILE

ULTRATECH CEMENT:

UltraTech Cement Limited has an annual capacity of 18.2 million tonnes. It manufactures
and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and
Portland Pozzalana Cement. It also manufactures ready mix concrete (RMC).

UltraTech Cement Limited has five integrated plants, six grinding units and three
terminals — two in India and one in Sri Lanka.

UltraTech Cement is the country’s largest exporter of cement clinker. The export markets
span countries around the Indian Ocean, Africa, Europe and the Middle East.
UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P)
Limited.

The roots of the Aditya Birla Group date back to the 19th century in the picturesque town
of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started
trading in cotton, laying the foundation for the House of Birlas.

Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the
early part of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up
industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals.
As a close confidante of Mahatma Gandhi, he played an active role in the Indian freedom
struggle. He represented India at the first and second round-table conference in London,
along with Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian
freedom struggle often met to plot the downfall of the British Raj.

Ghanshyamdas Birla found no contradiction in pursuing business goals with the

dedication of a saint, emerging as one of the foremost industrialists of pre-independence
India. The principles by which he lived were soaked up by his grandson, Aditya Vikram
Birla, our Group's legendary leader.

39
Aditya Vikram Birla: putting India on the world map
A formidable force in Indian industry, Mr. Aditya Birla dared to
dream of setting up a global business empire at the age of 24. He
was the first to put Indian business on the world map, as far back
as 1969, long before globalisation became a buzzword in India.

In the then vibrant and free market South East Asian countries,
he ventured to set up world-class production bases. He had
foreseen the winds of change and staked the future of his business on a competitive, free
market driven economy order. He put Indian business on the globe, 22 years before
economic liberalisation was formally introduced by the former Prime Minister, Mr.
Narasimha Rao and the former Union Finance Minister, Dr. Manmohan Singh. He set up
19 companies outside India, in Thailand, Malaysia, Indonesia, the Philippines and Egypt.

Interestingly, for Mr. Aditya Birla, globalisation meant more than just geographic reach.
He believed that a business could be global even whilst being based in India. Therefore,
back in his home-territory, he drove single-mindedly to put together the building blocks
to make our Indian business a global force. Under his stewardship, his companies rose to
be the world's largest producer of viscose staple fibre, the largest refiner of palm oil, the
third largest producer of insulators and the sixth largest producer of carbon black. In
India, they attained the status of the largest single producer of viscose filament yarn, apart
from being a producer of cement, grey cement and rayon grade pulp. The Group is also
the largest producer of aluminium in the private sector, the lowest first cost producers in
the world and the only producer of linen in the textile industry in India.

At the time of his untimely demise, the Group's revenues crossed Rs.8,000 crore globally,
with assets of over Rs.9,000 crore, comprising of 55 benchmark quality plants, an
employee strength of 75,000 and a shareholder community of 600,000.

Most importantly, his companies earned respect and admiration of the people, as one of
India's finest business houses, and the first Indian International Group globally. Through
this outstanding record of enterprise, he helped create enormous wealth for the nation,

40
and respect for Indian entrepreneurship in South East Asia. In his time, his success was
unmatched by any other industrialist in India.

That India attains respectable rank among the developed nations, was a dream he forever
cherished. He was proud of India and took equal pride in being an Indian.

Under the leadership of our Chairman, Mr. Kumar Mangalam Birla, the Group has
sustained and established a leadership position in its key businesses through continuous
value-creation. Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf
Fertilisers and companies in Thailand, Malaysia, Indonesia, the Philippines and Egypt,
the Aditya Birla Group is a leader in a swathe of products — viscose staple fibre,
aluminium, cement, copper, carbon black, palm oil, insulators, garments. And with
successful forays into financial services, telecom, software and BPO, the Group is today
one of Asia's most diversified business groups.

