Abhijit Jadhav MBA 21826 2021-23

A
PROJECT REPORT
ON
"EFFECTIVENESS OF CAPITAL STRUCTURE

AND EBIT AND EPS ANALYSIS”
OF
AVIGHNA ENTERPRISES
SUBMITTED BY
ABHIJIT DADASAHEB JADHAV
SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
UNDER THE GUIDANCE OF
Prof. Saee Jedhe.
IN THE PARTIAL FULFILLMENT OF
MASTER OF BUSINESS ADMINISTRATION (M.B.A)

THROUGH
SHRI SHIVAJI MARATHA SOCIETY’S INSTITUTE OF MANAGEMENTAND

RESEARCHARANYESHWAR, PARVATI,
PUNE-411009 BATCH (2022-23)
DECLARATION
I, MR. ABHIJIT DADASAHEB JADHAV, hereby declare that the project work entitled
“EFFECTIVENESS OF CAPITAL STRUCTURE AND EBIT AND EPS ANALYSIS OF
AVIGHNA ENTERPRISES,” carried out
in AVIGHNA ENTERPRISES, which has been submitted to Savitribai Phule Pune
University, is an original work of the undersigned and has not been reproduced from any
other source. Whenever reference has been madeto the previous work of others, it has been
clearly indicated as such and included in the bibliography.
Full name : Mr. Abhijit D. Jadhav
Place : Pune
Date : 13th Feb, 2023
ACKNOWLEDGEMENT
I Abhijit D. Jadhav MBA Student in Institute of Research & Management

College is highly grateful to all those who guided me in completing the
project.
First of all, I would like to pay my heartiest thanks to Prof. Saee Jedhe who
provided me such a wonderful Opportunity to do summer Project. My
heartfelt thank goes to all other staff members of the Avighna Enterprises
provided valuable suggestion and kind cooperation in completion of this
research Project.
I would like to thank my project guider for importing her valuable guidanceto
me time to time. And I am also thankful to all faculty members, librarian,and
other staff member of Institute And all my loveable friend who gave me the
useful tips suggestion regarding the Project
INDEX
Sr. no Topic Page no

Executive Summary
1 Introduction 14
2 Literature Review 16
3 Theoretical Background 18
4 Research Methodology 27
5 Sector Analysis 29
6 Company Profile 34
7 Data Analysis And Data Interpretation 45
8 Finding& Suggestion 56
9 Conclusion 60
10 Learning of Student 61
11 Bibliography 62
12 ANNEXURE 65
INDEX OF TABLES
Table No. Title of the table Page No.
1 Avighna Enterprises Growth Rate 33
2 Company Overview 37
3 Cash flow statement of Avighna enterprises 49

INDEX OF GRAPHS AND IMAGES
Graph No. Title of the graph Page No.
1 Net Income Approach 18
2 Diagrammatic Representation of Traditional 22

Approach to Capital Structure
3 Modigliani and Miller Approach: Two Propositions 24

without Taxes
4 Working of Labor 36
5 Product images 39-41
6 Organization Structure 44
Cash flow statement of Avighna enterprises 50

7 for the year 2021-2022
For the assessment year 2020to2021
8 Comparison of cash flow statement 53
9 Ebit & Eps Analysis as per the assessment year 2020 54

-2021
10 Ebit & Eps Analysis as per the assessment year 2021 55

-2022
EXCUTIVE SUMMARY
This project report contains a study on effectiveness of Capital Structure and EBIT and
EPS analysis and its effect on value of the firm at AVIGHN AEnterprises Narhe. The AVIGHNA
Enterprises Established in 1984 , AVIGHNAENTERPRISES has made a name for itself in the
list of top suppliers of in India. The supplier company is located in Belgaum, Karnataka and is
one of the leading sellers of listed products.
AVIGHNAENTERPRISES is listed in Trade India's list of verified sellers offering

supreme quality of etc. Buy in bulk from us for the best quality products and service.. Since then
the management strongly believes in being customer oriented organization and achieve customer
satisfaction with quality driven processes and ad opting quality management system for
continual improvement.
The study of Capital structure and EBIT and EPS is a part of financial management and
it is useful in capital structure decision of a firm. it also help in maximizing the shareholder
Wealth , Capital structure describes the mix of a firm's long-term capital, which consists of a
combination of debt and equity. Capital structure is a permanent type of funding that supports a
company's growth and related assets. Expressed as a formula, capital structure equals debt
obligations plus total shareholders' equity:
Three years financial data i.e from 2020-2021 to 2021-2022 regarding capital structure
have been studied in the firm. The results of Cash flow Statement, EBIT , EPS analysis are
shown in this report. The comparative results of three years are also shown by charts
AVIGHNAENTERPRISES is continuality improving the suitability, adequacy and
effectiveness .As Company started in 1984 till the company achieves its goal position. The
company started with small unit only one machine &small area of land, now a day’s the company
as the 2 manufacturing units. AVIGHNAEnterprises become a successful since enterprises are
manufacturing as per customer design, & development is excluded. AVIGHNAENTERPRISES
established in the year the guidelines of Mr. VIJAY MUCHNDIKAR. Achieved an ISO 9001-
2008 quality certification 16th may 2001 products ranging from 150 GRAMS to 500 K.G single
piece casting with 100%over all machining facility .maintaining CSR activities at our end
.AVIGHNAenterprises as started by
Vijay Gaikwad, in 1986 now it joint by is family member Rajesh Gaikwad and Jayant Gaikwad
. The MR. Vijay Gaikwad and Vijay Gaikwad handle the marketing sector of the company. And
the Jayant Gaikwad handles a financial department of the industry.
A. Need of the study:
It required to know the best mix of debt and Equity financing that maximizing a
Avighna enterprises Market Value while minimizing its cost of capital .
B. Importance of the study :

➢ To reduce the risk
➢ To adjust according to Business environment.
➢ To financial flexibility and minimize the cost of capital.
➢ To maintain the optimum capital .
C. Problem Statement:
This Particular Study will be doing in the organization for the purpose to know The
which type of Capital Structure it will be adopted to discharge their business operation
efficiently.
D. Objectives of study:
• To know the type capital structure adopted by the manufacturing

