INTRODUCTION

Finance is THE LIFE BLOOD OF ANY BUSINESS ACTIVITY. Finance

function has become so important that it has given birth to financial management as a
separate subject. So, this subject is acquiring universal applicability. Financial Management
is that managerial activity which is concerned with the planning and controlling and of the
firms financial resources. As a separate activity or discipline is of recent origin it was a
branch of economics till 1890.Still today of knowledge of its own and it draws heavily on
economy for its theoretical concepts.

The subject of Financial Management is of immense interest to both academicians

and practicing managers. It is of great interest to academicians because the subject is still
developing and there are there are still certain areas where controversies exist for which no
unanimous solutions have been reached as yet. Practicing Managers are interested in this
subject because among the most crucial decisions of the firm are those which relate to finance
and an understanding of the theory of financial management provides them with conceptual
and analytical insights.

SCOPE OF FINANCIAL MANAGEMENT

Firms create manufacturing capacities for production for goods; some provide
services to customers. They sell their goods or services to earn profits. They raise funds to
acquired manufacturing and other facilities. Thus, the three most important activities of a
business firm are:

1. Production
2. Marketing
3. Finance

A firm secures whatever capital it needs and employees it (finance activity) in

activities that generate returns on invested capital (production and marketing activities). A
business firm thus is an entity that engages in activities to perform the functions of finance,
production and marketing. The raising of capital funds and using them for generating returns
to the supplies of funds is called the finance function of the firm.

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FUNCTION OF FINANCIAL MANAGEMENT

Functions are broadly classified into three groups. Those relating to resource allocation,
those covering the financing of these investments and these determining how much cash are
taken out and how much reinvested.

1) Investment decision

2) Financing decision

3) Dividend decision

Investment decision

Firms have scarce resources that must be allocated among competitive uses. The
financial management provides a frame work for firms to take these decisions wisely. The
investment decisions include not only those that create revenues and profits (e.g. introducing
a new product line) but also those that save money.

So, the investment decisions are the decisions relating to assets composition of the
firm. Assets can be classified into fixed assets and current assets, and the4refore the
investment decisions can also be bifurcated into Capital Budgeting decisions and the
Working Capital Management.

The Capital Budgeting decisions are more crucial for any firm. A finance manager
may be asked to decide about.

a) Which asset should be purchased out of different alternative options? To buy an asset
or to get it on lease.

b) To produce a part of the final product or to procured it from some other supplier.

c) To by or not another firm as a running concern.

d) Proposal of merger of other group firms to avail the synergies of consolidation.

Working Capital management, on the other hand, deals with the Management of current
assets off the firm. Though the current assets do not contribute directly to the earnings, yet
their existence is necessitated for the proper, efficient and optimum utilization of fixed assets.

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There are dangers of both the excessive working capital as well as the shortage of working
capital. A finance manager has to ensure sufficient and adequate working capital to the firm.

Financing Decisions

As firms make decisions concerning where to invest these resources, they have also to
decide two they should raise resources. There are two main sources of finance for nay firm,
the shareholders funds and the borrowed funds. The borrowed funds are always repayable
and require payment of a committed cost in the form of interest on a periodic basis. The
borrowed funds are relatively cheaper but always entail risk.

The risk is known as the financial risk i.e., the risk of insolvency due to non-payment
of interest or non-repayment of capital amount. The shareholders fund is the main source of
funds to any firm. This may comprise of the equity share capital, preference share capital and
the accumulated profits.

Firms usually adopt a policy of employing both the borrowed funds as well as the
shareholders funds to finance their activities. The employment of these sources in
combination is also known as financial management.

Dividend Decisions

Another major area of the decision marking by a finance manager is known as the
Dividend decisions which deal with the appropriation of after tax profits. These profits are
available to be distributing among the shareholders or can be retained by the firm for
reinvestment within the firm.

The profits which are not distributed are impliedly retained in the firm. A firms
whether small or big, have to decide how much of the profits should be reinvested back in the
business and how much should be taken out in form of dividends i.e., return on capital. On
one hand, paying out more to the owners may help satisfying their expectations; on the other
hand, doing so has other implications as a business that reinvests less will tend to grow
slower.

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 IMPORTANCE OF THE STUDY
Capital investments, representing the growing edge of a business, are deemed to be
very important THREE inter related factors.

The influence firm growth in the long term consequences capital investment
decisions have considerable impact on what the firm can do in future.

They affect the risk of the firm; it is difficult to reverse capital investment
decisions because the market for used capital investment in ill organized or most of the
capital equipments bought by a firm to meet its specific requirements.

Capital investment decisions involve substantial outlays.

JOCIL LIMITED, capital structure is more or less a continuous process and it is

carried out by different functional areas of management such as production, marketing,
financial management etc., all the relevant functional departments play a crucial role in the
capital structure decision process.

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 SCOPE OF THE STUDY
The study of capital structure in JOCIL Limited includes analyzing the investment decision of
the firm. As substantial amounts are tied up in such decision, it needs careful analysis and proper
management in order to minimize the manufacturing costs and maximize its profits. As the
information available is limited and the subject is vast the study is combined to overall capital
structure techniques followed at the firm.

As firms make decisions concerning where to invest these resources, they have also to
decide two they should raise resources. There are two main sources of finance for nay firm,
the shareholders funds and the borrowed funds. The borrowed funds are always repayable
and require payment of a committed cost in the form of interest on a periodic basis. The
borrowed funds are relatively cheaper but always entail risk.

The risk is known as the financial risk i.e., the risk of insolvency due to non-payment of
interest or non-repayment of capital amount. The shareholders fund is the main source of
funds to any firm. This may comprise of the equity share capital, preference share capital and
the accumulated profits.

Firms usually adopt a policy of employing both the borrowed funds as well as the
shareholders funds to finance their activities. The employment of these sources in
combination is also known as financial management.

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 NEED FOR THE STUDY
A project is an activity sufficiently self-contained to permit financial and
commercial analysis. In most cases projects represent expenditure of capital funds by pre-
existing which want to expand or improve their operation.

In general a project is an activity in which, we will spend money in expansion of

returns in which logically seems to lead itself planning. Capitals structure for investment
decisions are of considerable importance to the firm since they tend to determine its value by
influencing its growth, evaluation of capital structure decisions.

A capital structure decisions may be defined as the firms decision to invest is

current funds most effectively & efficiently in the long term assets in anticipation of an
expected flow of benefits over a series of years. The firms investment decisions would
generally includes expansion, acquisition modernization and replacement of long term assets.
Sale of a division or business is also an investment decision. Decision like the change in the
methods of sales distribution or an advertisement campaign or research and development
program have longterm implications for the firms expenditure and benefits, and therefore
they should also be evaluated as investment decisions.

The rationale underlying the capital structure decisions efficiency. Thus, a firm
must replace worn and obsolete plant and machinery, acquire fixed assets for current and new
products and make strategic investment decisions. The quality of these decisions is improved
by capital structure. Capital structure decision can be of two types:

1) To those which expand revenues, and

2) To those which reduce costs.

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 OBJECTIVES OF THE STUDY

To study the industry profile in general and Jocil limited profile in particular

To present theoretical framework relating to capital structure

To determine the operation and financial leverage of Jocil limited.

To measure the long term stability and structure of the firm to use the capital structure

To understand the relation between capital structures, cost of capital value of the firm
using net income approach, net operating income approach.
To summaries and offer suggestions for the better investment proposals in Jocil limited.

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 RESEARCH METHODOLOGY
Research Methodology is a systematic process of collecting
information in order to analyze and verifies a phenomenon. The collection of data is two
principle sources. They are discussed as

Primary data

Secondary data

PRIMARY DATA

The primary data needed for the study is gathered through interview with
concerned officers and staff, either individually or collectively, sum of the information has
been verified or supplemented with personal observation conducting personal interviews with
concerned officers of finance department of JOCIL LIMITED

SECONDARY DATA

The secondary data needed for the study was collected from published
sources such as, pamphlets of annual reports, returns and internal records, reference from text
books and journal management.

Further data needed for the study was collected from:-

Collection of required data from annual records of the company.

Reference from text books and journals relating to financial management.

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Diagrammatic Representation of Research Methodology

DATA
SOURCES

Primary Secondary
Sources sources

Management Respondents Inside The Out Side the

Company Company

Annual Text books

Personal
Reports Journals
Observance

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 LIMITATIONS OF THE STUDY
The following the limitations of the study:

The project has to be completed with the available data given to us.
The period of study that is 6 weeks is not enough to conduct study of the project
The study is carried based on the information and documents provided by the
organization
There was no scope of gathering current information, as the auditing has not been
done by time of project work.
The procedure has to be completed with the available data with us.
The collected information is mainly through secondary data.

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 INDUSTRY PROFILE
Introduction:
After expanding at a snails pace, the market for personal wash products
appears to have come to grinding halt in 2001. After posting modest single digit
growth in 1997-2000 figures for the first seven months suggest that market for
detergent soaps has actually shrunk.
Estimates about the extent of declines in market size vary, Hindustan liver, which
straddles. The category with 60% market share by value, say the market shrunk by
4.5% in value terms in the first half of 2001.
The Indian Soap and Detergent Manufactures Association, puts the decline at 1%.
Other industry sources suggest that the extent of De-growth in the first eight months
of 2005 could be as high as 7%.
DEVELOPMENT OF THE DETERGENT INDUSTRY;
Although the start of the synthetic detergent industry is not shrouded in the veils of
history as were the beginnings of the soap industry, it is nevertheless not easy to
pinpoint exactly when the detergent industry, as such, came into being. The
primary problem is to decide exactly what is being referred to as a synthetic
detergent. The term itself leads to confusion. In INDIA the words surfactant or
syndet are being used, whilst in Europe the term 'tenside' (for tensio-active
material) is coming into fashion.
But if the shrinking market size suggest that Indian consumers are actually been
cutting back on their use of detergent soaps, this is not really the case. In volume
terms, the market for detergent soaps has continued to show a growth of 10% in
the first eight months of 2005
The major players have certainly managed to sell more detergent soaps by volume
but price competition in the segment and slew of promotional campaigns have
reduced the effective realization per unit sold. This has probably neutralized the
gains from volume expansion.