Board of Directors

:: Mr. Kumar Mangalam Birla, Chairman

:: Mrs. Rajashree Birla

:: Mr. R. C. Bhargava

:: Mr. G. M. Dave

:: Mr. N. J. Jhaveri

:: Mr. S. B. Mathur

:: Mr. V. T. Moorthy

:: Mr. O. P. Puranmalka

:: Mr. S. Rajgopal

:: Mr. D. D. Rathi

:: Mr. S. Misra, Managing Director

Executive President & Chief Financial Officer

41
:: Mr. K. C. Birla

Chief Manufacturing Officer

:: R.K. Shah

Chief Marketing Officer

:: Mr. O. P. Puranmalka

Company Secretary

:: Mr. S. K. Chatterjee

Our vision

"To actively contribute to the social and economic development of the communities
in which we operate. In so doing, build a better, sustainable way of life for the
weaker sections of society and raise the country's human development index."

— Mrs. Rajashree Birla, Chairperson, The Aditya Birla Centre for Community
Initiatives and Rural Development

Making a difference Before Corporate Social Responsibility found a place in corporate

lexion, it was already textured into our Group's value systems. As early as the 1940s, our
founding father Shri G.D Birla espoused the trusteeship concept of management. Simply
stated, this entails that the wealth that one generates and holds is to be held as in a trust
for our multiple stakeholders. With regard to CSR, this means investing part of our
profits beyond business, for the larger good of society.

While carrying forward this philosophy, his grandson, Aditya Birla weaved in the
concept of 'sustainable livelihood', which transcended cheque book philanthropy. In his
view, it was unwise to keep on giving endlessly. Instead, he felt that channelising
resources to ensure that people have the wherewithal to make both ends meet would be

42
more productive. He would say, "Give a hungry man fish for a day, he will eat it and the
next day, he would be hungry again. Instead if you taught him how to fish, he would be
able to feed himself and his family for a lifetime."

Taking these practices forward, our chairman Mr. Kumar Mangalam Birla
institutionalised the concept of triple bottom line accountability represented by economic
success, environmental responsibility and social commitment. In a holistic way thus, the
interests of all the stakeholders have been textured into our Group's fabric.

The footprint of our social work today straddles over 3,700 villages, reaching out to more
than 7 million people annually. Our community work is a way of telling the people
among whom we operate that We Care.

Our strategy Our projects are carried out under the aegis of the "Aditya Birla Centre for
Community Initiatives and Rural Development", led by Mrs. Rajashree Birla. The Centre
provides the strategic direction, and the thrust areas for our work ensuring performance
management as well.

Our focus is on the all-round development of the communities around our plants located
mostly in distant rural areas and tribal belts. All our Group companies —- Grasim,
Hindalco, Aditya Birla Nuvo, Indo Gulf and UltraTech have Rural Development Cells
which are the implementation bodies.

Projects are planned after a participatory need assessment of the communities around the
plants. Each project has a one-year and a three-year rolling plan, with milestones and
measurable targets. The objective is to phase out our presence over a period of time and
hand over the reins of further development to the people. This also enables us to widen
our reach. Along with internal performance assessment mechanisms, our projects are
audited by reputed external agencies, who measure it on qualitative and quantitative
parameters, helping us gauge the effectiveness and providing excellent inputs.

43
Our partners in development are government bodies, district authorities, village
panchayats and the end beneficiaries -- the villagers. The Government has, in their 5-year
plans, special funds earmarked for human development and we recourse to many of
these. At the same time, we network and collaborate with like-minded bilateral and
unilateral agencies to share ideas, draw from each other's experiences, and ensure that
efforts are not duplicated. At another level, this provides a platform for advocacy. Some
of the agencies we have collaborated with are UNFPA, SIFSA, CARE India, Habitat for
Humanity International, Unicef and the World Cement.

Our focus areas

Our rural development activities span five key areas and our single-minded goal here is to
help build model villages that can stand on their own feet. Our focus areas are healthcare,
education, sustainable livelihood, infrastructure and espousing social causes.

The name “Aditya Birla” evokes all that is positive in business and in life. It exemplifies
integrity, quality, performance, perfection and above all character.