organization
(Avighna enterprises).
• To know the overall cost of a capital structure.
• To study the optimum capital structure.
• To know the Value of the manufacturing Firms or organization.
• To know the optimum proportion of Equity, Preference share, and debenture.
E. Conclusion
In this study, Effectiveness of capital structure and EBIT and EPS analysis is
undertaken at Avighna Enterprises. Along with this study I have been studied different
department of a company. to know the Relevant and irrelevant information of the capital
structure & Development of optimum capital structure for the Avighna enterprises Ltd. It has
the highest efficiency and satisfactory capital structur
CHAPTER 1
INTRODUCTION
The manufacturing industry is responsible for the fabrication of products intended for
industrial use from raw materials; it is the output of this industry which has made further mass
manufacturing possible in most other industries. It is responsible for producing a variety of
different machinery, from huge industrial to simple household machines, as well as other
industrial-use products such as hardware, paper and packaging materials, glass, and other
fixtures. However, in spite of the huge range of products, they all have a common function: to
eliminate or reduce the amount of human energy expenditure, or manpower, needed tocomplete
the job. No matter what type of machinery is employed, it is crucial in producing many of the
goods and services vital to any economy in a timely and cost-efficient manner.
Capital structure and EBIT (earnings before interest and taxes) and EPS (earnings per share)
analysis are important tools for evaluating the financial performance of a company. By
examining a company's capital structure and financial performance metrics, investors and
analysts can gain insights into the company's ability to generate profits and generate returns for
shareholders.
The effectiveness of capital structure analysis depends on the specific context in which it is
applied. Generally, companies with a strong and stable capital structure are seen as more
financially sound than those with high levels of debt or an unstable mix of debt and equity.
However, a company's capital structure can also reflect its business model, growth prospects,
and other factors that may influence its financial performance.
EBIT and EPS analysis are commonly used to evaluate a company's profitability and the
potential returns on investment for shareholders. By examining a company's EBIT and EPS,
investors can determine how much profit the company is generating for each share of stock, and
how much of that profit is being reinvested in the business or distributed to shareholders.
In general, companies with high EBIT and EPS are seen as more financially sound than those
with low EBIT and EPS. However, investors and analysts must also consider the context in
which these metrics are being used, such as the industry in which the company operates, the
SHRI SHIVAJI MARATHA SOCIETY’S INSTITUTE OF MANAGEMENT AND RESEARCH, ARANYESHWAR, PARVATI,
10
company's growth prospects, and other factors that may influence its financial performance.
Overall, capital structure and EBIT and EPS analysis can be effective tools for evaluating the
financial performance of a company. However, these tools must be used in conjunction with
other factors and a thorough understanding of the company's business model and industry
context.
➢ Traditional Theory of Capital Structure
The traditional theory of capital structure says that a firm's value increases to a certain level of
debt capital, after which it tends to remain constant and eventually begins to decrease if there is
too much borrowing. This decrease in value after the debt tipping point happens because of
overleveraging. On the other hand, a company with zero leverage will have a WACC equal to
its cost of equity financing and can reduce its WACC by adding debt up to the point where the
marginal cost of debt equals the marginal cost of equity financing. In essence, the firm faces a
trade-off between the value of increased leverage against the increasing costs of debt as
borrowing costs rise to offset the increase value. Beyond this point, any additional debt will
cause the market value and to increase the cost of capital. A blend of equity and debt financing
can lead to a firm's optimal capital structure.
The traditional theory of capital structure tells us that wealth is not just created through
investments in assets that yield a positive return on investment; purchasing those assets with an
optimal blend of equity and debt is just as important. Several assumptions are at work when this
theory is employed, which together imply that the cost of capital depends upon the degree of
leverage. For example, there are only debt and equity financing available for the firm, the firm
pays all of its earnings as a dividend, the firm's total assets and revenues are fixed and do not
change, the firm's financing is fixed and does not change, investors behave rationally, and there
are no taxes. Based on this list of assumptions, it is probably easy to see why there are several
critics.
The traditional theory can be contrasted with the Modigliani and Miller (MM) theory, which
argues that if financial markets are efficient, then debt and equity finance will be essentially
interchangeable and that other forces will indicate the optimal capital structure of a firm, such
as corporate tax rates and tax deductibility of interest payments.
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Every business requires an investment, and it requires a capital structure to raise a profitable
investment for that particular business. It determines the ratio between the debt and equity of the
company. It should be planned so that the company can attain the maximum profit with
minimum risk factors. In contrast, several factors affect the capital structure, including the
market conditions, nature of investors, taxation policies, etc. However, several capital structure
theories provide different approaches; the four most important ones are the net income theory,
net operating income theory, traditional theory, and Modigliani-Miller theory.
➢ Capital structure
When it comes to business terms and conditions, the capital structure is one of the basic
foundations in this field. It is defined as the equilibrium between the debt and a company’s
equity. Without a stable structure, the business will collapse.
Every business or company requires the investment or financial support for its long-term
operations. Understanding this financial aid and the procedure of step-by-step investments in the
industry is known as the capital structure. Calculating the capital structure and preparing the plan
depends upon the type of the business. The evaluation of structure must be maintained in such a
way so that the ROI is always higher.
Factors affecting the capital structure

Various factors might affect the evaluation of the structure; these factors are categorised into two
groups, internal factors and external factors.
1. Internal factors: The capital structure of a business or a startup depends upon its size,
theme, and nature. The firm’s age and the plan also play an active role in determining the
same. However, in official terms, the trading on equity and the period or purpose of
financing are significant factors affecting any business’s capital structure.
2. External factors: The external factors consist of those policies and documentation, that
the owner cannot control. The external factors include the taxation policy, economic
fluctuation in the market, and the level of competition. Several other factors include the
nature of the investor, capital markets condition, and the financial institutions’ policy.
Based on the type of business, the seasonal variation in the market also affects the capital
structure significantly.
Importance of Capital structure

12
Calculating and managing a capital structure is required for growing a business. Several salient
features need to be considered while creating the structure. Some of these are:
• A capital structure must be designed in a way so that the value of the company is higher
than the cost of capital
• The perfect evaluation assures the most economical and safe ratio between different
policies
• Those structures are more preferred if they provide the minimum risk factor
• An optimal capital structure must be straightforward and flexible according to the market
conditions
• It must involve rules, terms, and conditions which are attractive and efficient
• An optimal capital structure must correlate with all legal requirements to prevent the
hassle
Theories of capital structure

A business requires the most beneficial capital structure. So, many capital structure theories are
available to take as a reference; amongst them, we will discuss the four most essential ones:
• Net income theory:

This theory was postulated by David Durand, who put forward the idea of increasing the
proportion of debt in the overall capital structure. According to him, debt is a fund source
because it has a lower interest rate, eliminating the risk factor and playing a significant role in
deducting expenses for income tax. This theory is also called the “Fixed ‘Ke’ theory.”
• Net operating income theory:

Also known as the irrelevant theory, it was also postulated by David Durand. It depicts that the
company’s market value is not affected by changes in the capital structure. The overall cost of
equity can remain fixed no matter the proportion of debt.
• Traditional theory:
The traditional theory was postulated by Ezra Solomon. The assumptions of this approach are
quite related to the net income theory. The main principle behind this theory was to increase the
proportion of debt to a certain limit in the capital structure.
• Modigliani-Miller theory:
13
This theory came into existence by correlating the ideas of two co-members, Franco Modigliani
and Merton Miller. This theory had two further assumptions.
1. Absence of Corporate taxes: According to Modigliani-Miller’s theory, in the

absence of the corporate tax, the value of the creditworthy firm will be equal to
that of the amount of equity compromised.
2. Presence of corporate taxes: In the case where taxes are applied, the value of the
creditworthy firm is equal to the value of the indebted firm summed up with the
product of the tax rate and the value of debt.
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CHAPTER 2
LITERATURE REVIEW
1. Structured literature review of capital structure financial performance

Deepali Sachin Surana (2014) The literature on capital structure theory and its impact on
different variables are abundantly available. the topic retains attraction for researchers. Regular
development in the domain, like buyback of shares has kept the subject vibrant and open for
debate. This article takes stock of recent research on the subject with a focus on the linkage
between capital structure (CS) i.e Debt/Equity and financial performance (FP) variables. The
structured literature review shows interesting results. While there is consensus amongst
researchers that CS impacts FP, there is a clear conflict about the direction of the impact. This
article presents an analysis of 30 recent research works on the linkages between CS and FP.
2. A Review of Relevant Literature on Capital Structure and Efficient Market Hypothesis

Posted: 23 Apr 2012D.M.N.S.W. Dissa nayake University of Kelaniya Date Written: April 22,
2012AbstractThis paper derives a literature review of the capital structure in large scale
companies and the notion of efficient market hypothesis in finance. Sources of finance are one
of the dominant factors which need to be assessed in financing decisions for companies. The
review provides possible sources of finance for large scale companies. Cost of capital in a
company can be defined as the rate of return required by the investors. In other words return
expected by lenders and owners. The review further elaborates a discussion pertaining to the
cost of capital as well. The Dominant theories of capital structure have also been discussed
with reference to the theory proposed by Modigliani and Miller, trade-off theory and signaling
theory. Finally the paper discusses the notion of efficient market hypothesis and the importance
of it.
3. European Journal of Accounting, Auditing and Finance Research Published by European

Centre for Research Training and Development (2008) structure: definitions, determinants,
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theories and link with performance literature review Bader Eid Aljamaan Teaching Assistant
of Finance and Business, Almajmaah University, Saudi Arabia The theory of capital structure
and its relationship with a firm’s value and performance has been a puzzling issue in corporate
finance and accounting literature since the Modigliani and Miller theory (MM)
4. (1958) argue that under the perfect capital market condition which assume that, if without
bankruptcy cost and capital markets are frictionless, if without taxes, and without
asymmetric information the firm’s value is independent from capital structure. According to
MM theory, the only variables that determined firm value was its future earnings power
(expected cash flow) and hence the capital structure decision is irrelevant.
Since that time, several theories have been developed to explain the capital structure of a
firmincluding the Pecking Order Theory, Trade off theory, and the Agency Cost theory. This
paper will shed light on the concept of capital structure, its theories and link with firms’
performance.KEYWORDS: Capital Structure, Performance.
5. Literature Review on Capital Structure and Firm Performance