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THE HISTORY OF SOAP
A soap-like material found in clay cylinders during the excavation of ancient Babylon
is evidence that soap making was known as early as 2800 B.C
The History of Soap making
B. J. Johnson Company was making soap entirely of vegetable oils, palm and olive.
The soap they produced became so popular; they renamed their company after the
soap Palmolive.
Detergent Chemistry History
Although the start of the synthetic detergent industry is not shrouded in the veils of
history as were the beginnings of the soap industry, it is nevertheless not easy to
pinpoint exactly when the first were invented.
Formula 409
Formula 409 all-purpose cleaner was invented in 1957.
The History of Soap Making and Innovation
The first soap manufacturing plant was Marseilles. Its soil was
perfect for the cultivation of olive trees and the factory produced vegetable
sodas. However, in time the industry grew so large that it was necessary to
import oil and vegetable sodas from Spain and Italy. By the eighth century, it is
documented that there were soap factories in Italy and Spain. It was not until
the twelfth or thirteenth century that this industry was embraced by France.
France then passed on the tradition to England. The French made their soaps
almost exclusively from olive oil, while the English delved into many different
kinds of soap. Eventually the French added palm and cocoa oils and expanded
their product base.
The History of Soap Making
Anyone who has seen Fight Club knows that Tyler Darden said that soap
was the yardstick of civilization. Now whether that was an actual quote from someone
of historical importance or not, it is difficult to deny the influence soap has had on
human civilization

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 When studying the history of soap, many theories emerge. Some claim that
soap was first used in prehistoric times while others claim that the Gauls
created it. There is even the possibility that soap may not have been used as a
means to clean at first. In fact, it may instead have been used as an antiseptic
to heal wounds.

Today, soap is made from of fats and an alkali. In the past however,
people made their own soap from animal fats and wood ashes. Regardless of
who first created the concoction, it was undoubtedly used in Rome. This is an
established fact because a soap makers shop was discovered within the rubble
of Pompeii after the eruption of Mount Vesuvius. The Romans often used soap
as a cosmetic. It was quite popular with the ladies, for they used it to dye their
hair red. Plant extracts were probably used to acquire this colour.

SOAPS DETERGENTS
The soap and detergent industry covers laundry and toilet soaps and
synthetic detergents in the form of liquids, powders and bars. These are consumer
products and their quality, price, marketing and distribution network determines the
success of the units in the sector. The industry has developed both in the small scale
sector and organized sector. The manufacture of detergents and toilet soaps has been
deli censed. The Indian personal care market is estimated to be worth US$ 4 Billion
(approx. Rs. 20,000 corer) this includes Bath and Shower products, Hair Care, Skin
Care, Cosmetics, Fragrances and Deodorants. Bar Soaps also has grown at a growth
rate of 5% per annul over the last 5 years and stands at market size of US$ 1.5 billion
(approx Rs. 7500 corers).The overall Indian personal care market has the potential to
grow at 15-16% per annum and thereby double to US$ 8 billion (approx 40,000
corers) by 2012.

ENVIRONMENT EFFECT ON SOAP INDUSTRY

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Environmental Implications of Detergents
The manufacturing of detergent powders has some specific environmental issues, which are
not associated with other industries. These critical environmental issues of detergent
manufacturing, include -

Dust control
Volatile organic emissions

Dust present during production and transfer of the bulk powdered detergent (and
powdered raw materials) can be a serious problem. Dry and wet cyclones are used to separate
out most of the dust and all the emissions are carefully monitored. If the level of dust exceeds
the acceptable limits, suitable remedial action should be taken. Dust levels in emissions
should be kept below 50 mg m-3.

Eco Friendly Soaps and Detergents

Many soap and detergents manufacturers now make environmental friendly products, thanks
to the rising awareness of the general population as well as safety norms introduced by
governments of many countries. Apart from natural soaps, there are biodegradable soaps and
detergents that can be called eco friendly cleaning products.
The sodium laurel ether sulphates that are used in liquid detergents, soaps and shampoos are
highly biodegradable as they made from either natural or synthetic linear C12 - C15 alcohols.

Eco-Friendly Household Cleaning Products

Eco-friendly soaps and detergents are ones that make lesser use of chemical ingredients. The
non-addition of additives, like perfumes, color and brightening agents decreases the toxicity
of detergents. Minimal packaging also helps in reducing the harm to environment. Non-
petroleum surfactants or vegetable oil soaps can be used to replace synthetic surfactants;
Sodium citrate and sodium bicarbonate can be used to replace builders like phosphates; and
the use of dyes and fragrances can be reduced or eliminated. The use of detergents can never
be a completely non-polluting activity. The consumers need to understand that the small
detergent products can also be the least polluting ones and must press for the implementation
of labeling standards and regulations so that they can avail of environmentally friendly
cleaning products. The use of detergents free from non-essential additives like perfumes,

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color and brightening agents in minimal packaging will go a long way in assuring healthier
and cleaner environment.

Environmental/Health Sustainability
The Soap and Detergent manufacturers can contribute to the enhancement of human health
and quality of life by adopting responsible formulations and through the production and sale
of environment friendly cleaning products & ingredients. Some initiatives, which soap and
detergent manufacturers can take for environment / health sustainability, are -
To only market products, which have proved to be safe for humans and the
environment
While production, the manufacturers should carefully consider the potential health
and environmental effects, exposures and releases, which will be associated with the
production, transportation, use and disposal of different cleaning products
To encourage and promote transparent communication of safety and handling
information
To facilitate basic research to resolve uncertainties around human and environmental
safety when they arise

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INDIAN COMPETITIVENESS AND COMPARISON WITH THE WORLD
MARKETS
The following factors make India a competitive player in FMCG sector:
Availability of raw materials:-
Because of the diverse agro-climatic conditions in India, there is a large raw material
base suitable for food processing industries. India is the largest producer of livestock, milk,
sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and
fruits &vegetables

India also produces caustic soda and soda ash, which are required for the production of soaps

Main Competitors

Traditional soap producers

Soap is a common and familiar the commodity of necessity to every company.
Traditional soaps employ pleasant scents and dyes to encourage hand washing
compliance. However there is no way to verify if hand washing has occurred
and traditional soaps do little beyond the pleasant scents to encourage hand washing.

The largest current soap producer, Dial Corp, consistently achieves strong sales, and
has enjoyed strong market share in the commercial markets. Producing a wide variety
of soap products, Dial has maintained 18% in market share over the last decade. The

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other largest commercial soap providers include Kimberly Clark, Gojo, SoftSoap,
Provon and NXT.

1. Jocil limited
2. HLL (Surf)

3. Nirma (Nirma Super, Nima)

4. Henkel (Henko)

5. Proctor & Gamble (Ariel, Gain, Tide)

6. Godrej soap
7. Aura Oil Industries
8. Hyderabad Chemicals
9. Jain Soap and Detergent

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 MAJOR PROBLEMS IN SOAP INDUSTRY
Soap wont trace
Cause; insufficient lye, excesses of water wrong temperature not stirred enough or too
slow.
A high percentage of unsaturated fats in the base oils also cause slow tracing.
Solution; Double check water oil and lye measurements, if amounts and temperatures are
correct continue stirring up to 3 hours or until the solution traces. If possible switch to a stick
blender which will substantially speed pup tracing. Remember that you dont have to stir
constantly for the full 3 hours. stir 5 minutes and then wait 15 and repeat. after 3hours stirring
or 30 minutes blending, If it shows no signs of thickening, pour into molds regardless of trace
and let sit for 24 hours. If the mixture still does not harden, discard it.
Mixture curdles while stirring;
Cause; oil and or lye poured into mixing bowl at too high temperature. Sporadic or slow
stirring.
Solution; Switch to a stick blender and smooth out then pour into molds.
you can also bars. If there are irregularities discard the bars.
Mixture sets up too quickly in pan;
Cause; oil and lye water temperatures too high or low. Fats and oils are reacting to a
synthetic fragrance or other addititve.the percentage of saturated fats was excessive.
Solution; pour mix of the into the molds as quickly as possible. Smooth out with a spatula.
Air bubbles in soap in some cases
Cause; Stirred too long or whipped while stirring.
Solution; Using a stick blender can cause this. It is not really a problem. Only aesthetic in
some cases.
Various aesthetic problem, crackers warped soap, mottled look unwanted colors,etc..
Cause; Various Causes temperature changes bad molds poor recipe etc..
Solution; These bars should still be good as soap.rebatching is a good option for these
bars.

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GOVERNMENT POLICIES OF INDUSTRY

Fast moving consumer goods (FMCG) is the fourth largest sector in the Indian
economy The overall FMCG market is expected to increase at a compound annual
growth rate (CAGR) of 14.7 per cent to touch US$ 110.4 billion during 2012-2020,
with the rural FMCG market anticipated to increase at a CAGR of 17.7 per cent to
reach US$ 100 billion during 2012-2025.

The FMCG sector has grown at an annual average of about 11 per cent over the
last decade. Food products is the leading segment, accounting for 43 per cent of the
overall market. Personal care (22 per cent) and fabric care (12 per cent) come next in
terms of market share. Growing awareness, easier access, and changing lifestyles
have been the key growth drivers for the sector.