Our logo is the symbolic reflection of these traits. It is the cornerstone of our corporate
identity. It helps us leverage the unique Aditya Birla brand and endows us with a
distinctive visual image.
Depicted in vibrant, earthy colours, it is very arresting and shows the sun rising over two
circles. An inner circle symbolising the internal universe of the
Aditya Birla Group, an outer circle symbolising the external
universe, and a dynamic meeting of rays converging and
diverging between the two. Through its wide usage, we create a
consistent, impact-oriented Group image. This undoubtedly
enhances our profile among our internal and external
stakeholders. Our corporate logo thus serves as an umbrella for our Group. It signals the
common values and beliefs that guide our behaviour in all our entrepreneurial activities.
It embeds a sense of pride, unity and belonging in all of our 130,000 colleagues spanning

44
25 countries and 30 nationalities across the globe. Our logo is our best calling card that
opens the gateway to the world.

Group companies

:: Grasim Industries Ltd.

:: Hindalco Industries Ltd.

:: Aditya Birla Nuvo Ltd.

:: UltraTech Cement Ltd.

Indian companies

:: Aditya Birla Minacs IT Services Ltd.

:: Aditya Birla Minacs Worldwide Limited

:: Essel Mining & Industries Ltd

:: Idea Cellular Ltd.

:: Aditya Birla Insulators

:: Aditya Birla Retail Limited

:: Aditya Birla Chemicals (India) Limited

International companies

Thailand

:: Thai Rayon

:: Indo Thai Synthetics

:: Thai Acrylic Fibre

:: Thai Carbon Black

45
:: Aditya Birla Chemicals (Thailand) Ltd.

:: Thai Peroxide

Philippines

:: Indo Phil Group of companies

:: Pan Century Surfactants Inc.

Indonesia

:: PT Indo Bharat Rayon

:: PT Elegant Textile Industry

:: PT Sunrise Bumi Textiles

:: PT Indo Liberty Textiles

:: PT Indo Raya Kimia

Egypt

:: Alexandria Carbon Black Company S.A.E

:: Alexandria Fiber Company S.A.E

China

:: Liaoning Birla Carbon

:: Birla Jingwei Fibres Company Limited

:: Aditya Birla Grasun Chemicals (Fangchenggang) Ltd.

Canada

:: A.V. Group

46
Australia

:: Aditya Birla Minerals Ltd.

Laos

:: Birla Laos Pulp & Plantations Company Limited

North and South America, Europe and Asia

:: Novelis Inc.

Singapore

:: Swiss Singapore Overseas Enterprises Pte Ltd. (SSOE)

Joint ventures

:: Birla Sun Life Insurance Company

:: Birla Sun Life Asset Management Company

:: Aditya Birla Money Mart Limited

:: Tanfac Industries Limited

UltraTech is India's largest exporter of cement clinker. The company's production

facilities are spread across eleven integrated plants, one white cement plant, one
clinkerisation plant in UAE, fifteen grinding units, and five terminals — four in India and
one in Sri Lanka. Most of the plants have ISO 9001, ISO 14001 and OHSAS 18001
certification. In addition, two plants have received ISO 27001 certification and four have
received SA 8000 certification. The process is currently underway for the remaining
plants. The company exports over 2.5 million tonnes per annum, which is about 30 per
cent of the country's total exports. The export market comprises of countries around the
Indian Ocean, Africa, Europe and the Middle East. Export is a thrust area in the
company's strategy for growth.

UltraTech's products include Ordinary Portland cement, Portland Pozzolana cement and
Portland blast furnace slag cement.

47
  Ordinary Portland cement
 Portland blast furnace slag cement
 Portland Pozzolana cement
 Cement to European and Sri Lankan norms

Ordinary Portland cement

Ordinary portland cement is the most commonly used cement for a wide range of
applications. These applications cover dry-lean mixes, general-purpose ready-mixes, and
even high strength pre-cast and pre-stressed concrete.