Moksidul Hoque1,1 (2020) Department of Finance, Rabindra Bhaban, University of Rajshahi,
Bangladesh Capital structure theory suggests that there is no effect of capital structure on firm
performance in perfect economy (with no tax and no transaction costs), and there is a positive
relation between capital structure and firm performance in a real economy (with tax). On the
other hand, in the presence of financial distress cost (bankruptcy costs and agency cost of debt),
there is a positive relation between capital structure and firm performance at lower level of
debt, and a negative relation at higher level of debt. This paper summarizes the development
of the theory of capital structure since 1952. We consider both theoretical and empirical
literatures that investigate the that the relation between capital structure and firm performance
can be different due .to differences in variables, corporate environment, leverage measures,
performance measures, control variable, data issue, data analysis technique, market type,
market location
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CHAPTER 3
THEORETICAL BACKGROUND
INTRODUCTION TO CAPITAL STRUCTURE THEORIES

A corporate can finance its business mainly by 2 means, i.e., debts and equity. However, the
proportion of each of these could vary from business to business. A company can choose to
have a structure with 50% each of debt and equity or more of one and less of another. Capital
structure is also referred to as financial leverage, which strictly means the proportion of debt
or borrowed funds in the financing mix of a company.
Debt structuring can be a handy option because the interest payable on debts is tax-deductible
(deductible from net profit before tax). Hence, debt is a cheaper source of finance. But
increasing debt has its share of drawbacks like increased risk of bankruptcy, increased fixed
interest obligations, etc.
For finding the optimum capital structure to maximize shareholders’ wealth or the value of the
firm, different capital structure theories (approaches) have evolved.
NET INCOME APPROACH EXPLAINED

Durand presented the Net Income Approach. The theory suggests increasing the firm’s value
by decreasing the overall cost of capital which is measured in terms of the Weighted Average
Cost of Capital. This can be done by having a higher proportion of debt, which is a cheaper
finance source than equity finance.
Weighted Average Cost of Capital (WACC) is the weighted average costs of equity and debts,
where the weights are the amount of capital raised from each source.
Required Rate of Return x Amount of Equity + Cost of debt x Amount of

Debt
WACC =
Total Amount of Capital (Debt + Equity)
17
According to Net Income Approach, a change in the financial leverage of a firm will lead to a
corresponding change in the Weighted Average Cost of Capital (WACC) and the company’s
value. The Net Income Approach suggests that with the increase in leverage (proportion of
debt), the WACC decreases, and the firm’s value increases. On the other hand, if there is a
decrease in the leverage, the WACC increases, thereby decreasing the firm’s value.
For example, vis-à-vis the equity-debt mix of 50:50, if the equity-debt mix changes to 20: 80,
it would positively impact the value of the business and increase the value per share.
ASSUMPTIONS OF NET INCOME APPROACH

The Net Income Approach makes certain assumptions which are as follows.
• The increase in debt will not affect the confidence levels of the investors.
• There are only two sources of finance; debt and equity. There are no sources of finance
like Preference Share Capital and Retained Earnings.
• All companies have a uniform dividend payout ratio; it is 1.
• There is no flotation cost, no transaction cost, and corporate dividend tax.
• The capital market is perfect; it means information about all companies is available to
all investors, and there are no chances of Overpricing or Under pricing of security.
Further, it means that all investors are rational. So, all investors want to maximize their
return by minimizing risk.
• All sources of finance are for infinity. There are no redeemable sources of finance.
• Example
• Consider a fictitious company with the below figures—all figures in USD
18
Earnings before Interest Tax (EBIT) = 100,000
Bonds (Debt part) = 300,000
Cost of Bonds issued (Debt) = 10%
Cost of Equity = 14%
Calculating the value of a company
EBIT = 100,000
Less: Interest cost (10% of 300,000) = 30,000
Earnings (since tax is assumed to be absent) = 70,000
Shareholders’ Earnings = 70,000
Market value of Equity (70,000/14%) = 500,000
Market value of Debt = 300,000
Total Market value = 800,000
Overall cost of capital = EBIT/(Total value of the firm)
= 100,000/800,000
= 12.5%
Capital structure plays an important role in value of a company. Different companies have
different capital structures like some have capital based on debt, some have based on equity
and some have a mixed or combination of both in their financial mix.
Durand proposed net income approach and he states that change in cost of capital and valuation
of company will change, if there a change in financial leverage. Capital structure is relevant to
valuation of a firm. Increase in financial leverage leads to increase in weighted average cost of
capital (WACC) and value of firm will increase.
19
Market value of equity shares depends on amount available after paying interest on debt. This
approach prepositions that market value depends on the amount available for equity
shareholders. Net income and cost of capital depends on use of Debt in capital structure, which
had an impact on equity shares and market value.
NI = NOI – I
Where, NI = net income, NOI = net operating income and I = interest on debt.
Assumptions related to net income are as follows −
• No taxes
• Cost of equity > cost of debt.
• Both debt and equity capitalizations are constant.
• Debt proportion is independent of investors risk.
• Dividend pay-out ratio is 1.
Formulas
V=E+D
Where, V = market value (firm), E = market value (Equity) + Market value (Debt)
E = equity shareholder’s income/ cost of equity
D = interest rate on debt/ cost of Debt
Cost of capital = NOI/V
Degree of financial leverage = D/V
Where, NOI = Net operating income.
Disadvantages of net income are as follows −
• Corporate taxes are not considered.
• It has constant cost of debt (interest rate depends on fund providers).
• Financial risk increases with increase debt.
• Financial leverage increases with increase in equity capitalization.
20
Tradition Approach Theory
The traditional approach to capital structure suggests an optimal debt to equity ratio where the
overall cost of capital is the minimum and the firm’s market value is the maximum. On either
side of this point, changes in the financing mix can bring positive change to the firm’s value.
Before this point, the marginal cost of debt is less than the cost of equity, and after this point,
vice-versa.
Capital Structure Theories and their different approaches put forth the relationship between the
proportion of debt in the financing of a company’s assets, the weighted average cost of capital
(WACC), and the company’s market value. While the Net Income Approach and Net Operating
Income Approach are the two extremes, the traditional approach, advocated by Solomon and
Fred Weston, is a midway approach, also known as the “intermediate approach.”
The traditional approach to capital structure advocates that there is a right combination of
equity and debt in the capital structure, at which the market value of a firm is maximum. As
per this approach, debt should exist in the capital structure only up to a specific point, beyond
which any increase in leverage would result in a reduction in the value of the firm.
It means that there exists an optimum value of debt to equity ratio at which the WACC is the
lowest and the firm’s market value is the highest. Once the firm crosses that optimum value of
debt to equity ratio, the cost of equity rises to give a detrimental effect on the WACC. Above
the threshold, the WACC increases, and the firm’s market value starts a downward movement.
Assumptions under Traditional Approach:
1. The interest rate on the debt remains constant for a certain period, and after that, it
increases with an increase in leverage.
2. The expected rate by equity shareholders remains constant or increases gradually. After
that, the equity shareholders start perceiving a financial risk, and then from the optimal point,
the expected rate increases speedily.
3. As a result of the activity of rate of interest and expected rate of return, the WACC first
decreases and then increases. The lowest point on the curve is optimal capital structure.
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Diagrammatic Representation of Traditional Approach to Capital
Structure:
Example Explaining Traditional Approach:

Consider a fictitious company with the following data.
Particulars Case 1 Case 2 Case 3 Case 4 Case 5
Weight of debt 10% 30% 50% 70% 90%
Weight of equity 90% 70% 50% 30% 10%
Cost of debt 10% 11% 12% 14% 16%
Cost of equity 17% 18% 19% 21% 23%
WACC 16.3% 15.9% 15.5% 16.1% 16.7%
From case 1 to case 3, the company increases its financial leverage, and as a result, the debt
increases from 10% to 50%, and equity decreases from 90% to 50%. The cost of debt and
equity also rises, as stated in the table above, because of the company’s higher exposure to risk.
The new WACC is decreased from 16.3% to 15.5%.
As observed, with the increase in the company’s financial leverage, the overall cost of capital
reduces, despite the individual increases in the cost of debt and equity, respectively. The reason
is that debt is a cheaper source of finance.
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Capital Structure Theory – Modigliani and Miller (MM) Approach
The Modigliani and Miller approach to capital theory, devised in the 1950s, advocates the
capital structure irrelevancy theory. This suggests that the valuation of a firm is irrelevant to a
company’s capital structure. Whether a firm is high on leverage or has a lower debt component
has no bearing on its market value. Instead, the market value of a firm is solely dependent on
the operating profits of the company.
A company’s capital structure is the way a company finances its assets. A company can finance
its operations by either equity or different combinations of debt and equity. A company’s
capital structure can have a majority of the debt component. Or a majority of equity or an even
mix of debt and equity. Each approach has its own set of advantages and disadvantages. There
are various capital structure theories that attempt to establish a relationship between the
financial leverage of a company (the proportion of debt in the company’s capital structure) with
its market value. One such approach is the Modigliani and Miller Approach.
Modigliani and Miller devised this approach during the 1950s. The fundamentals of the
Modigliani and Miller Approach resemble that of the Net Operating Income Approach.
Modigliani and Miller advocate capital structure irrelevancy theory, which suggests that the
valuation of a firm is irrelevant to a company’s capital structure. Whether a firm is high on
leverage or has a lower debt component in the financing mix has no bearing on the value of a
firm.
The Modigliani and Miller Approach further state that the operating income affects the firm’s
market value, apart from the risk involved in the investment. The theory states that the firm’s
value is not dependent on the choice of capital structure or financing decisions of the firm.
Assumptions of Modigliani and Miller Approach
• There are no taxes.
• Transaction cost for buying and selling securities, as well as the bankruptcy cost, is nil.
• There is a symmetry of information. This means that an investor will have access to the
same information that a corporation would, and investors will thus behave rationally.
• The cost of borrowing is the same for investors and companies.
• There is no floatation cost, such as an underwriting commission, payment to merchant
bankers, advertisement expenses, etc.
• There is no corporate dividend tax.
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The Modigliani and Miller Approach indicates that the value of a leveraged firm (a firm that
has a mix of debt and equity) is the same as the value of an unleveraged firm (a firm wholly
financed by equity). Suppose the operating profits and future prospects are the same. If an
investor purchases shares of a leveraged firm, it would cost him the same as buying the shares
of an unleveraged firm.
Modigliani and Miller Approach: Two Propositions without Taxes

Proposition 1
With the above assumptions of “no taxes,” the capital structure does not influence the valuation
of a firm. In other words, leveraging the company does not increase the company’s market
value. It also suggests that debt holders in the company and equity shareholders have the same
priority, i.e., earnings are equally split amongst them.
Proposition 2
It says that financial leverage is directly proportional to the cost of equity. With an increase in
the debt component, the equity shareholders perceive a higher risk to the company. Hence, in
return, the shareholders expect a higher return, thereby increasing the cost of equity. A key
distinction here is that Proposition 2 assumes that debt shareholders have the upper hand as far
as the claim on earnings is concerned. Thus, the cost of debt reduces.
Modigliani and Miller Approach: Propositions with Taxes (The Trade-Off Theory of Leverage)
24
The Modigliani and Miller Approach assumes that there are no taxes, but in the real world, this
is far from the truth. Most countries, if not all, tax companies. This theory recognizes the tax
benefits accrued by interest payments. The interest paid on borrowed funds is tax-deductible.
However, the same is not the case with dividends paid on equity. In other words, the actual cost
of debt is less than the nominal cost of debt due to tax benefits. The trade-off theory advocates
that a company can capitalize on its requirements with debts as long as the cost of distress, i.e.,
the cost of bankruptcy, exceeds the value of the tax benefits. Thus, until a given threshold value,
the increased debts will add value to a company.
This approach with corporate taxes does acknowledge tax savings and thus infers that a change
in the debt-equity ratio affects the WACC (Weighted Average Cost of Capital). This means
that the higher the debt, the lower the WACC. The Modigliani and Miller approach is one of
the modern approaches of Capital Structure Theory.
Read Capital Structure & its Theories to know more about what is capital structure and what
are its different theories. Let us now look at the first approach
25
CHAPTER 4
RESEARCH METHODOLOGY
Research Title : “EFFECTIVENESS OF CAPITAL STRUCTURE AND

EBIT AND EPS ANALYSIS”
Research Methodology :
Research Design :
It is the master plan of the research for the purpose of the study design contains the descriptive
research .descriptive research include fact finding enquiries of different kinds .The major
purpose of descriptive research is description of the states of affairs as it exist at present . the
main characteristic of this method is that the research has no control over the variable , he can
only report what has happened or what happening.
Data collection Method:

The data collection for the project work is collected from primary method as well as secondary
source of data collection. The explanation and interpretation are done by self study and
evaluation.
✓ Primary method:
Primary data are those which are collected directly without the use of any secondary data .
Such as
• Interaction with the employees and employer of the organization.
✓ Secondary method :
Secondary data is the data which (financial statement analysis , income statement analysis )
are obtained from the source such as ,
✓ Through news papers.
✓ Annual financial statement of manufacturing organization.
26
✓ Internal financial report.
✓ Through the organization website.
Sample Design
Sample Instruments or Technique :
The research has prefer to use simple random sample sampling methods to collect the data from
the sample size. the data will be collected randomly, simple random sampling is the foundation
for all of the other random sampling techniques. with this approach, all of the sampling units
are enumerated and a specified number of sample unit are selected at random from all the
sample unit. selection of sample for the simple random sampling following two criteria.
Sample Unit : AVIGHNA ENTERPRISES

It is selected area for the study of the population, as per my research , I have been selected the
Pune city as a sample unit for my research topic is effectiveness of capital structure of Avighna
Enterprises in a Pune city .
Expected result from the project:

To know the optimum capital structure for the Avighna Enterpr
27
CHAPTER 5
SECTOR ANALYSIS
Introduction
The Indian auto-components industry has experienced healthy growth over the last few years.
The auto-components industry expanded by a CAGR of 3.28% over FY16 to FY20 to reach
US$ 45.90 billion in FY21. The industry is expected to reach US$ 200 billion by FY26.Due to
high development prospects in all segments of the vehicle industry, the auto component sector
is expected to rise by double digits in FY22.Auto-components industry accounts for 7.1% of
India’s Gross Domestic Product (GDP) and employs as many as 5 million people directly and
indirectly. A stable government framework, increased purchasing power, large domestic
market, and an ever-increasing development in infrastructure have made India a favourable
destination for investment.
5.1 size of the industry
The industry can be broadly classified into organized and unorganized sectors. The organized
sector caters to original equipment manufacturers (OEMs) and consist of high-value precision
instruments while the unorganized sector comprises low-valued products and caters mostly to
the aftermarket category.
The automobile component industry turnover stood at Rs. 1.96 lakh crore (US$ 26.6 billion)
between April–September 2022 and is expected to witness revenue growth of 15-17% during
the fiscal year. In first half of FY22, exports of auto components grew by 76% to Rs.
68,746crore (US$ 9.3 billion). As per the Automobile Component Manufacturers Association
(ACMA) forecast, automobile component exports from India are expected to reach US$ 80
billion by 2026. The Indian auto components industry is expected to reach US$ 200 billion in
revenue by 2026.Strong international demand and resurgence in the local original equipment
and aftermarket segments are predicted to help the Indian auto component industry grow by
20-23% in FY22.
28
GOVERNMENT INITIATIVES
The Government of India’s Automotive Mission Plan (AMP) 2006-2026 has come a long way
in ensuring growth for the sector. Indian Automobile industry is expected to achieve a turnover
of US$ 300 billion by 2026 and will grow at a CAGR of 15% from its current revenue of US$
74 billion.
In November 2021, the Union Cabinet approved PLI scheme in automobile and auto
components with an approved financial outlay over a five-year period of Rs. 57,042crore (US$
8.1 billion). In September 2022, the Indian government issued notification regarding a PLI
scheme for automobile and auto components worth Rs. 25,938crore (US$ 3.49 billion). In
February 2022, the government has received investment proposals worth Rs. 45,016crore (US$
6.04 billion) from 20 automotive companies under the PLI Auto scheme. This scheme is
expected to create an incremental output of Rs. 2,31,500crore (US$ 31.08 billion).
Government has come out with Automotive Mission Plan (AMP) 2016-26 which will help the
automotive industry to grow and will benefit Indian economy in the following ways: -
• Contribution of auto industry in the country’s GDP will rise to over 12%.
• Around 65 million incremental number of direct and indirect jobs will be created.
• End of life Policy will be implemented for old vehicles.
ROBUST DEMAND
• Growing working population and expanding middle class are expected to remain key
demand drivers.
• By 2025, 4 million of could be sold each year and 10 million by 2030. The market is
expected to reach US$ 206 billion by
OPPORTUNITIES
• India is emerging as a global hub for auto component sourcing and the industry exports
over 25% of its production annually .
• Auto component exports are expected to grow at 23.9% annually to reach US$ 80
billion by 2026.
29
• India has a competitive are expected to grow at 23.9% annually to reach US$ 80 billion
by 2026.
• India has a competitive advantage in auto components categories such as shafts,
bearings and fasteners due to large number of players. This factor is likely to result into
higher exports in coming years.
FDI
• 100% FDI is allowed under the automatic route for auto components sector.
• In February 2022, the government has received investment proposals worth Rs.
45,016crore (US$ 6.04 billion) from 20 automotive companies under the PLI Auto
scheme. This scheme is expected to create an incremental output of Rs. 2,31,500crore
(US$ 31.08 billion).
ADVANTAGE
• A cost-effective manufacturing base keeps costs lower by 10 25% relative to operations

in Europe and Latin America .India is the second largest.
• steel producer globally, hence has a cost advantage.