The Government of India's policies and regulatory frameworks such as relaxation

of license rules and approval of 51 per cent foreign direct investment (FDI) in multi-
brand and 100 per cent in single-brand retail are some of the major growth drivers in
this sector. The government has also amended the Sugarcane Control Order, 1966,
and replaced the Statutory Minimum Price (SMP) of sugarcane with Fair and
Remunerative Price (FRP) and the State Advised Price (SAP).

There is a lot of scope for growth in the FMCG sector from rural markets with
consumption expected to grow in these areas as penetration of brands increases. Also,
with rising per capita income, which is projected to expand at a CAGR of 7.4 per cent
over the period 2013-19, the FMCG sector is anticipated to witness some major
growth.

Page 19
SUGGESTIONS
There should be more and more emphasis given by the company for
satisfying the customer up to a apex limit and by providing the utility of
every penny of his money.
There should be more use of information technology.
The company should be flexible to bend its rules and procedures in the
clients favour.
The company can communicate and develop stronger customer bonding
by providing social and financial benefits.

Page 20
 COMPANY PROFILE

The company was incorporated on 20th February, 1978 as per the

certificate of Incorporation No.2260 granted by the Registrar of companies,
A.P., Hyderabad under the name and style of ANDHRA PRADESH OIL AND
CHEMICAL INDUSTRIES LIMITED (APOCIL). The unit was promoted as
public limited company in joint venture by the Andhra Pradesh Industrial
Development Corporation Limited, Hyderabad (APIDC) and Jaya Lakshmi
Cotton and Oil Products Private Limited; (JCOP) a company belongs to Jaya
Lakshmi Group.
During the year 1982, the share stock of APIDC in the company has
been reduced consequently the name of the company has changed to
JAYALAKSHMI OIL AND CHEMICAL INDUSTRIES LIMITED (JOCIL)
on 12th April, 1982 as per the Fresh certificate of Incorporation granted by the
Registrar of companies. Again during the year 1988, the major share holding of
the company has been acquired by the Andhra Sugars Limited, Tanuku and the
company has become a subsidiary unit of the Andhra Sugars Limited effective
from 27th October, 1988. Later on to avail the benefit of the well noted brand
name JOCIL Limited effectively from 17th September, 1992 as per the Fresh
certificate of Incorporation granted by the Registrar of companies, A.P.
Hyderabad.
As such the present name of the company is
Location of the Company:-
The company is located at Dokiparru in Medikonduru Mandalam of Guntur
district in the state of Andhra Pradesh. The area was declared as backward one by the
Govt. of A.P. It was located in 33 Acres. Now the companys geographical area is
extended up to about 100 acres. It is well connected by both rail transportation. It is
only 45 km from Vijayawada, which is industrially located.

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Vision & mission
Vision:
The main vision of the company is to manufacture fatty acids and Toilet
soaps.
Consumer Safety
Mission:
Jocil Mission is to move up the levels of uncompromised customer care
and to be a valued supplier of high quality products and services.
Safety, Health and Environment

Company's Philosophy :

To be a Successful Profit Making Organization.

To Conduct its Operations with Honesty, Integrity and

Transparency.

To be the Market Leader in its Field of Operations

through Continual Improvement in
Efficiency and Quality of Products & Services.

To have Concern for Employees, Shareholders,

Customers and Business Associates alike.

To Serve Society through Industry.

To care for the Environment and the World in which we

live.

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PROMOTER OF THE COMPANY

CHAIRMAN & CEO

P. Narendranath Chowdary
Chairman

Mr. J. Murali Moha

CEO & Managing Director

Page 23
ORGANIZATIONAL CHART
Chairman
P. Narendranath Chowdary
Chairman

Managing Director
J. Murali Mohan

Directors
Mullapudi Thimmaraja
Y. Narayana Chowdary
V. S. Raju
K. Srinivasa Rao
M. Gopala Krishna
Subbarao V. Tipirneni

President & Secretary

P . Kesavulu Reddy

Page 24
BOARD OF DIRECTORS:

Name Designation

J. Murali Mohan CEO &Managing Director

K. Srinivasa Rao Director

M. Gopalakrishna Director

Mullapudi Thimmaraja Director

P Kesavulu Reddy President, Co. Secretary & Compl. Officer

P Kesavulu Reddy Secretary

P Narendranath Chowdary Director

P Narendranath Chowdary Director

Subbarao V Tipirneni Director

V S Raju Director

Y Narayanarao Chowdary Director

Page 25
PRODUCTS OF THE COMPANY

Raw Materials and Products:-

Rice Bran Oil
Rice Bran Acid Oil

Crude Palm Oil

Palm Fatty Acid Distillate

Palm Kemel Oil

Coconut Oil

Hydrogenated Rice Bran Oil

Neem Oil

Products:-

Fatty Acids

Stearic Acid

Distilled Rice Bran Fatty Acid

Hydrogenated rice bran fatty acids

Oleic Acid

Toilet soap Noodles

Toilet Soaps

Refined Glycerin

Rice Bran Oil pitch

Industrial Oxygen

Application of products:-
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Satiric Acid Rubber products like tires, tubes, thread, rubber and other rubber
mouldings, PVC Rigid Pipes, Cement Paints, Cosmetics, Pharmaceuticals, Syrups,
Metallic Strearate.

Oleic Acid Core Oils, Lubricants, Fertilizers.

Refined Glycerin Cosmetics, Paint industries, Tobacco humidification, tooth

pastes.
Rice Bran Oil pitch Low quality detergents, soaps, metal, buffing bars
Industrial Oxygen Gas cutting, oxyacetylene flame, for welding purpose.
Soaps Toilet soaps
Plants in Industry:-

Fat splitting plant

Fatty Acid Distillation

Fatty Acid Hydrogenation plant

Electrolyser

Cell Room

Oxygen Plant

Faker section

Sweet water Treatment plant

Sweet water Evaporation

Glycerin Distillation

D.M. water plant

Degumming plant

Soap plant

Page 27
 Power plant

Page 28
Future Prospects:-

70 percent to 80 percent of the installed capacity of fatty Acids is fully

utilized in our country and there is scope for 100% usage of the installed capacity.

A major reason behind this rate of consumption of Fatty Acid in India,

compared to developed countries is that they have not yet achieved that level of
sophistication in demand to utilize the versatile fatty Acid derivatives. However,
India is fast developing country and auxiliary chemical industries are growing fast,
where application of fatty acid derivatives are very much a necessity.

Prospects of fatty acids are found to be bright due to following additional

reasons. In fatty acids are directly consumed for soap manufacturing it helps not only
to produce fine quality soaps, but also gives the advantage of recovery of a glycerin,
which is valuable chemical and is otherwise wasted uselessly.

Separation and purification of fat and oils is an important aspect of this fatty
acid industry and modern development in these lines have expanded the field of
application of fatty acid to industries like plastics, fibers, surfactants, etc. The
development in the field of non-edible oils and their increasing availability put
pressure on the fatty acid industry for development.

Types of Fatty Acids: - Fatty Acids are two types

1. Saturated:
Ex: Lauric Acid
Mysteric Acid
Palmitic Acid
Stearic Acid

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2. Unsaturated:
Ex: Oleic Acid

Linoleic Acid

This classification is done on the basis of the molecular composition.

Raw materials that constitute fatty acids include the following:
1. Animal fats:
a) Tallow
b) Hard
c) Inedible Greas
But usage of animal fats is banned in India.

2. Vegetable Oils:
Neem oil
Palm oil
Castor oil
Coconut oil
Rice Bran oil
Mostly in use in countries likes Japan, Burma and Thailand.

Page 30
 PROCESS ARRANGEMENT

Sequential arrangement of different process equipments.

CFA

Batcher Tank

Feed Tank

Autoclave

Catalyst mixer

Discharge Vessel

Fatty Acid cooler

Candle Filter

Filtered HCFA to storage

Page 31
 FATTY ACID / STEARIC ACID MANUFACTURING:-
Raw material

Pre purification of Oils & Fats

Sweet Water Splitting

Crude Fatty Acid

Hydrogenation

FA Distillation

Residue

Flaking

Stearic Acid with various Grades

Page 32
 REFINED GLYCERINE MANUFACTURING

Raw material

Pre purification of Oils & Fats

Crude Fatty Acid Splitting

Sweet water

Chemical Treatment
(To remove impurities)

Evaporation
(To remove water)

Crude Glycerin

Glycerin Distillation

Refined Glycerin

Source: JOCIL production department.

Page 33
MAKING OF SOAP NOODLES / SOAP

Fatty Acid from Distillation

Saponification (Soap boiling)

Reaction with caustic soda

Neat soap

Spray drying
(To reduce moisture to desired level)

Soap Noodles

Amalgamation
(Adding up of color, perfume)

Milling (homogenate)

Extrusion (talking out soap bars)

Soap bar cutting, Stamping, packing

Finished Soap

Page 34
COMPETITORS OF THE COMPANY

GLINT COSMETICS PRIVATE LIMITED

PITAMBARI PRODUCTS PVT. LTD.

JAY IMPEX

PROVEDA HERBAL PVT. LTD.

OLIVIA IMPEX PRIVATE LIMITED

HIMANI DETERGENTS

BHARATHI SOAP WORKS

Page 35
POLICIES

Investment Policies :-
The company has setup Rs.3.3. Crore fatty acid and soap project and
turnkey basis through M/S Ball Stra (India) Ltd, Bombay with technology and
equipment of G.M.B., Italy.