Portland blast furnace slag cement

Portland blast-furnace slag cement contains up to 70 per cent of finely ground, granulated
blast-furnace slag, a nonmetallic product consisting essentially of silicates and alumino-
silicates of calcium. Slag brings with it the advantage of the energy invested in the slag
making. Grinding slag for cement replacement takes only 25 per cent of the energy
needed to manufacture portland cement. Using slag cement to replace a portion of
portland cement in a concrete mixture is a useful method to make concrete better and
more consistent. Portland blast-furnace slag cement has a lighter colour, better concrete
workability, easier finishability, higher compressive and flexural strength, lower
permeability, improved resistance to aggressive chemicals and more consistent plastic
and hardened consistency.

Portland Pozzolana cement

Portland pozzolana cement is ordinary portland cement blended with pozzolanic

materials (power-station fly ash, burnt clays, ash from burnt plant material or silicious
earths), either together or separately. Portland clinker is ground with gypsum and

48
pozzolanic materials which, though they do not have cementing properties in themselves,
combine chemically with portland cement in the presence of water to form extra strong
cementing material which resists wet cracking, thermal cracking and has a high degree of
cohesion and workability in concrete and mortar.

"As a Group we have always operated and continue to operate our businesses as
Trustees with a deep rooted obligation to synergise growth with responsibility."

— Mr Kumar Mangalam Birla, Chairman, Aditya Birla Group

Our strategy

Our projects are carried out under the aegis of the "Aditya Birla Centre for Community
Initiatives and Rural Development", led by Mrs. Rajashree Birla. The Centre provides the
strategic direction, and the thrust areas for our work ensuring performance management
as well.

Our focus is on the all-round development of the communities around our plants located
mostly in distant rural areas and tribal belts. All our Group companies —- Grasim,
Hindalco, Aditya Birla Nuvo and UltraTech have Rural Development Cells which are the
implementation bodies.

Our vision

"To actively contribute to the social and economic development of the communities
in which we operate. In so doing, build a better, sustainable way of life for the
weaker sections of society and raise the country's human development index."
— Mrs. Rajashree Birla, Chairperson,

The Aditya Birla Centre for Community Initiatives and Rural Development

Making a difference

Before Corporate Social Responsibility found a place in corporate lexicon, it was already
textured into our Group's value systems. As early as the 1940s, our founding father Shri

49
G.D Birla espoused the trusteeship concept of management. Simply stated, this entails
that the wealth that one generates and holds is to be held as in a trust for our multiple
stakeholders. With regard to CSR, this means investing part of our profits beyond
business, for the larger good of society.

CHAPTER IV

DATA ANALYSIS &

INTERPRETATION

50
 RETURN ON CAPITAL EMPLOYED

TABLE:1 CALCULATION OF ROCE(RETURN ON CAPITAL EMPLOYED)

TABLE:1.1 CALCULATION OF NET PROFIT:

Net profit= PBT+ interest charges

Years PBT INTEREST NET PROFIT

2014-15 55016918 16491369 71508287
2015-16 84723414 42948477 127671891
2016-17 51310613 60437125 111747738
2017-18 (83478602) 69342605 (14135997)
2018-19 220058556 91997441 (128061115)

Table no. 1.1

TABLE 1.2: CALCULATION OF CAPITAL EMPLOYED:

Capital Employed = Total Assets – Current Liabilities

51
 Total Assets = Fixed Assets + Current Assets – long term loans

Years Total assets Current liabilities Capital employed

2014-15 363700730 217972647 145728083

2015-16 927324719 640000516 287324203
2016-17 1225125295 869890553 355234742
2017-18 1309222402 1009067728 300154674
2018-19 1072701045 791141730 281559315

TABLE 1.3: CALCULATION OF RETURN ON CAPITAL EMPLOYED:

Years Net profit Capital ROCE
employed
2014-15 71508287 49.06966
145728083
2015-16 127671891 44.43478
287324203
2016-17 111747738 31.45743
355234742
2017-18 (14135997) (4.709570)
300154674
2018-19 (128061115) (45.48)
281559315

ROCE = (PBIT/CAPITAL EMPLOYED)*100

ROCE

21.13
-45.48

44.43

-4.71
31.46

52
 Figure 1
TABLE: 1 INTERPRETATION

 The above table depicts the PBIT was constantly increasing from 2015-
2016 & has been decreasing in the last 3 years.
 The above table depicts the capital employed was increasing from 2014-
2015 & it has been decreasing in the last 2 years. It indicates that the
capital was not utilized efficiently.
 The higher the ROCE, the more efficient the management is considered
to be in using the funds available. But the above table depicts the ROCE
has been continuously decreasing. It indicates the earnings of the
company is not good.