• To ensure optimum utilization of unexploited resources of the country.
• To improve the standard of living of people.
• To ensure equal distribution of income and wealth.
• To solve the unemployment problem.
• To attain self-reliance.
• To adopt the latest technology aimed at producing better quality products at lower
30
Growth Rate:
Growth Rate of Avighna Enterprises is more volatiles, as per the given data it could be Increase
by smaller number trend ,since 2020 ,2021,2022. It can be assess with help of sale of Avighna
Enterprises.
Avighna Enterprises Growth Rate

Year Sale Growth Rate %
2020 100,72,2864 Nil
2021 123,69,9528 18.57
2022 136201883 9.17
4.3 Government Regulation followed by Avighna Enterprises

➢ Policy Statement.
➢ Rationalization and simplification of business Regulation.
➢ Exit Mechanism.
➢ Technology acquisition and Development.
➢ Industrial Training and Skill Upgradation Measures.
➢ Certain government policy for improving access to finance for SMEs.
➢ Clustering and aggregation (national investment and manufacturing zone ).
➢ Trade policy
Competitors of Avighna enterprises

• Abishek Alloys
• Akash Forming Technology
• AKP Foundries
• Allied Founders
• Alloy steels
• Arun Engineering works
• Ashok Iron group
• Pune ferrocast
31
• Pune Foundry cluster
• BY industries
• Chaitanya Equipments
• Dalvi enterprises
• Durga meta
32
CHAPTER 6
COMPANY PROFILE
6.1 Origin
Established in 1984 , AVIGHNA ENTERPRISES has made a name for itself in the list of top
suppliers of in India. The supplier company is located in Pune, Maharashtra and is one of the
leading sellers of listed products.
AVIGHNA ENTERPRISES is listed in Trade India's list of verified sellers offering supreme
quality of etc. Buy in bulk from us for the best quality products and service.
Avighna Enterprises in Narhe Industrial Area, Pune is known to satisfactorily cater to the
demands of its customer base. The business came into existence in 1984 and has, since then,
been a known name in its field. It stands located at Plot No.182/A & 186 SR NO:.347/1B, Near
Bank Of Baroda, Narhe Industrial Area , Narhe Industrial Area-411041. Near Bank Of
Baroda is a prominent
33
landmark in the area and this establishment is in close proximity to the same. It has earned
stamps like Jd Verified, Jd Pay
Customer centricity is at the core of Avighna Enterprises in Narhe Industrial Area, Pune and it
is this belief that has led the business to build long-term relationships. Ensuring a positive
customer experience, making available goods and/or services that are of top-notch quality is
given prime importance. It is one of the players in Coupling, Industrial Engineering
Components, Compressor Tool, Automotive Spare Parts, Construction Tool to name a few.
India’s leading B2B market place, Jd Mart ensures engaging in business activities is a seamless
process for small and medium enterprises as well as large businesses. In a wake to enable these
businesses to reach their audience, this portal lets them showcase their offerings in terms of the
products and/or services through a digital catalogue. This business has a wide range of product
offerings and the product/catalogue list includes Compressor, Engineering & Hydraulic,
Construction/ Mining, Automative, Coupling / Machine Tool etc.
NAME AVIGHNA ENTERPRISES

Partnership
OWNERSHIP TYPE
PARTNERS Mr. Satish M Gaikwad
Mr. Rajesh V Gaikwad
ADDRESS Plot No.182/A& 186,SR no. 347/1B,Narhe Industrial

Area,Pune.411041,Maharashtra, India.
ASSOCIATION Indian Foundry Association
CERTIFICATION ISO 9001 - 2008

TYPE
TYPE OF INDUSTRY Manufacturing, supplier
BANK SBI
www.Avighna enterprises in. com
Website
34
VISION
• Avighna enterprises have started with vision to develop quality product. In

transforming and challenging engineering field where we have introduced the latest
technology andequipment.
MISSION
• To achieve well defined position in the market and targeted potential customers.
6.2 Scope
Avighna enterprises is a manufacturing and suppliers of various product , it mainly focus

on optimum quality of all manufacturing product and services. I provide more scope to
qualityof a various product such as below.
It scope on Quality of Product and Services

• Machine Grade Cast Iron Component
• Non Machine Grade Cast Iron Component
• Insertia Ring
• Hub
• Coupling
• Anti vibration mounting
• Pulleys
• Viscous
• Damper
• Casting
• Precision casting
• Shell mould casting
• Body casting
35
ENGINEERING AND HYDRAULIC
AUTOMOTIVE
36
COMPRESSORS
CONSTRUCTION MINING
37
COUPLING & MACHINE TOOL
38
6.3 Financial Position
The financial position of the Avighna Enterprises is well being at the current. the
financial position of a company is measured by the performance it takes in company
financial statement. a positive and Growing cash flow statement and Growing Profit in the
Profit andLoss statement and a Balance sheet of Assets Liabilities and owners equity in the
BalanceSheet.
At the point of Financial Position Summery a of Avighna Enterprises Forms the most basic
aspect of accounting, assets, liabilities, and owners equity. these three factors sum the
essence of the financial position of any business. This so essential that the financial position
of a Avighna Enterprises has become more valuable in the market .
In regards to Liabilities a Avighna Enterprises does not want to outpace itself liabilities to
explain are obligations that a company take on common liabilities include account payable
, interest payable sales payable . it just keep enough liabilities to be able grow the wealth it
hold while making sure not have too many liabilities.
In regards to Owner Equity is the residual value of the Avighna Enterprises after all assets
hold Greater value that all liabilities. Under the Avighna Enterprises there is only 100
EquityCapital which enhance the business on the Growth line. basic owner equity include
Preferred stock , common stock, surplus, stock options retain earning and treasury stock.
39
6.4 Marketing
In Avighna Enterprises Marketing enable to connect with both wholesalers and distributer
ensure that your product reaches to the final customer . reach involves building brand and
awareness on other website and offline media to build traffic to your main side by using
influence tactical marketing including advertising tool such as Google is important when
looking at how marketa manufacturing job. It does not involve more marketing it depends on
the number of job orderfrom the B to B and B to C. and ensure best quality of their product and
services attract the more number of customer . good Public relations, doing the CSR activities.
6.4 BRANDING
Brand represent the over the course of history of the Avighna enterprises ,the brand has been
used to set the products . The brand name of Avighna enterprises is “AVIGHNA
ENTERPRISES NARHE INDUSTRIAL AREA”. It assist commercial and marketing idea that
allow consumer to recognize Avighna enterprises product and services .
40
6.5 ORGANIZATION STRUCTURE
Managing Partner
marketing purchase Personnel & Management

administration
Representative
Engineer QA Dispatch Engineering

&QC officer production
Account officer
Supervisor Supervisor Asst. account

officer
QA &QC QA &QC
41
6.6 OPERATION
Development in charge is responsible for production &development in charge will plan for
machining. CNC programming activities as per the procedure for development of machining ,
new product and services timing plan reflect the structure procedure approached for new
product and services development. The evident and planning of each activities can be seen
through timing plan itself.
During the preparation of new product and services development timing , plan development
in charge has ensure that
• Requirement for product and service determined.
• Necessary process are established necessary documented information & resources are
made available.
• During the development stage customer requirement &reference to its technical
specification are included in the product development timing plan .
• Acceptance criteria for product & services , process & necessary instrument gauge &
tooling are determined &Provided.
• Define the required resources to achieve conformity to the product and services..
6.7 QUALITY POLICY