Objective of Jocil Limited:-

The main objectives of the company are to manufacture fatty acids and Toilet
soaps. The company received letter of Intent from Department of Industrial
Development, Ministry of Industries, Govt. of India, and New Delhi. Enhancing the
annual licensed capacity of Fatty acids, Glycerin and toilet soap. The company has
implemented this letter by increasing installation capacity of Fatty Acids plant from
6205 M.T. per annum to 15510 M.T. with effect from February. 1991, this enhanced
capacity came into operation.

Industrial Licensing:-

As the value of fixed assets envisaged in the project is less than Rs.3.3.
Crores the industrial license is not required for setting of this project. The company
has been registered with Directorate General of Technological Development
(DGTD), Government of India, New Delhi bearing No.DGTD/HQ/D-S-S/R-4733/C-
26(N)SE/79 with their letter No. soap dated 21-5-1979 and soap 12(37)79 dated 31-
3-1990 for the manufacture of

1. Processed Fatty Acids/Industrial Fatty Acids 9000

2. Glycerin

Page 36
3. Toilet Soaps

Share Holders Pattern:-

31-3-2015

Promoters 55.02%

(The Andhra Sugars Ltd, Holding

Public 30.63%

Institution (ICICI & ISEC) 14.35%

Face Value of Share Rs.10/- each

Page 37
Mile-stones and achievements:

The company received letter of intent from department of industrial

development, Ministry of industries, Govt. of India, Delhi. Enhancing the
annual licensed capacity of fatty acids, Glycerin and toilet soap.

1. Jocil is a leading manufacturer of all kinds of Fatty Acids. This also

manufactures soaps.

2. Jocil supplies different grades of Stearic Acid and other fatty acids to

other manufacturing companies of pharmaceuticals, chemicals, plastic

etc.

3. Jocil supplies Fatty Acids to meet their specific requirement of Stearic

Acid, Oleic Acid etc.

4. Jocil manufactures soaps on contract basis to HLL.

5. Jocil supplies soap noodles of Margo brand to M/s Calcutta Chemicals

Company.

The company has implemented this letter by increasing installation capacity of fatty
acids plant from 6,205 M.T. per annum to 15,510 M.T. with effect from February,
2015

Page 38
 SWOT ANALYSIS

Strengths:

Well-established distribution network extending to rural areas.

Strong brands in the FMCG sector.
Low cost operations

Weaknesses:

Low export levels.

Small scale sector reservations limit ability to invest in technology and
achieve economies of scale.
Several "me-too products.

Opportunities:

Large domestic market.

Export potential
Increasing income levels will result in faster revenue growth.

Threats :

Imports
Tax and regulatory structure
Slowdown in rural demand

Page 39
 THEORETICAL FRAME WORK

The assets of a company can be financed either by increasing the owners claim or the
creditors claim. The owners claims increase when the form raises funds by issuing ordinary
shares or by retaining the earnings, the creditors claims increase by borrowing .The various
means of financing represents the financial structure of an enterprise .The financial
structure of an enterprise is shown by the left hand side (liabilities plus equity) of the balance
sheet. Traditionally, short-term borrowings are excluded from the list of methods of financing
the firms capital expenditure, and therefore, the long term claims are said to form the capital
structure of the enterprise .The capital structure is used to represent the proportionate
relationship between debt and equity .Equity includes paid-up share capital, share premium
and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It

influences the shareholders returns and risk consequently; the market value of share may be
affected by the capital structure decision. The company will have to plan its capital structure
initially at the time of its promotion.

FACTORS AFFECTING THE CAPITAL STRUCTURE:

LEVERAGE: The use of fixed charges of funds such as preference shares, debentures and
term-loans along with equity capital structure is described as financial leverage or trading
on.Equity. The term trading on equity is used because for raising debt.

DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term loans insists that
companies should generally have a debt equity ratio of 2:1 for medium and large scale
industries and 3:1 indicates that for every unit of equity the company has, it can raise 2 units
of debt. The debt-equity ratio indicates the relative proportions of capital contribution by
creditors and shareholders.

EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to

understand how sensitive is EPS (earnings per share) to change in EBIT (earnings before
interest and taxes) under different financing alternatives.

The other factors that should be considered whenever a capital structure decision is
taken are

Page 40
 Cost of capital
Cash flow projections of the company
Size of the company
Dilution of control
Floatation costs
FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:

An optimal capital structure should have the following features,

1. PROFITABILITY: - The Company should make maximum use of leverages at a

minimum cost.

2. FLEXIBILITY: - The capital structure should be flexible to be able to meet the changing
conditions .The company should be able to raise funds whenever the need arises and costly to
continue with particular sources.

3. CONTROL: - The capital structure should involve minimum dilution of control of the
company.

4. SOLVENCY: - The use of excessive debt threatens the solvency of the company. In a high
interest rate environment, Indian companies are beginning to realize the advantage of low
debt.

CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth, the

key issue is: what is the relationship between capital structure and firm value? Alternatively,
what is the relationship between capital structure and cost of capital? Remember that
valuation and cost of capital are inversely related. Given a certain level of earnings, the value
of the firm is maximized when the cost of capital is minimized and vice versa.

There are different views on how capital structure influences value. Some argue that
there is no relationship what so ever between capital structure and firm value; other believe
that financial leverage (i.e., the use of debt capital) has a positive effect on firm value up to a
point and negative effect thereafter; still others contend that, other things being equal, greater
the leverage, greater the value of the firm.

Page 41
CAPITAL STRUCTURE AND PLANNING:
Capital structure refers to the mix of long-term sources of funds. Such as debentures,
long-term debt, preference share capital including reserves and surplus (i.e., retained
earnings) The board of directors or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which are most factors to the company. This can be
done only when all those factors which are relevant to the companys capital structure
decision are properly analyzed and balanced. The capital structure should be planned
generally keeping in view the interests of the equity shareholders, being the owners of the
company and the providers of risk capital (equity) would be concerned about the ways of
financing a companys operations. However, the interests of other groups, such as employees,
customers, creditors, society and government, should also be given reasonable consideration.

When the company lays down its objective in terms of the shareholders wealth
maximization (SWM), it is generally compatible with the interests of other groups. Thus
while developing an appropriate capital structure for its company, the financial manager
should inter alia aim at maximizing the long-term market price per share. Theoretically, there
may be a precise point or range within an industry there may be a range of an appropriate
capital structure with in which there would not be great differences in the market value per
share.

One way to get an idea of this range is to observe the capital structure patterns of
companies vis--vis their market prices of shares. It may be found empirically that there are
not significant differences in the share values within a given range. The management of a
company may fix its capital structure near the top of this range in order to make maximum
use of favorable leverage, subject to other requirements such as flexibility, solvency, control
and norms set by the financial institutions, the security exchange Board of India (SEBI) and
stock exchanges.

FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE: -

The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the company. This
can be done only when all those factors, which are relevant to the companys capital structure
decision, are properly analyzed and balanced. The capital structure should be planned

Page 42
generally keeping in view the interest of the equity shareholders and financial requirements
of the company. The equity shareholders being the shareholders of the company and the
providers of the risk capital (equity) would be concerned about the ways of financing a
companys operation. However, the interests of the other groups, such as employees,
customer, creditors, and government, should also be given reasonable consideration.

A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE THE

FOLLOWING FEATURES

RETURN: the capital structure of the company should be most advantageous, subject to the
other considerations; it should generate maximum returns to the shareholders without adding
additional cost to them.

RISK: the use of excessive debt threatens the solvency of the company. To the point debt
does not add significant risk it should be used otherwise it uses should be avoided.

FLEXIBILITY: the capital structure should be flexibility. It should be possible to the

company adopt its capital structure and cost and delay, if warranted by a changed situation. It
should also be possible for a company to provide funds whenever needed to finance its
profitable activities.

CAPACITY: - The capital structure should be determined within the debt capacity of the
company and this capacity should not be exceeded. The debt capacity of the company
depends on its ability to generate future cash flows. It should have enough cash flows to pay
creditors, fixed charges and principal sum.

CONTROL: The capital structure should involve minimum risk of loss of control of the
company. The owner of the closely held companys of particularly concerned about dilution
of the control.

APPROACHES TO ESTABLISH APPROPRIATE CAPITAL

STRUCTURE:

The capital structure will be planned initially when a company is incorporated .The
initial capital structure should be designed very carefully. The management of the company
should set a target capital structure and the subsequent financing decision should be made

Page 43
with the a view to achieve the target capital structure .The financial manager has also to deal
with an existing capital structure .The company needs funds to finance its activities
continuously. Every time when fund shave to be procured, the financial manager weighs the
pros and cons of various sources of finance and selects the most advantageous sources
keeping in the view the target capital structure. Thus, the capital structure decision is a
continues one and has to be taken whenever a firm needs additional Finances.

The following are the three most important approaches to decide about a firms
capital structure.

EBIT-EPS approach for analyzing the impact of debt on EPS.

Valuation approach for determining the impact of debt on the shareholders value.
Cash flow approached for analyzing the firms ability to service debt.
In addition to these approaches governing the capital structure decisions, many other
factors such as control, flexibility, or marketability are also considered in practice.
EBIT-EPS APPROACH:

We shall emphasize some of the main conclusions here .The use of fixed cost sources
of finance, such as debt and preference share capital to finance the assets of the company, is
known as financial leverage or trading on equity. If the assets financed with the use of debt
yield a return greater than the cost of debt, the earnings per share also increases without an
increase in the owners investment.
The earnings per share also increase when the preference share capital is used to acquire
the assets. But the leverage impact is more pronounced in case of debt because
The cost of debt is usually lower than the cost of performance share capital
The interest paired on debt is tax deductible
Because of its effect on the earnings per share, financial leverage is an important
consideration in planning the capital structure of a company. The companies with high level
of the earnings before interest and taxes (EBIT) can make profitable use of the high degree of
leverage to increase return on the shareholders equity. One common method of examining
the impact of leverage is to analyze the relationship between EPS and various possible levels
of EBIT under alternative methods of financing.