The higher the return on the capital employed the higher the shareholders’
value.

RETURN ON EQUITY

ROE = (Net Profit – Preference Dividend / Equity Share Capital Paid up)*100

TABLE 2: CALCULATION OF ROE:

year Net profit after Preferred Equity ROE

tax dividend capital
2014-15 33191254 0 18633000 178.1316

2015-16 57590554 0 32192000 178.8971

2016-17 40278831 0 39737000 101.3635

2017-18 (84683957) 0 39737000 (213.111)

2018-19 (222231467) 0 41737000 (532.45)

53
 ROE
178.13

-532.45 178.9

-213.11 101.36

Figure 2
TABLE 2 : INTERPRETATION

 The net profit in the year 2015 is 33191254 lakhs were as in the year 2018-
19 the net profit margin is Rs. (222231467) lakhs which is unhealthy and
Negative sign for the SME.
 The shareholders’ value was constantly increasing from the past five years.
 The return on equity has been increasing from the year 2014-15 and started
decreasing from the last 3 years it depicts that there is no efficient use of the
capital employed.

DEBT TO EQUITY

Outsider’s Fund = Non-Current Liabilities – Deferred Tax Liability

TABLE :3 CALCULATION OF DEBT TO EQUITY:

years Outsiders Shareholders fund Debt to equity

fund
2014-15 737945 142525427 0.5177637

2015-16 26038724 257939981 10.09487707

2016-17 44902047 306994812 14.62632111

2017-18 87183784 208336108 41.84765898

2018-19 288095383 (13895359) (2073.32)

54
 Figure 3

Debt to equity
0.52 10.09 14.63 41.85

-2073.32

TABLE 3 : INTERPRETATION

 The debt to equity ratio shows that the company is aggressive in

financing its growth with debt.
 From the year 2015 to 2019 the debt has been increasing continuously
i.e.from7379745 to 288095383.
 The shareholders fund also increased up to 4 years and the last year it
has been gone to negative it depicts unhealthy.

55
  The fluctuating trend of debt to equity ratio signifies that if a lot of debt
is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have
without this outside financing.
 This results in volatile earnings as a result of the additional interest
expense.

DEBT TOTOTAL FUNDS

Total Funds= Debt + Share Holder Funds

CALCULATION OF DEBT TO TOTAL FUNDS:

Year Debt Total funds Debt to total funds

56
2014-15 737945 143263372 0.515096772
2015-16 26038724
283978705 9.169252321
2016-17 44902047
351896859 12.76000221
2017-18 87183784
295519892 29.50183265
2018-19 288095383
274200024 105.06

Debt to Total Funds

0.52 9.17
12.76

29.50

105.06

Figure 4

TABLE4 : INTERPRETATION

 The debts have been increasing continuously from the year 2015-2018.
 The total funds are also increasing continuously from the year 2015-2018.
 The debt to total funds have been increasing continuously it indicates the
company is unhealthy. Because the lower the ratio, the better it is for
creditors because they are more secure & vice – versa higher the ratio it
gives a feeling of insecurity to the creditors

TABLE: 5 RESULTS AND ANALYSIS OF VARIABLES:

Years ROCE ROE Debt to equity Debt to total funds
2014-15 49.06966 178.1316 0.5177637 0.515096772
2015-16 44.43478 178.89 10.09487707 9.169252321
2016-17 31.45743 101.3635 14.62632111 12.76000221
2017-18 (4.709570) (213.111) 41.84765898 29.50183265