We at “AVIGHNA ENTERPRISES”
Will strive to meet highest level of customer satisfaction by supplying them cost effective
consistent quality product and product safety with prompt in time delivery We will involve our
all employee and suppliers in continual improvement process and guide them for achieving the
required quality of product and services.
6.8 Company competitors Customer
• Sandvik
• Machwel
• Hmt
• Kirloskar
• E&S
42
6.9 SWOT Analysis
1. Strength
• More customer focused
• More flexibility
• Innovativeness
• High visible top management
• Quick to seize opportunities.
2. Weakness
• Poor access to finance &financial scarcity
• Low strategic thinking and planning
• Lack of access to new technology
3. Opportunities
• Enhance the credit support .
• Support for technological up gradation.
• Skill development and training Programmes.
4. Threats
• Quality of product
• Competition
• Frequent increase input cost
• Inadequate power of supply
• High distribution cost
43
CHAPTER 7
DATA ANALYSIS
7. Data Analysis: Data analysis is a process of inspecting, cleansing, transforming, and

modelling data with the goal of discovering useful information, informing conclusions, and
supporting decision-making. Data analysis has multiple facets and approaches, encompassing
diverse techniques under a variety of names, and It used different financial tool to analyses
optimum capital structure such as Cash flow statement , EBIT analysis , EPS analysis etc
I have been undertaken following calculation to know the effectiveness of capital structure and
EBIT and EPS analysis.
• Cash flow analysis for the assessment year 2020,2021,2022.

• Earnings Before Interest and Tax analysis for the assessment year 2020,2021,2022.
• Earnings per Share analysis for the assessment year 2020,2021,2022.
• Comparison of Cash flow statement for the assessment year 2020-2021 , 2021-2022.
• Comparison of IBIT analysis for the assessment year 2020-2021 , 2021-2022.
• Comparison of EPS analysis for the assessment year 2020-2021 , 2021-2022.
44
Cash flow statement of Avighna enterprises
(for the year 2021-2022)
Particular AMOUNT AMOUNT

A)Cash flow from Operating activities
Net profit Before Tax 1,023,351
(+) Non operating Expenses

Depreciation 1,985,961
Goodwill --------
Provision For taxation --------
(-)Non Operating Income --------
Operating Profit before Working Capital 1,985,961
Decrease in Sundry creditor (2,567,331)

Increase in secured loan 503
Increase in closing stock (7,70,569)
Increase in sundry Debtors (6,457,130)
(7,808,566)
Net cash Use from the Operating activities
(6,785,215)
(B) Cash flow from investing activities 1,780,448
(C) Cash flow From financing activities

Equity share capital (2,350,000)
Net cash Use from Financing activities (2,350,000)

ADD: Cash &cash equivalent of opening period
13,258,695
Cash and Cash equivalent of ending Period

6,927,279
45
Cash flow at Avighna
Enterprises
Cash flow
1780448
Cash from operating activities Cash from Investing activities Cash from Financing activities
-2350000
-6785215
Interpretation: Cash flow statement of Avighna enterprises is a very attractive toward the
progress of the Avighna enterprises. It has the negative cash flow for the Operating Activities
Rs 6,785,215, it does not generate income for the year (2021-2022) and positive cash flow from
the Investing Activities Rs 7,121,790, which means it has got better return from the investment
source and again Negative cash flow for the Financing activities (2,350,000) . it does not
performed well, Then also it has Positive cash flow statement Rs6,927,279 for the year 2021-
2022 therefore It has enough cash to meet its expenses .
46
Cash flow statement of Avighna Enterprises
(For the assessment year 2020to2021)
Particular AMOUNT AMOUNT

A)Cash flow from Operating activities
Net profit Before Tax 1,125,514
(+) Non operating Expenses

Depreciation 1,789,630
Goodwill --------
Provision For taxation --------
(-)Non Operating Income --------
Operating Profit before Working Capital 1,789,630
Decrease in Sundry creditor 2,482,566

Increase in secured loan 595
Increase in closing stock 500,000
Increase in sundry Debtors (2,769,718)
2,003,073
Net cash Flow from the Operating activities 3,12,8587
(B) Cash Use from investing activities (142,436)
(C) Cash Use From financing activities

Equity share capital (1,682,116)
Net cash flow from Financing activities (1,682,116)
ADD: Cash &cash equivalent of opening period

2,707,071
Cash and Cash equivalent of ending Period 5,626,486
47
Cash flow of Avighna Enterprises
Cash flow of Avighna Enterprises
142,436
0
Cash from Operating Activities Cash From Investing Actitivities Cash From Financing Activities
-1,682,116.00
Interpretation: Cash flow statement of Avighna enterprises is a very attractive toward the
progress of the Avighna enterprises . it has the Positive cash flow from the Operating Activities
of Rs 3,128,587 which means they have reduced the operating expenses and increased the
sundry debtors (Bill Receivable) and Negative cash flow for the Investing Activities of Rs
1,42,436 which means they have incurred loss from investment sources and again Negative
cash flow for the Financing activities of Rs1,682,116 due to reduction in the share capital .
Then also it has positive cash flow of Rs 5,626,486. of therefore its shows that it has enough
cash to meet its expenses
48
Comparison of cash flow statement
( for the assessment year 2021-2022)
Particular 2021 2022 Difference
Cash flow from Operating activities 3,12,8587 (6,785,215) (9,913,802)

Cash flow from Investing activities (142,436) 1,780,448 1,638,012
Cash flow from Financing activities (1,682,116) (2,350,000) (4,032,116)
2021-2022
Cash from Operating acticities Cash from investing activities
Cash from financing activities
-26%
10% -64%
Interpretation: Above chart exhibit comparison cash flow statement for the assessment year
2020-2021 , 2021-2022 . whereas it show cash from operating activities decrease by 64%since
20229 to 2022 because it does not have better earning from the Operating activities, it proved
that there was no income from operating activities due to excess Bills payable. And cash from
investing activities increased by10% since assessment year 2020-2022 due to betterreturn from
investment., it has positive cash from only investment activities then also it has positive overall
good cash flow of Rs . and cash from financing activities decreased by 26%it consider there
is no cash flow from other than investing activities. Then also it has positive cash flow of Rs
12,553,765.
49
EBIT & EPS ANALYSIS :
EBIT analysis as per the assessment year 2020 -2021
Particular Amount
Earnings Before Interest and Tax 1,476,850
LESS : Interest Debenture Nil
Earnings Before Tax 1,476,850
LESS : Tax 516,897
Earning After Tax 959,953

Earning Per Share = Amount available to equity shareholder
Number of Equity shares
959,953
100
9,599 Equity Per Share
EBIT analysis for the assessment year 2020

Interest
0%
Tax
26%
EPS
0%
EBIT
74%
Interpretation: EBIT and EPS analysis of Avighna enterprises for the assessment year 2020
as shown in above pie chart. It ensure that the EBIT is 74% and Tax is 24% . it indicates that
there is no debt, which means don’t have to pay the interest debt . it is 100% equity which leads
to pay more tax to the government , which is more risky . and earning for the equity shareholder
for the assessment year 2020 is 9,599 per equity share.
50
EBIT and EPS analysis
( For the assessment year 2021-2022)
Particular Amount
Earning Before Interest and Tax 2,450,224
Earning Before Tax 2,450,224
LESS : Tax 857,578
Earning After Tax 1,592,646

1,592,646
100
15,926 /- Equity Per Share
51
Interest
0%
tax
26%
Interest
0%
EBIT
74%
Interpretation: EBIT and EPS analysis of Avighna enterprises for the assessment year 2021
as shown in above pie chart. It ensure that the EBIT is 74% and Tax is 24% . it indicates that
there is no debt, which means don’t have to pay the interest debt . it is 100% equity which leads
to pay more tax to the government , which is more risky. and earning for the equity shareholder
for the assessment year 2020 is increase to 15,926 per equity share.
52
EBIT and EPS analysis
(For the assessment year 2022-2022)
Particular Amount
Earning Before Interest and Tax 3,575,738
Earning Before Tax 3,575,738
LESS : Tax 35% 1,251,508
Earning After Tax 2,324,230