Page 44
 The EBIT-EPS analysis is an important tool in the hands of financial manager to get
an insight into the firms capital structure management .He can considered the possible
fluctuations in EBIT and examine their impact on EPS under different financial plans of the
probability of earning a rate of return on the firms assets less than the cost of debt is
insignificant, a large amount of debt can be used by the firm to increase the earning for share.
This may have a favorable effect on the market value per share. On the other hand, if the
probability of earning a rate of return on the firms assets less than the cost of debt is very
high, the firm should refrain from employing debt capital .it may, thus, be concluded that the
greater the level of EBIT and lower the probability of down word fluctuation, the more
beneficial it is to employ debt in the capital structure However, it should be realized that the
EBIT EPS is a first step in deciding about a firms capital structure .It suffers from certain
limitations and doesnt provide unambiguous guide in determining the capital structure of a
firm in practice.

RATIO ANALYSIS:

The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison. Therefore the
focus of financial analysis is always on the crucial information contained in the financial
statements. This depends on the objectives and purpose of such analysis. The purpose of
evaluating such financial statement is different form person to person depending on its
relationship. In other words even though the business unit itself and shareholders, debenture
holders, investors etc. all under take the financial analysis differs. For example, trade
creditors may be interested primarily in the liquidity of a firm because the ability of the
business unit to play their claims is best judged by means of a thorough analysis of its
l9iquidity. The shareholders and the potential investors may be interested in the present and
the future earnings per share, the stability of such earnings and comparison of these earnings
with other units in thee industry. Similarly the debenture holders and financial institutions
lending long-term loans maybe concerned with the cash flow ability of the business unit to
pay back the debts in the long run. The management of business unit, it contrast, looks to the
financial statements from various angles. These statements are required not only for the
managements own evaluation and decision making but also for internal control and overall
performance of the firm. Thus the scope extent and means of any financial analysis vary as
Page 45
per the specific needs of the analyst. Financial statement analysis is a part of the larger
information processing system, which forms the very basis of any decision making process.

The financial analyst always needs certain yardsticks to evaluate the efficiency and
performance of business unit. The one of the most frequently used yardsticks is ratio analysis.
Ratio analysis involves the use of various methods for calculating and interpreting financial
ratios to assess the performance and status of the business unit.

It is a tool of financial analysis, which studies the numerical or quantitative

relationship between with other variable and such ratio value is compared with standard or
norms in order to highlight the deviations made from those standards/norms. In other words,
ratios are relative figures reflecting the relationship between variables and enable the analysts
to draw conclusions regarding the financial operations.

However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion as
regards causes of such deviations from the norms. For instance, ABC Ltd. Introduced the
concept of ratio analysis by calculating the variety of ratios and comparing the same with
norms based on industry averages. While comparing the inventory ratio was 22.6 as
compared to industry average turnover ratio of 11.2. However on closer sell tiny due to large
variation from the norms, it was found that the business units inventory level during the year
was kept at extremely low level. This resulted in numerous production held sales and lower
profits. In other words, what was initially looking like an extremely efficient inventory
management, turned out to be a problem area with the help of ratio analysis? As a matter of
caution, it must however be added that a single ration or two cannot generally provide that
necessary details so as to analyze the overall performance of the business unit.

In order to arrive at the reasonable conclusion regarding overall performance of the

business unit, an analysis of the entire group of ratio is required. However, ration analysis
should not be considered as ultimate objective test but it may be carried further based on the
outcome and revelations about the causes of variations. Sometimes large variations are due to
unreliability of financial data or inaccuracies contained therein therefore before taking any
decision the basis of ration analysis, their reliability must be ensured.

Page 46
 Similarly, while doing the inter-firm comparison, the variations may be due to
different technologies or degree of risk in those units or items to be examined are in fact the
comparable only. It must be mentioned here that if ratios are used to evaluate operating
performance, these should exclude extra ordinary items because there are regarded as non-
recurring items that do not reflect normal performance.

Ratio analysis is the systematic process of determining and interpreting the numerical
relationship various pairs of items derived form the financial statements of a business.
Absolute figures do not convey much tangible meaning and is not meaningful while
comparing the performance of one business with the other.

It is very important that the base (or denominator) selected for each ratio is relevant
with the numerator. The two must be such that one is closely connected and is influenced by
the other.

CAPITAL STRUCTURE RATIOS

Capital structure or leverage ratios are used to analyze the long-term solvency or
stability of a particular business unit. The short-term creditors are interested in current
financial position and use liquidity ratios. The long-term creditors world judge the soundness
of a business on the basis of the long-term financial strength measured in terms of its ability
to pay the interest regularly as well as repay the installment on due dates. This long-term
solvency can be judged by using leverage or structural ratios.

There are two aspects of the long-term solvency of a firm:-

1. Ability to repay the principal when due, and

2. Regular payment of interest, there are thus two different but mutually dependent and
interrelated types of leverage ratio such as:

THE CAPITAL STRUCTURE CONTROVERSY:

The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream. The rate used to discount earnings stream its the firms required rate of
return or the cost of capital. Thus, the capital structure decision can affect the value of the
firm either by changing the expected earnings of the firm, but it can affect the reside earnings

Page 47
of the shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting
opinions have been expressed on this issue. In fact, this issue is one of the most continuous
areas in the theory of finance, and perhaps more theoretical and empirical work has been
done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the total
value of the firm or minimizes the weighted average cost of capital. The question of the
existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the
following words.

Given that a firm has certain structure of assets, which offers net operating earnings of
given size and quality, and given a certain structure of rates in the capital markets, is there
some specific degree of financial leverage at which the market value of the firms securities
will be higher than at other degrees of leverage?

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

1. Net Income Approach:

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

2. Net Operating Income Approach:

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

3. Traditional Approach:

According to this approach, the cost of capital declines and the value of the firm
increases with leverage up to a prudent debt level and after reaching the optimum point,
coverage cause the cost of capital to increase and the value of the firm to decline.

Page 48
 Thus, if NI approach is valid, leverage is significant variable and financing decisions
have an important effect on the value of the firm. On the other hand, if the NOI approach is
correct then the financing decisions should not be a great concern to the financing manager,
as it does not matter in the valuation of the firm.

Modigliani and Miller (MM) support the NOI approach by providing logically
consistent behavioral justifications in its favor. They deny the existence of an optimum
capital structure between the two extreme views; we have the middle position or intermediate
version advocated by the traditional writers.

Thus these exists an optimum capital structure at which the cost of capital is
minimum. The logic of this view is not very sound. The MM position changes when
corporate taxes are assumed. The interest tax shield resulting from the use of debt adds to the
value of the firm. This advantage reduces the when personal income taxes are considered.

Capital Structure Matters: The Net Income Approach:

The essence of the net income (NI) approach is that the firm can increase its value or
lower the overall cost of capital by increasing the proportion of debt in the capital structure.
The crucial assumptions of this approach are:

1. The use of debt does not change the risk perception of investors; as a result, the equity
capitalization rate, kc and the debt capitalization rate, kd, remain constant with changes in
leverage.

2. The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)

3. The corporate income taxes do not exist.

The first assumption implies that, if ke and kd are constant increased use by debt by
magnifying the shareholders earnings will result in higher value of the firm via higher value
of equity consequently the overall or the weighted average cost of capital ko, will decrease.
The overall cost of capital is measured by equation: (1)

It is obvious from equation 1 that, with constant annual net operating income (NOI),
the overall cost of capital would decrease as the value of the firm v increases. The overall
cost of capital ko can also be measured by

Page 49
 KO = Ke - (Ke - Kd) D/V

As per the assumptions of the NI approach Ke and Kd are constant and Kd is less than
Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that the overall
cost of capital Ko will be equal to Ke if the form does not employ any debt (i.e. D/V =0), and
that Ko will approach Kd as D/V approaches one.

NET OPERATING INCOME APPROACH

According to the met operating income approach the overall capitalization rate and
the cost of debt remain constant for all degree of leverage .rA and rD are constant for all
degree of leverage. Given this, the cost of equity can be expressed as.

The critical premise of this approach is that the market capitalizes the firm as a whole
at discount rate, which is independent of the firms debt-equity ratio. As a consequence, the
decision between debt and equity is irrelevant. An increase in the use of debt funds which are
apparently cheaper or offset by an increase in the equity capitalization rate. This happens
because equity investors seek higher compensation as they are exposed to greater risk arising
from increase in the degree of leverages. They raise the capitalization rate rE (lower the price
earnings ratio, as the degree of leverage increase.

The net operating income position has been \advocated eloquently by David Durand.
He argued that the market value of a firm depends on its net operating income and business
risk. The change in the financial leverage employed by a firm cannot change these underlying
factors. It merely changes the distribution of income and risk between debt and equity,
without affecting the total income and risk which influence the market value (or equivalently
the average cost of capital) of the firm. Arguing in a similar vein, Modigliani and Miller, in a
seminal contribution made in 1958, forcefully advanced the proposition that the cost of
capital of a firm is independent of its capital structure.

COST OF CAPITAL AND VALUATION APPROACH

The cost of a source of finance is the minimum return expected by its suppliers. The
expected return depends on the degree of risk assumed by investors. A high degree of risk is
assumed by shareholders than debt-holders. In the case of debt-holders, the rate of interest is
fixed and the company is legally bound to pay dividends even if the profits are made by the

Page 50
company. The loan of debt-holders is returned within a prescribed period, while shareholders
will have to share the residue only when the company is wound up.