57
 2018-19 (45.48) (532.45) (2073.32) 105.06

DESCRIPTIVE STATISTICS OF VARIABLES

TABLE 6: DESCRIPTIVE STATISTICS

N Minimum Maximum Mean Std. Deviation

ROCE 5 -45 49 14.80 39.537

ROE 5 -532 179 -57.40 310.582
Debt to Equity 5 -2073 42 -401.00 934.801
Debt to Total Funds 5 1 105 31.60 42.377
Valid N (list wise) 5

TABLE 6: INTERPRETATION

The descriptive statistics above show that over the period under study, the profitability
ratios measured by return on capital employed, return on equity and averaged 14.80 and
-57.40 respectively. The debt/equity ratio stood at -401 and debt to total funds averaged
31.60 This is an indication that approximately 30% of total assets in the SME of
Ultratech represented by debt, confirming the fact that the maximum and minimum
values for debt/equity ratio indicate that the debt/equity composition varies substantially
among the SME.

CORRELATION ANALYSIS
TABLE 7 : CORRELATIONS MATRIX FOR
CAPITALSTRUCTURE AND PROFITABILITY

58
 ROCE ROE Debt to Debt to Total
Equity Funds
Pearson
1 .997** .837 -.950*
Correlation
ROCE
Sig. (2-tailed) .000 .077 .013
N 5 5 5 5
Pearson
.997** 1 .846 -.951*
Correlation
ROE
Sig. (2-tailed) .000 .071 .013
N 5 5 5 5
Pearson
.837 .846 1 -.964**
Debt to Equity Correlation
Sig. (2-tailed) .077 .071 .008
N 5 5 5 5
Pearson
-.950* -.951* -.964** 1
Debt to Total Correlation
Funds Sig. (2-tailed) .013 .013 .008
N 5 5 5 5

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

TABLE no 7: INTERPRETATION

 The table shows the relationship between the variables Debt to equity,
Debt to total funds, ROCE and ROE.
 The significance value or Sig (2-tailed) value should be less than 5%,
and then there is relation otherwise there is no relationship between
variables.

59
 The table shows there is significant relationship between Debt to
total funds, Debt to Equity and ROCE

60
 CHAPTER V
FINDINGS, SUGGESTIONS &
CONCLUSION

5.1 FINDINGS

 The tableno7 shows the relationship between the variables Debt to

equity, Debt to total funds, ROCE and ROE.
 The significance value or Sig (2-tailed) value should be less than 5%,
and then there is relation otherwise there is no relationship between

61
 variables.
 The table no7 shows there is significant relationship between Debt to
total funds, Debt to Equity and ROCE.
 There is no relation or there is insignificance between debt to total
funds, Debt to Equity and ROE.
 The values of ROCE are changing that shows the company has not the
funds efficiently.
 The increasing of debt leads to the decrease in the efficiency of the
company.
 From table no 4 the debt to total funds has been increasing.
 The values of debt to equity are fluctuating which is not safe for a
company.

5.2 SUGGESTIONS

62
 The company has to maintain the optimal capital structure and
leverage so that in coming years it can contribute the wealth of
shareholders.
 The company had to exercise control over its outside purchases and
overheads which have effect on the profitability of the company.
 Efficiency and competency in managing the affairs of the company
should be maintained.
 Companies should maintained the higher ROCE to obtain a better

position

 Company should maintain the decreasing level of the debt in order

to obtain good position

 The decrease of the debt should be maintained by the company to

obtain efficiency.

63
 5.3 CONCLUSION

Therefore, capital structure has a great impact on companies profitability based

on ROCE, ROE, Debt to Equity and Debt to Total funds. Capital structure
plays a significant role in taking financing decision which helps in reducing the
risk involved and increase the value of firm. The decision involves a choice
between long-term debt and the equity. The capital structure should be
examined from the view point of its impact on the value of the firm. The
financing mix for a particular firm must be tailored made to suit the
requirements, situations and position of the firm. The operating efficiency of
the firm, the capital market conditions, the expectations of different types of
investors, the liquidity position of the firm, the legal and regulatory framework
and the constraints etc. should all be factored in the evaluation of proposed
capital structure. Choosing the best source of finance results in minimizing debt
of the company. Thus, the company has to increase its capital employed and
returns to improve the growth of the company.