2,324,230
100
23,242/- Equity Per Share
3,575,738
1,251,508
0
23,242
EBIT
Interest
Tax
EPS
Interpretation : EBIT and EPS analysis of Avighna enterprises for the assessment year 2022 as
shown in above pie chart. It ensure that the EBIT is 3,575,738 and Tax is 1,251,508. it indicates
that there is no debt, which means don’t have to pay the interest on debt . it is 100%equity
which leads to pay more tax to the government , which is more risky .and earning for the equity
shareholder for the assessment year 2020 is to 23242 per equity share.
53
EBIT , EPS, tax , interest analysis
( for the assessment year 2020, 2021 2022)
EBIT , EPS, tax , interest analysis

EBIT Interest Tax EPS
3,575,738
2,450,224
1,476,850
1,251,508
857,578
516,897
0 9,599 0 15,926 0 23,242
2021 2022 2022
Interpretation : It exhibit overall scenario of IBIT , EPS , Tax And Interest rate since 2020 to
2022, in 2020 EBIT was Rs 1,476,850 , Tax was Rs 516,897 and EPS was 9,599 whereas EBIT
is highest for the period 2020. In 2021 EBIT was increased to Rs 2,450,224 . Tax was increased
to Rs 857,578 and EPS was increased to Rs15,926. Whereas EBIT was the highest amount for
the period 2021. In 2022 EBIT was increased to Rs 2,575,738 even Tax also increased to Rs
1,251,508 and EPS also increased to Rs 23,242. It considered Avighna enterprisehas Increasing
Trend EPS which means Equity shareholder got more return since 2020, 20
54
CHAPTER 8
FINDING AND SUGGESTIONS
FINDINGS
1. Cash flow statement of Avighna enterprises for the year 2020, it was a very attractive
toward the progress of the Avighna enterprises . it has the negative cash flow from the
Operating Activities Rs 6,785,215 which means they have spent more fund on
Operating activities and in other hand it increased in sundry creditors (bill Payable) and
it has positive cash flow from the Investing Activities of Rs 7,121,790 which means
they have earned more return from their different source of investment and again it has
Negative cash flow for the Financing activities Rs 2,350,000 , which means they have
used more fund for escalation of financing activities and decreased in the share capital.
then also it has of Rs 6,927,279 positive cash flow. It was have enough cash flow for
the year 2020.
2. Cash flow statement of Avighna enterprises is a very lucrative for the year 2021. it has
thePositive cash flow from the Operating Activities of Rs 3,128,587 due to more bill
receivable (Increased in sundry debtors) and it has Negative cash flow from the
Investing Activities Rs 1,42,436 ,because they have loss from their investment source
and again it has a Negative cash flow for the Financing activities Rs 1,682, 116. Due to
decreased in the shares capital, then also it has cash flow efficiency for the assessment
year 2021.
3. Comparison of cash flow statement for the assessment year 2020-2021, 2021-2022 .
whereas it exhibit cash from operating activities decrease by 64% since 20229 to 2022,
it proved that there was no income from operating activities. And cash from investing
activities increased by10% since assessment year 2020-2022 .whereas cash flow from
investing activities at the Avighna enterprises manufacture organization . and cash from
financing activities decreased by 24% it consider there is no cash generation other than
investing activities. Then also it has Increment in the cash flow since 2020-2022.
55
4. EBIT and EPS analysis of a company for the assessment year 2020 . It ensure that the
EBIT is 74% and Tax is 24% . it indicates that there is no debt, which means don’t have
to pay the interest on debt . it has 100% equity , which leads to pay more tax to the
government and more risky and then also it has the better earning for the equity
shareholder for the assessment year 2020 was Rs 9,599 per equity share.
5. EBIT and EPS analysis of Avighna enterprises for the assessment year 2021. It ensure
that the EBIT is 74% and Tax is 24% . it indicates that there is no debt, which means
don’t have to pay the interest debt . it has 100% equity which leads to pay more tax to
the government and which has more risky . and then also it has better earning Rs 15,926
earnings Per share for the equity shareholder for the assessment year 2021 .
6. EBIT and EPS analysis of Avighna enterprises for the assessment year 2022. It ensure
that the EBIT is 3,575,738 and Tax is 1,251,508. It indicates that there is no debt, as a
result don’t have to pay the interest on debt . it has 100% equity funds, which leads to
pay more tax to the government and which is more risky .and then also it has better
earnings of Rs 23242 earning per share for the equity shareholder for the assessment
year 2022.
7. Avighna enterprises has adopted 100% equity as a capital structure. It has the enough
capital to meet its day to day working operation. Avighna Enterprises don’t have to pay
the interest on debt.
8. Avighna Enterprises has been paying more tax to the government. even It has Increasing
trend of Earning before interest and tax(EBIT)
9. Avighna Enterprises is well known to catering quality product and services. There is
moreearning to the equity shareholder at Avighna enterprises.
10. Avighna Enterprises shows the upward strength for the EPS analysis The
Administrationof Avighna enterprises is robust and more satisficed
56
SUGGESTIONS
following are the some suggestion that should be undertake by the Avighna
enterprises , to frame the optimal capital Structure
1 Profitability:
The basic objective of financial management of a firm is to maximize shareholders’ wealth.
The management should select such a capital structure that maximizes EPS for a given EBIT.
If operating profits are higher, debt capital can be used in larger proportion, as chances of
default on interest on debt are small.
2 Inclusive Debt in the Capital structure :

Each source of capital has its specific cost. Debt requires interest payments and share capital
holders are paid dividends. The relative advantage incurred in employing different sources in
the project in reducing the overall cost of capital will help in deciding the capital structure of a
firm. The cost of debt is generally lower than the cost of equity.
3. Cash Flow :The operating profit should not only cover the interest payments, it should also
be sufficient to meet routine obligations and expenditures. The irregular cash flow may cause
the requirement of borrowing. Thus, the capital structure should be such that the sufficient cash
flows are available and borrowed funds are not required to meet daily requirements.
4. Capital Market Conditions:

The capital structure of a firm is affected by the prevailing market conditions at the time of
raising the funds. When the securities market bears an optimistic outlook, the issue of equity
shares and preference shares might get a better response from investors. If a pessimistic outlook
is prevailing in securities market, then raising of funds by issuing debentures might get better
response from investors, because of the certainty of the fixed interest rate.
5. Tax Benefits:
The payment of interest on debt reduces the tax liability of firm and increases its after tax
profits. Thus, payment of interest on debt acts as a tax shield for the firm. While, company pays
57
tax on profit before payment of dividend to shareholders and shareholders are not required to
pay tax. Therefore, in framing capital structure, the firm should take into consideration the tax
shields available.
6. Growth Prospects:
The growth prospects of a firm also influence its capital structure. Firms with fair growth
prospects can use debt in larger proportion and can increase additional benefits for
shareholders. Such firms should use debt with lower maturity so that funds can be raised at
lower interest rate. If firms are facing financial problems, the lower debt ratio should be
employed to avoid situation of financial bankruptcy.
7. Floatation and Other Costs:

Floatation and other costs incurred in raising funds from different sources should be considered
while deciding capital structure of a firm. It is better to use retained earnings if the costs in
raising the funds from external sources are high.
8. Marketing and Publicity:
Good Marketing and Publicity is always one of the important factor , And It should be
considered as tool to expand their presence into market . Therefore It is suggestive to
enterprises to have good and productive marketing and publicity campaign.
58
CHAPTER 9
CONCLUSION
In this study, Effectiveness of capital structure and EBIT and EPS analysis is
undertaken at Avighna Enterprises. Along with this study I have been studied different
department of a company. to know the Relevant and irrelevant information of the capital
structure & Development of optimum capital structure for the Avighna enterprises Ltd. It has
the highest efficiency and satisfactory capital structure.
As the primary financial objective is to maximize shareholder wealth, then companies should
seek to minimize their weighted average cost of capital (WACC). In practical terms, this can
be achieved by having some debt in the capital structure but it has 100% equity , since debt is
relatively cheaper than equity, while avoiding the extremes of too little gearing (WACC can be
decreased further) or too much gearing (the company suffers from bankruptcy costs, agency
costs and tax exhaustion). Companies should pursue sensible levels of gearing.
Companies should be aware of the pecking order theory which takes a totally different
approach, and ignores the search for an optimal capital structure. It suggests that when a
company wants to raise finance it does so in the following pecking order: first is retained
earnings, then debt and finally equity as a last res
59
CHAPTER 10
LEARNING EXPERIENCE
It was a good opportunity to do internship in AVIGHNA ENTERPERISES LTD , it

was live experience where there was interaction with the employees, working condition in the
company. It was grateful to the faculty guide who exposed me to industry working, there was
much to learn like how to interact with employee subordinates, how to mange time, how to
analyze data .The project duration about 8 weeks which was very helpful to me to have an
exposure to words Effectiveness capital structure and EBIT and EPS analysis of an
Organization.
60
CHAPTER 11
BIBLOGRAPHY
❖ Annual statement of Avighna Enterprises Narhe Industrial Area
11.1 BOOKS
1. Name : Research Methodology
Author : CR Kothari & Gaurav Garg
Publisher : New Age International
Year of Publishing : 2020
Edition : Fourth Multi Colour Edition
2. Name : Indian Economy