This leads one to conclude that debt is cheaper source of funds than equity. This is
generally the case even when taxes are not considered. The tax deductibility of interest
charges further reduces the cost of debt. The preference share capital is also cheaper than
equity capital, but not as cheap as debt. Thus, using the component, or specific, cost of capital
as criterion for financing decisions and ignoring risk, a firm would always like to employ
debt since it is the cheapest source of funds.

CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed charges
created by the use of debt or preference capital in the capital structure and the firms ability to
generate cash to meet these fixed charges. In practice, the question of the optimum
(appropriate) debt equity mix boils down to the firs ability to service debt without any
threat of insolvency and operating inflexibility. A firm is considered prudently financed if it
is able to service its fixed charges under any reasonably predictable adverse conditions.

The fixed charges of a company include payment of interest, preference dividend and
principal, and they depend on both the amount of loan securities and the terms of payment.
The amount of fixed charges will be high if the company employs a large amount of debt or
preference capital with short-term maturity. Whenever a company thinks of raising additional
debt, it should analyze its expected future cash flows to meet the fixed charges. It is
mandatory to pay interest and return the principal amount of debt of a company not able to
generate enough cash to meet its fixed obligation; it may have to face financial insolvency.
The companies expecting larger and stable cash inflows in to employ fixed charge sources of
finance by those companies whose cash inflows are unstable and unpredictable.

It is possible for high growth, profitable company to suffer from cash shortage if the
liquidity (working capital) management is poor. We have examples of companies like BHEL,
NTPC, etc., whose debtors are very sticky and they continuously face liquidity problem in
spite of being profitability servicing debt is very burdensome for them.

Page 51
 One important ratio which should be examined at the time of planning the capital
structure is the ration of net cash inflows to fixed changes (debt saving ratio). It indicates the
number of times the fixed financial obligation are covered by the net cash inflows generated
by the company.

LIMITATION OF EPS AS A FINANCING-DECISION CRITERION

EPS is one of the mostly widely used measures of the companys performance in
practice. As a result of this, in choosing between debt and equity in practice, sometimes too
much attention is paid on EPS, which however, has serious limitations as a financing-
decision criterion.

The major short coming of the EPS as a financing-decision criterion is that it does not
consider risk; it ignores variability about the expected value of EPS. The belief that investors
would be just concerned with the expected EPS is not well founded. Investors in valuing the
shares of the company consider both expected value and variability.

EPS VARIABILITY AND FINANCIAL RISK: -

The EPS variability resulting form the use of leverage is called financial risk.
Financial risk is added with the use of debt because of

(a) The increased variability in the shareholders earnings and

(b) The threat of insolvency. A firm can avid financial risk altogether if it does not employ
any debt in its capital structure. But then the shareholders will be deprived of the benefit of
the financial risk perceived by the shareholders, which does not exceed the benefit of increase
EPS. As we have seen, if a company increase its debt beyond a point the expected EPS will
continue to increase but the value of the company increases its debt beyond a point, the
expected EPS will continue to increase, but the value of the company will fall because of the
greater exposure of shareholders to financial risk in the form of financial distress. The EPS
criterion does not consider the long-term perspectives of financing decisions. It fails to deal
with the risk return trade-off. A long term view of the effects of the financing decisions, will
lead one to a criterion of the wealth maximization rather that EPS maximization. The EPS
criterion is an important performance measure but not a decision criterion.

Page 52
 Given limitations, should the EPS criterion be ignored in making financing decision?
Remember that it is an important index of the firms performance and that investors rely
heavily on it for their investment decisions. Investors do not have information in the
projected earnings and cash flows and base their evaluation and historical data. In choosing
between alternative financial plans, management should start with the evaluation of the
impact of each alternative on near-term EPS. But managements ultimate decision making
should be guided by the best interests of shareholders.

Therefore, a long-term view of the effect of the alternative financial plans on the
value of the shares should be taken, o management opts for a financial plan which will
maximize value in the long run but has an adverse impact in near-term EPS, and the reasons
must be communicated to investors. A careful communication to market will be helpful in
reducing the misunderstanding between management and Investors.

COMPOSITION AND OBSERVATION

The sources tapped by FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE:

The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the company. This
can be done only when all those factors, which are relevant to the companys capital structure
decision, are properly analyzed and balanced. The capital structure should be planned
generally keeping in view the interest of the equity shareholders and financial requirements
of the company. The equity shareholders being the shareholders of the company and the
providers of the risk capital (equity) would be concerned about the ways of financing a
companys operation. However, the interests of the other groups, such as employees,
customer, creditors, and government, should also be given reasonable consideration. When
the company lay down its objectives in terms of the shareholders wealth maximizing (SWM),
it is generally compatible with the interest of the other groups. Thus, while developing an
appropriate capital structure for it company, the financial manager should inter alia aim at
maximizing the long-term market price per share. Theoretically there may be a precise point
of range with in which the market value per share is maximum. In practice for most
companies with in an industry there may be a range of appropriate capital structure with in
which there would not be great differences in the market value per share. One way to get an

Page 53
idea of this range is to observe the capital structure patterns of companies Vis-a Vis their
market prices of shares. It may be found empirically that there is no significance in the
differences in the share value within a given range. The management of the company may fit
its capital structure near the top of its range in order to make of maximum use of favorable
leverage, subject to other requirement (SEBI) and stock exchanges.
Capital Structure Matters: The Net Income Approach:

The essence of the net income (NI) approach is that the firm can increase its value or
lower the overall cost of capital by increasing the proportion of debt in the capital structure.
The crucial assumptions of this approach are:

1. The use of debt does not change the risk perception of investors; as a result, the equity
capitalization rate, kc and the debt capitalization rate, kd, remain constant with changes in
leverage.

2. The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)

3. The corporate income taxes do not exist.

The first assumption implies that, if ke and kd are constant increased use by debt by
magnifying the shareholders earnings will result in higher value of the firm via higher value
of equity consequently the overall or the weighted average cost of capital ko, will decrease.
The overall cost of capital is measured by equation: (1)

It is obvious from equation 1 that, with constant annual net operating income (NOI), the
overall cost of capital would decrease as the value of the firm v increases. The overall cost of
capital ko can also be measured by

KO = Ke- (Ke- Kd) D/v

As per the assumptions of the NI approach Ke and Kd are constant and Kd is

less than Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that the

Page 54
overall cost of capital Ko will be equal to Ke if the form does not employ any debt (i.e. D/V
=0), and that Ko will approach Kd as D/V approaches one.
NET OPERATING INCOME APPROACH

According to the met operating income approach the overall capitalization rate and the cost of
debt remain constant for all degree of leverage.

rA and rD are constant for all degree of leverage. Given this, the cost of equity can be
expressed as.

The critical premise of this approach is that the market capitalizes the firm as a whole
at discount rate, which is independent of the firms debt-equity ratio. As a consequence, the
decision between debt and equity is irrelevant. An increase in the use of debt funds which are
apparently cheaper or offset by an increase in the equity capitalization rate. This happens
because equity investors seek higher compensation as they are exposed to greater risk arising
from increase in the degree of leverages. They raise the capitalization rate rE (lower the price
earnings ratio, as the degree of leverage increases.

Page 55
 The net operating income position has been \advocated eloquently by David
Durand. He argued that the market value of a firm depends on its net operating income and
business risk. The change in the financial leverage employed by a firm cannot change these
underlying factors. It merely changes the distribution of income and risk between debt and
equity, without affecting the total income and risk which influence the market value (or
equivalently the average cost of capital) of the firm. Arguing in a similar vein, Modigliani
and Miller, in a seminal contribution made in 1958, forcefully advanced the proposition that
the cost of capital of a firm is independent of its capital structure.

COST OF CAPITAL AND VALUATION APPROACH

The cost of a source of finance is the minimum return expected by its suppliers. The
expected return depends on the degree of risk assumed by investors. A high degree of risk is
assumed by shareholders than debt-holders. In the case of debt-holders, the rate of interest is
fixed and the company is legally bound to pay dividends even if the profits are made by the
company. The loan of debt-holders is returned within a prescribed period, while shareholders
will have to share the residue only when the company is wound up.

This leads one to conclude that debt is cheaper source of funds than equity. This is
generally the case even when taxes are not considered. The tax deductibility of interest
charges further reduces the cost of debt. The preference share capital is also cheaper than
equity capital, but not as cheap as debt. Thus, using the component, or specific, cost of capital
as criterion for financing decisions and ignoring risk, a firm would always like to employ
debt since it is the cheapest source of funds.

CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed charges
created by the use of debt or preference capital in the capital structure and the firms ability to
generate cash to meet these fixed charges. In practice, the question of the optimum
(appropriate) debt equity mix boils down to the firms ability to service debt without any
threat of insolvency and operating inflexibility. A firm is considered prudently financed if it
is able to service its fixed charges under any reasonably predictable adverse conditions.

Page 56
 The fixed charges of a company include payment of interest, preference dividend and
principal, and they depend on both the amount of loan securities and the terms of payment.
The amount of fixed charges will be high if the company employs a large amount of debt or
preference capital with short-term maturity. Whenever a company thinks of raising additional
debt, it should analyze its expected future cash flows to meet the fixed charges. It is
mandatory to pay interest and return the principal amount of debt of a company not able to
generate enough cash to meet its fixed obligation; it may have to face financial insolvency.
The companies expecting larger and stable cash inflows in to employ fixed charge sources of
finance by those companies whose cash inflows are unstable and unpredictable.