64
BIBLIOGRAPHY

65
 BIBLIOGRAPHY

BOOKS:

 I.M. Pandey, “Financial Management,”10thEdition, 2010,Vikas

Publication House Pvt. Ltd.
 Prasanna Chandra, “Financial Management Theory and Practice,”7 th
edition, 2009,Tata McGraw Hill.
 S.K.Chakraborty, “Cost Accounting and Financial Management,”1 st
Edition, 2004,New Age International publishers.

NEWS PAPERS:-
 Business Standard
 Economic times
 Times of India

MAGAZINES:

 Business India
 Business today
 Business World

WEBSITES:

 www.investopedia.com
 www.info.com
 www.financialtools.com

66
ANNEXURE

67
 ANNEXURE

ULTRATECH LIMITED
profit & loss a/c for the year 2013and 2014  

  schedule 2010-2013 2011-2014

INCOME      
Turn over 16 699429726 1228708974
Other In come 17 21801161 4112033

Accretion/Desertion to shock   524937 125157646

Total   721755824 1357978653
       
EXPENDITURE      
Manufacturing Expenses 18 12097686 134981853
Personnel Expenses   171509812 26518732
Administrative Expenses   618874371  
Total   648123038 161500585
       
Profit before Finance Charges,
  73632786 83144983
Depreciation & Taxation
Less : Finance charges   16491369 42948477
       
Profit before Depreciation &
  57141417 40196506
Taxation
Less : Depreciation   2124497 5473092
Profit before Taxation   55016918 84723414
Less : Provisions for Taxation   16809354  
(a) Income Tax   3856049 26142075
(b) Fringe benefit tax   0  

68
Add/Less Deferred Tax
  1160261 990786
Asset/Liability
TOTAL   33191254 57590554

ULTRATECH LIMITED
Balance sheet as on 31st March 31,2014
  Schedule As on march 31,2014
I. Source of funds  
(1) Shareholders funds  
Capital 1 18633000
Reserves 2 67495000
Share. application money 3 56397426
 
(2) Loan funds
Secured loans 4 182031951
Deferred tax liability 5 2692716
 
TOTAL 327250093
II. Application of funds
(1) Fixed assets 9
Gross blocks 66269776
Less : Depreciation 5144380
Net block 61125396
Capital work in progress 10248722
(2) Current assets
Inventories 247960320
Sundry debtors 13131345
Cash and cement balances 21113953
Loans & advances 10 10348998
Less : current liabilities & 23465504
Provisions 13213137
NET current assets 255875975
TOTAL   327250093

69
ULTRATECH LIMITED
Balance sheet as on march 31, 20158
  Schedule As on march 31,2015
I. Source of funds    
(1) Shareholders funds    
Capital 1 32192000
Reserves 2 168223981
Share allotment money 3 57524000
(2) Net current liabilities   29722227
(3) Current liabilities   640000516
TOTAL   927662724
II. Application of funds  
(1) Fixed assets 9
Tangible assets   67091194
Intangible assets   9993151
Loans and advances   338005
Capital work in progress   3421540
(2) Current assets  
Inventories   514956753
Sundry debtors   249805856
Cash and cement balances   55309392
Loans & advances 10 26284938
Net current assets   461895
   
TOTAL   927662724

70
 ULTRATECHS LIMITED
Provisional statement of p & l for the year ended 31st March 2016
Particulars Note 2016-17 2015-16
INCOME      
Revenue from operations 16 1519097604 1228708974
Other income 17 3608849 4112033
       
    1522706453 1232821007
EXPENDITURE      
Cost of material consumed 18 1170366080 1063333085
Changes in inventories of finished goods 19 1050324 -125157646
Work-in-progress,stock in trade 20 38125080 26518732
Employee benefits expense      
Finance costs 21 60437125 42948477
Depreciation and amortization expense 9 5870184 5473092
Other expense 22 195547046 134981853
       