Author : Misra & puri
Publisher : Himalaya Publishing House
Year of Publishing : 2010
Edition : 28th Revised edition
4 . Name : Fundamental of financial management

Author : James C. Van Horne and John M. Wachowicz
Edition : 13th
5 . Name ; Financial management

Author : Shashi k. gupta and R. K Sharma
Publisher : Kalyani
Edition : 7th
61
11.2 WEBSITE
• https://www.fool.com/knowledge-center/what-is-the-ebit-eps-approach-to-capital-
structure.aspx#:~:text=The%20EBIT%2DEPS%20approach%20to%20capital%20stru
cture%20is%20a%20tool,will%20impact%20a%20company's%20earnings.
• https://ccsuniversity.ac.in/bridge-library/pdf/DHA-BHI-404_Unit4.pdf
• https://www.tutorialspoint.com/what-is-ebit-eps-analysism
• https://www.researchgate.net/publication/342902431_A_Theoretical_Framework_on_
EBIT-EPS_Analysis_1
• https://exinfm.com/board/capital_structure_analysis.htm
• https://ccsuniversity.ac.in/bridge-library/pdf/DHA-BHI-404_Unit4.pdf
• https://www.mgkvp.ac.in/Uploads/Contents/14/431.pdf
• https://www.youtube.com/watch?v=7pjbOr5gq3c
• https://www.youtube.com/watch?v=AD_eP8z7tw8
• https://www.youtube.com/watch?v=n93epHWTFYo
62
11.3 JORNAL ARTICLES
• European Journal of Accounting, Auditing and Finance Research , February 2018
CAPITAL STRUCTURE: DEFINITIONS, DETERMINANTS, THEORIES AND
• LINK WITH PERFORMANCE LITERATURE REVIEW , ISSN 2053-4086(Print),
ISSN 2053-4094(Online ) Vol.6, No.2, pp.49-72, www.eajournals.org
• 2.Department of Finance, Rabindra Bhaban, University of Rajshahi, Bangladesh Article

:Received 18 June 2017Received in revised form 25 July 2020Accepted 2 August
2020Available online 28 August 2020
• 3Mahima Bagga Narinder Pal SinghThe, 2020 , Effect of Capital Structure on

Profitability: An Empirical Panel Data Study
• 4 Shaik Abdul Mazeed, P. Sai Rani, R. Raveendranath, P. Divya, Telugu Sudharani

,2020, Effectiveness of Capital Structure on Profitability IT Companies Perspective.
.International Journal of Innovative Technology and Exploring Engineering (IJITEE)
ISSN: 2278-3075, Volume-9 Issue-1, November 2020 726 Published By: Blue Eyes
Intelligence Engineering & Sciences Publication Retrieval Number:
A4204119119/2020©BEIESP DOI: 10.35940/ijitee.A4204.119119
• 5.Capital Structure and Financial Efficiency: Evidence from Ho Chi Minh Stock
Exchange of Vietnam November 2020Asian Economic and Financial
Review 9(11):12551265DOI:10.18488/journal.aefr.2020.911.1255.1265Project: Thei
mpactofcapital structure on business growth: Evidence from Vietnamese listed firms
• .IIMB Management Review , , September 2014 ,A study on determinants of capital

structure in India Volume 26, Issue 3, September 2014, Pages 170-182
• IIMB Management Review , , September 2014 ,A study on determinants of capital

structure in India Volume 26, Issue 3, September 2014, Pages 170-182
63
CHAPTER 12
ANNEXURE:
Name:-
Address:-
Contact no:-
Age:-
1 .Do you know about Avighna Enterprises Products

a) yes
b) No
2. If yes how do you come to know about it?

a) Advertisement
b) Friends/ Relatives
3. Are you satisfied with Avighna Enterprises Products?

a) Highly satisfied
b) Satisfied
c) Unsatisfied
d) Average Satisfied
4. Do you know logo of Avighna Enterprises?

a) yes
b) No
5. How likely are you recommend Avighna Enterprises Products?

To someone else?
a) Always
b) Sometime
c) Never
64
6. What do you like most about Avighna Enterprises Products?
a) Quality
b) Price
c) Service
d) Variety
7. What are more important do you suggest in Avighna Enterprises products?

a) Price should be affordable
b) Delivery should be in time
8. Are you satisfied with existing products of Avighna Enterprises?
a) yes
b) No
9. Any Complaint experienced while purchasing Avighna Enterprises

Products?
a) yes
b) No
c) Sometime
10. What you think about the price of Avighna Enterprises Products?
a) High
b) Moderate
c) Low
11. On what basis do you make orders of Avighna Enterprises Products?

a) Quality
b) Price
12. Do the company send the products delivery in time post order received?
a) yes
b) No
c) Sometime delay
65
13. Do you get any discount on bulk order at Avighna Enterprises Products?
a) Yes
b) No
14. To what extent do you think Avighna Enterprises Products has been
successful to meet customer needs?
a) To the fullest extent
b) More than 80%
c) 50-80%
d) Can’t say
15. Are you a regular customer of Avighna Enterprises?

a) yes
b) No
66

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A

"EFFECTIVENESS OF CAPITAL STRUCTURE

ABHIJIT DADASAHEB JADHAV

SAVITRIBAI PHULE PUNE UNIVERSITY

UNDER THE GUIDANCE OF

Prof. Saee Jedhe.

IN THE PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

SHRI SHIVAJI MARATHA SOCIETY’S INSTITUTE OF MANAGEMENTAND

Full name : Mr. Abhijit D. Jadhav

I Abhijit D. Jadhav MBA Student in Institute of Research & Management

Sr. no Topic Page no

7 Data Analysis And Data Interpretation 45

Table No. Title of the table Page No.

1 Avighna Enterprises Growth Rate 33

3 Cash flow statement of Avighna enterprises 49

Graph No. Title of the graph Page No.

1 Net Income Approach 18

2 Diagrammatic Representation of Traditional 22

3 Modigliani and Miller Approach: Two Propositions 24

5 Product images 39-41

Cash flow statement of Avighna enterprises 50

8 Comparison of cash flow statement 53

9 Ebit & Eps Analysis as per the assessment year 2020 54

10 Ebit & Eps Analysis as per the assessment year 2021 55

AVIGHNAENTERPRISES is listed in Trade India's list of verified sellers offering

A. Need of the study:

B. Importance of the study :

• To know the type capital structure adopted by the manufacturing

➢ Traditional Theory of Capital Structure

Factors affecting the capital structure

Importance of Capital structure

Theories of capital structure

• Net income theory:

• Net operating income theory:

1. Absence of Corporate taxes: According to Modigliani-Miller’s theory, in the

1. Structured literature review of capital structure financial performance

2. A Review of Relevant Literature on Capital Structure and Efficient Market Hypothesis

3. European Journal of Accounting, Auditing and Finance Research Published by European

5. Literature Review on Capital Structure and Firm Performance

INTRODUCTION TO CAPITAL STRUCTURE THEORIES

NET INCOME APPROACH EXPLAINED

Required Rate of Return x Amount of Equity + Cost of debt x Amount of

Total Amount of Capital (Debt + Equity)

ASSUMPTIONS OF NET INCOME APPROACH

Bonds (Debt part) = 300,000

Cost of Bonds issued (Debt) = 10%

Cost of Equity = 14%

Calculating the value of a company

Less: Interest cost (10% of 300,000) = 30,000

Earnings (since tax is assumed to be absent) = 70,000

Shareholders’ Earnings = 70,000

Market value of Equity (70,000/14%) = 500,000

Market value of Debt = 300,000

Total Market value = 800,000

Overall cost of capital = EBIT/(Total value of the firm)

Example Explaining Traditional Approach:

Particulars Case 1 Case 2 Case 3 Case 4 Case 5