It is possible for high growth, profitable company to suffer from cash shortage if the
liquidity (working capital) management is poor. We have examples of companies like BHEL,
NTPC, etc., whose debtors are very sticky and they continuously face liquidity problem in
spite of being profitability servicing debt is very burdensome for them.

One important ratio which should be examined at the time of planning the capital
structure is the ration of net cash inflows to fixed changes (debt saving ratio). It indicates the
number of times the fixed financial obligation are covered by the net cash inflows generated
by the company.

LIMITATION OF EPS AS A FINANCING-DECISION CRITERION

EPS is one of the mostly widely used measures of the companys performance in
practice. As a result of this, in choosing between debt and equity in practice, sometimes too
much attention is paid on EPS, which however, has serious limitations as a financing-
decision criterion.

The major short coming of the EPS as a financing-decision criterion is that it does not
consider risk; it ignores variability about the expected value of EPS. The belief that investors
would be just concerned with the expected EPS is not well founded. Investors in valuing the
shares of the company consider both expected value and variability.

EPS VARIABILITY AND FINANCIAL RISK: -

The EPS variability resulting form the use of leverage is called financial risk.
Financial risk is added with the use of debt because of

Page 57
 (a) The increased variability in the shareholders earnings and

(b) The threat of insolvency.

A firm can avid financial risk altogether if it does not employ any debt in its capital
structure. But then the shareholders will be deprived of the benefit of the financial risk
perceived by the shareholders, which does not exceed the benefit of increase EPS. As we
have seen, if a company increase its debt beyond a point the expected EPS will continue to
increase but the value of the company increases its debt beyond a point, the expected EPS
will continue to increase, but the value of the company will fall because of the greater
exposure of shareholders to financial risk in the form of financial distress. The EPS criterion
does not consider the long-term perspectives of financing decisions. It fails to deal with the
risk return trade-off. A long term view of the effects of the financing decisions, will lead one
to a criterion of the wealth maximization rather that EPS maximization. The EPS criterion is
an important performance measure but not a decision criterion.

Given limitations, should the EPS criterion be ignored in making financing decision?
Remember that it is an important index of the firms performance and that investors rely
heavily on it for their investment decisions. Investors do not have information in the
projected earnings and cash flows and base their evaluation and historical data. In choosing
between alternative financial plans, management should start with the evaluation of the
impact of each alternative on near-term EPS. But managements ultimate decision making
should be guided by the best interests of shareholders.

Therefore, a long-term view of the effect of the alternative financial plans on the
value of the shares should be taken, o management opts for a financial plan which will
maximize value in the long run but has an adverse impact in near-term EPS, and the reasons
must be communicated to investors. A careful communication to market will be helpful in
reducing the misunderstanding between management and Investors.

Page 58
 DATA ANALYSIS & INTERPRETATION

DEBTS OF JOCIL LIMITED.

TABLE NO -1
Year Debts (Rs in thousands)
2011-12 443686
2012-13 608914
2013-14 862832
2014-15 315765
2015-16 488100

GRAPH NO -1

Debts (Rs in thousands)

1000000
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
2011-12 2012-13 2013-14 2014-15 2015-16

Total debt
Debt Ratio =
Capital employed
INTERPRETATION

The equity of Jocil limited., in 2011was 443686 thousand rupees, in 2012 was
608914 thousand rupees, it was increased to 862832 thousand rupees in 2013 and in 2014it
was decreased to 315765 thousand rupees. And again it was increased to 488100 thousand
rupees in 2015. Increased equity will increase the risk of share holders.

Page 59
Equity of JOCIL LIMITED.
TABLE NO-2
Year Equity (Rs in thousands)
2011-12 596209
2012-13 524719
2013-14 734342
2014-15 1004935
2015-16 1364328

GRAPH NO-2

Equity (Rs in thousands)

1600000

1400000

1200000

1000000

800000

600000

400000

200000

0
2011-12 2012-13 2013-14 2014-15 2015-16

Long term liability

Equity ratio =
Share holders fund
INTERPRETATION
The equity ofJocil limited. in 2011 was 596509 thousand rupees, in 2012 was 524719
thousand rupees, it was increased to 734342 thousand rupees in 2013 and in 2014 it was
increased to 1004935 thousand rupees. And again it was increased to 1364328 thousand
rupees in 2015. Increased equity will increase the risk of share holder

Page 60
Debt equity ratio of JOCIL LIMITED.,

TABLE NO -3
Year Debt Equity ratio (in %)

2011-12 0.74

2012-13 1.16

2013-14 0.52

2014-15 0.31

2015-16 0.36

Long term liability

Debt equity ratio =
Share holders fund
GRAPH NO -3

Debt Equity ratio (in %)

1.4

1.2

0.8

0.6

0.4

0.2

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION
In debt equity ratio of Jocil limited.In 2011 was 0.74, in 2012 was increased to 1.16, in 2013
was decreased to 0.52 in 2014 was again decreased to 0.31 and it 2015 it was increased to
0.36.

Page 61
Operating Leverage
Operating leverage may be defined as the employment of an asset with a fixed cost in the
hope that sufficient revenue will be generated to our all the fixed and variable costs. The use
of assets for which a company phase a fixed cost is called operating leverage.
Contribution
Operating leverage =
EBIT
OPERATING LEVERAGE
TABLE NO -4
S. no Year Contribution (Rs) EBIT (Rs) O. L
1 2011-12 803382000 741385204 1.08
2 2012-13 1055524000 975054011 1.08
3 2013-14 500054000 399904461 1.25
4 2014-15 228074000 122136440 1.87
5 2015-16 327026000 218491015 1.50
Mean 1.36
GRAPH NO4.4

100
90
80 East
70 West
60 North
50
40
30
20
10
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Page 62
INTERPRETATION

The operating leverage of Jocil limited.operating leverage (O.L) measures the

relationships between contributions and earnings before interest and tax (EBIT). The mean
value of calculated as 1.36 in 2015-16 the operating leverage indicates more contribution i.e.,
low fixed expenses or more sales, on the other hand low operating leverage low contribution
i.e., more fixed expenses or sales. By comparing previous year (2015-16) the operating
leverage is slightly decline.

Page 63
DEGREE OF OPERATING LEVERAGE
The degree of operating leverage is equal to the percentage increase in the
net operating income to the percentage increase in the output.

% in EBIT
Degree of operating leverage =
% in sales
TABLE NO 5

% change in % change in
S. no Year DOL
EBIT sales

1 2011-12 -0.68 -0.27 2.49

2 2012-13 -0.24 -0.18 1.36

3 2013-14 1.44 0.15 9.85

4 2014-15 2.27 0.33 6.81

5 2015-16 0.44 0.28 1.57

Mean 4.41

Page 64
Degree of operating leverage
GRAPH NO 5

12

10

8
Year
6 % change in EBIT

4 % change in sales
DOL
2

0
1 2 3 4 5 Mean
-2

INTERPRETATION

The degree of operating leverage (DOL) of Jocil limited. The Degree of Operating
Leverage measure the relationship between earnings before interest and tax (EBIT) and sales.
The mean value of calculated 4.41 in 2014-15 the degree of operating leverage is higher
(9.85) and in 2013-14 the degree of operating leverage is low (1.36). The higher degree of
operating leverage prefers more earnings before interest and tax (EBIT) from sales, on the
other and low degree of operating leverage refers less earnings before interest and tax (EBIT)
from sales. By comparing previous year 2015-16 the degree of operating leverage is rapidly
decline.

Page 65
FINANCIAL LEVERAGE

The financial leverage may be defined as the use of funds with a fixed cost in order
to increase earnings per share in other words, it is the use of company funds on which it pays
a limited return.
EBIT
Financial leverage =
EAT
Financial Leverage
TABLE NO 6

S. no Year EBIT (Rs) EAT (Rs) F. L

1 2011-12 741385204 649884150 1.14

2 2012-13 975054011 939125614 1.04

3 2013-14 399904461 364748666 1.10

4 2014-15 122136440 76143800 1.60

5 2015-16 218491015 182472928 1.20

Mean 1.22

Page 66
GRAPH NO.6

2.5E+09

2E+09

1.5E+09 F. L
EBIT (Rs)
EBIT (Rs)
1E+09
Year

500000000

0
1 2 3 4 5 Mean

INTERPRETATION

The financial leverage if Jocil limited. Financial leverage (FL) measures

the relationship between earnings before interest and tax (EBIT). The mean value of
calculated as 1.22 in 2015-16 the financial leverage indicates using of debt is high, on the
other hand low financial leverage. Low indicates the using of debt is low by comparing
previous year 2015-16. The financial leverage is slightly decline

a. RETURN ON ASSETS
In this case profits are related to assets as follows

Return on assets = Net profit after tax

Total assets

Page 67
TABLE NO7
Particulars 2012 2013 2014 2015 2016

ROA =PAT/Total 17/148 12/146 14/138 15/135 21/160

Assets
0.114 0.136 0.1014 0.1112 0.075

b). RETURN ON CAPITAL EMPLOYED

Here return is compared to the total capital employed. A comparison of this
ratio ,with that of other units in the industry, will indicate how efficiently the funds
of the business have been employed. The higher the ratio the more efficient is the use
of capital employed.
Return on equity measures the profitability of equity funds invested in
the firm. This ratio reveals how profitability of the owners funds have been utilized
by the firm
This ratio is computed as followed:

Return on capital employed = Net profit after taxes & Interest

Total capital employed

(Total capital employed = Fixed assets + Current assetsCurrent liabilities)

TABLE NO.8

Particulars 2012 2013 2014 2015 2016

PAT
17 12 .14 15 21
Total Capital Emp 193 177 206 212 232

ROCE
0.088 0.0676 0.0685 0.07077 0.09058

Page 68
CAPITAL STRUCTURE/LEVERAGE RATIOS
The capital structure/ leverage ratios may be defined as those financial ratios

which measures the long term stability and structure of the firm.