Total expenses   1471395839 1148097593
       
PROFIT BEFORE TAX   51310613 84723414
       
Tax expense     25961950
Current tax   11031782 180125
Earlier years     990786
Deferred tax      
       
PROFIT FOR THE YEAR   40278831 57590554

71
ULTRATECH LIMITED
Provisional balance sheet as on 31st March 2017
  Note 2016-2017
Equity & liabilities    
shareholders fund    
Share Capital 1 41,737,000  
Reserves & Surplus 2 255,257,812 296,994,812

Share Application Money

  10000000
Pending Allotment

     
Non-current liabilities 3    
Long-term Borrowings 4 44902047  
Deffered Tax Liability 5 3683502  
Long term Provisions 0 48585549
     
Current Liabilities 6    
Short term borrowings 7 404949743  
Trade payable 8 450096760  
Other current liabilities 9176717  
Short term provisions   5667333 869890553
TOTAL   1225470915
Assets    
Non-current Assets 71120874  
Fixed Assets 9 7493151  
Tangible assets    
Intangible assets    
Capital work in progress-
345620  
tangible assets
loans and advances 10   78959645
     
Current Assets    
Inventories 640307799  
Trade receivable 417444779  

72
Cash and cash equivalents 58399162  
Short term loans and advance 30359529  
Other current assets 0 1146511270
TOTAL     1225470915

ULTRATECH LIMITED
Statement of p & l for the year ended 31st March, 2018

  Notes 201718 2016-2017

INCOME  
I Revenue form operations 19 638,571,081 1,755,438,653
II Other Income 20 627,263 4,135,979
 
III Total Revenue (I+II) 639,198,343 1,759,574,632
 
IV EXPENSES
Cost of Materials Consumed 21 623,019,489 1,229,989,433
Purchases of Stock-in-Trade 72,800,747 514,418,870
Changes in inventories 22 25,614,597 -41,235,654
Employee benefits expenses 23 26,398,963 33,365,084
Finance Costs 24 91,997,441 76,306,259
Depreciation / Amortization Exp 12 6,992,049 7,671,016
Other Expenses 25 12,433,612 22,538,227
 
Total Expenditure 859,256,899 1,843,053,235
 
V EXCEPTIONAL ITEMS - -
VI Profit/(Loss) Before Tax (220,058,556) (83,478,603)
VII Less: Tax Expenses
- Current tax - -
- Deferred tax 2,172,911 1,205,355
VIII Profit/(Loss) for the year (222,231,467) (84,683,958)
 
IX Earnings per equity share : 26
Basic & Diluted

73
ULTRATECH CEMENT LIMITED
Balance sheet as at March 31st 2018
  As at 31st As at 31st
Notes March 2018 March 2017
       
EQUITY & LIABILITIES    
(1)Shareholder's fund    
(a) Share Capital 3 41,737,000 41,737,000
(b) Reserve and surplus 4 -55,632,359 166,599,107
 
(2)Non-Current Liabilities
Long Term Borrowings 5 286413033 86,087,130
Deferred Tax Liabilities (Net) 6 8849881 6,676,970
Other Long Term Liabilities
Long-Term provisions 7 1,682,350 1,096,654
 
Current Liabilities
Short Term Borrowings 8 559,362,118 478,639,182
Trade Payable 9 196,647,269 501,838,182
Other Current Liabilities 10 22,326,831 15,784,853
Short Term Provisions 11 12,805,512 12,805,512
   
TOTAL 1,074,191,635 1,311,264,590
 
II ASSETS
(1)Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 12 138,485,830 110,189,496
(ii) Intangible Assets 2,493,151 4,993,151
(b) Long-term loans & 13 1,490,588 2,042,188
Advances
 
Current Assets

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Inventories 14 673,092,288 730,539,235
Trade Receivables 15 248,733,774 451,586,200
Cash & Cash Equivalents 16 982,874 2,670,390
Short Term Loan & Advances 17 2,575,909 422,099
Other Current Assets 18 6,337,219 8,821,831
 
TOTAL 1,074,191,635 1,311,264,590

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