These ratios indicate the mix of funds provided by owners and lenders and

assures the lenders of the long term funds with regards to

a) Equity ratio

This ratio indicates proportion of owners funds to total funds invested in

the business. Traditionally, it is believed that higher the proportion of

owners funds lower the degree of risk.

Equity ratio= shareholders equity / total capital employed

b) Debt to equity ratio

The high ratio here means less protection for creditors. A low

ratio ,on the other hand ,indicates a wider safety cushion

This ratio indicates the proportion of debt fund in relation to

equity .this ratio is very often referred in capital structure

Page 69
THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A CHART

FUNDING MIX - SOURCES

OWNERS FUND BORROWED FUND

CONVENTION NON-
EQUITY RETAINED PREFERENCE AL CONVENTIONAL
CAPITL EARNINS CAPITAL SOURCES SOURCES

SUPPLIERS
FINANCIAL CREDIT
INSTITUTION SHORT TERM
BANK
BANK BORROWINGS
CASH CREDIT HIRE PURCHASE

DEBENTURES
FIXED DEPOSITS

ICD

Page 70
YEAR 2011-12
PERFORMANCE OF COMPANY (AMOUNT IN RS. CRS)
TABLE NO :9

Shareholders funds 11 Work in progress 4.58

Reserves & surplus 127 Profit after tax 17

Earnings per share Rs. 1.69 Dividend ratio 10%

Debt to equity ratio = total liabilities/ shareholders equity.

PERFORMANCE ANALYSIS OF 2011-12
There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.40 Crs as against around 35 crs in last year. Because of
decrease in Non-Operating expenses to the time of the Net profit has increased. It stood at
current year against previous year because of redemption of debenture and cost reduction. A
dividend of Rs.162 lacs was declared during the year at 10% on equity.
YEAR 2012-13

PERFORMANCE OF COMPANY (AMOUNT IN RS. CRS)

TABLE NO 10
12 Work in progress 7.28
Shareholders funds
Reserves & surplus 144 Profit after tax
12
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2012-13

1. .The production and Sales has increased by 23%
2. Cotton turnover has increased by 6% as against fall in Sales realization by 15% last
year.
3. Cotton Boards Division has contributed 18% more than the previous year to the
PBDIT.
4. .Perform Division realization has increased by 4% .
5. The Turnover have came done to845 lacks from 1189lacs in lacks.

Page 71
YEAR 2013-14
PERFORMANCE OF COMPANY (AMOUNT IN RS. CRS S)
TABLE NO 11

Shareholders funds 12 Work in progress 6.15

Reserves & surplus 165 Profit after tax 14

Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2013-14

The Cotton Industry has a successful year because of Govt. policies such as infrastructure
Development a Rural housing
. There has been a small reduction in Gross Sales and with the performance of
prefab Division the Gross Profit gap has narrowed and contributing to the EBIT. The Gross
Profit has increased considerably from 45 crs in Last year to40 crs in Current year.
The interest payment has increased by 14 crs in the Current year and the Profit
before Tax at 50crs when compared to 45 crs in Last year.
The Net profit also increased from 43 in Last year in Current year.The
Director has recommended a 7.5% Dividend and in Last year it was at 5%.
YEAR 2014-15
PERFORMANCE OF COMPANY (AMOUNT IN RS. CRS S)
TABLE NO 4.12
Shareholders funds 12 Work in progress 5.40

159 Profit after tax 15

Reserves & surplus
Earnings per share Rs. 1.55 Dividend ratio 10%

Page 72
 PERFORMANCE ANALYSIS OF 2014-15
In 2014-15 the company has performed well in all decisions because of high demand
and realizations. The Gross Profit Increased considerably and the interest payments have
Increased at about 23 because of loans taken from the bank at a lesser rate of interest and
payment of loan funds for which the company is paying higher rate of interest.
In the previous year, the cash credit granted by UCO bank to the tune of Rs29 crs and
losing of loan funds borrowed from Vijaya Bank and Canara Bank factors, which can tribute
to increase in the Profit before Tax to the tune of Rs.15crs the company declared a dividend
of 10% on its equity to its shareholders when compared to 7.5% in the previous year. The
EPS of the company also increased considerably which investors in coming period. The
company has taken up a plant expansion program during the year to increase the production
activity and to meet the increase in the demand.
YEAR 2015-16
PERFORMANCE OF COMPANY (AMOUNT IN RS.CRS)
TABLE NO 4.13
Shareholders funds 12 Work in progress 1.74

145 Profit after tax 21

Reserves & surplus
Earnings per share Rs. 2.10 Dividend ratio 15%

PERFORMANCE ANALYSIS OF 2015-16

Company is operating in 3 segments, out of which cotton contributes about 55% of

turnover while the Boards and prefab segments contribute about 45%. Huge investment in the
industrial sector over the next 3 years is expected to lead to higher cotton off take on the
back of strong GDP growth across the country. It is expected that the domestic cotton
consumption would grow at a CAGR of 8% for the next 5 ears. By FY 2016 the domestic
consumption is expected to grow to 199 million liters from 136 million liters consumption
FY2014. During the year 2015-16 your companys Gross sales increased.

Page 73
 FINDINGS

The debt of company less than EQUITY of the company in all the three years as
against the ideal ratio of 1:1, which implies existence of ideal current assets.

The company does not allow all preference share capital.

Jocil limited., earned profits from the past 4 years.

Majority of the funds for the company are financed by long term barrowings.

Company follows guidelines given by ICWAI.

Capital reserve and subsidy is consistent from 2012-16.

There has been a small reduction in Gross Sales and with the performance of prefab
Division the Gross Profit gap has narrowed and contributing to the EBIT
The Gross Profit has increased considerably from 50Lac in Last year to 20 lac in
year. The interest payment has increased by 51 lac in the Current year
Perform Division realization has increased by 8% even the Turnover has come to
6lac from 40 lac in last year.
The profit After Tax has came 13 Cr to 15Cr in Current year because of slope in
cotton Industry.
The PAT is in an increasing trend from 2014-15.Because of increase in sale prices
and also decreases in the cost of manufacturing. In 2014-15 and 2013 even the cost
of manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS.
The EBIT level in 2011-12 is at 125lac and is increasing every year till 2014-15.
Because of slumps in the cotton Industry less realization.
The EBIT levels in 2014-15 again started growing and reached to 64lac and in 2012
were at 64lac and in 2015-16 were at 120lac, because of the sale price increase per
liter and increase in demand. The infrastructure program taken up by the A.P. Govt.
in the field s of rural housing irrigation projects created demand and whole cotton
Industries are making profits.

Page 74
 SUGGESTIONS

The basic of above findings the following suggestions are made which are worthy of
consideration by the policy makers of Jocil limited.

The company should give more preference to debt than equity. Debt is a cheaper
source of finance. It reduces the financial risk of shareholders and also increases the
value of firms.
Management tries to increase the EPS value as for the increasing number of shares.
The company should increase capital reserve amount for the future benefits.
The company has to maintain the optimal capital structure and leverage so that in
coming years it can contribute to the wealth of the shareholders.
He mining loyalty contracts should be revised so that it will decrease the direct in the
production
The company has to exercise control over its outside purchases and overheads which
have effect on the profitability of the company.
As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of interest
as in the case of UCO Bank.
Efficiency and competency in managing the affairs of the company should be
maintained.

Page 75
 CONCLUSION

The above findings are extracted from the analysis and interpretation of the
project that had been done in the Jocil limited. we conclude following things, which are
discussed below.

The company capital structure is placed a major role in the business activities. By
observing the above charts and tables, we conclude that the company debt and equity position
is very good. The company trying for wealth maximization along with the property
maximization.

Therefore the company is in well flourishing stage. That means in the growth stage.
Now the company can go for the expansion plans in order to increase its profit and market.
The PAT (Profit After Tax) in 2014-15 is at 340. The PAT has increased in prices in
Whole cotton industry during the above period. The profit has increased almost 15% during
The period 2013-14.
Debentures were redeemed by transfers to D.R.R. in 2013-14.
A steady transfer for dividend during 2012-13 from P&L appropriation but in
2012-13 there is no adequate dividend equity Shareholders.
The share capital of the company remained in charge during the three-year period
because of no public issues made by the company.
The secured loans have decreased consistently from 2012-13 and slight increase
in 2015-16.

Page 76
 BIBLIOGRAPHY

R.M.SRIVASTAMA Financial Management Himalaya Publishing House

KHAN & JAIN Management Accounting TATA MC Graw. 2010 edition

I.M.PANDEY Financial Management Vikas Publishing House

Books

Prasanna Chandra (2006), Financial Management, Tata Mc, Graw Hills, New Delhi,
5th Edition.

I.M. Pandey (2006), Financial Management, Vikas publishing House, New Delhi, 9th
Edition.

My Khan and P.K. Jain (2006), Financial Management, Tata Mc, Graw Hill
publishing company, New Delhi, 6th Edition.

V.K. Bhalla (2006), Financial Management and policy, Anoml Publication pvt
limited, 4th Edition.

Journals
o The management accountant by ICWAI.

o Annual reports of the company.

Web sites

www.moneycontrol.com

www.wikipedia.com
www.hindujaleylandfinance.com

Page 77
 ANNEXURE
BALANCE SHEET AS ON 31ST MARCH 2012
Schedule As at 31st March As at 31st March
2012 2011
SOURCES OF FUNDS
Shareholders funds
Share capital A 11,33,85,050 11,33,85,050
Reserves and surplus B 1,27,84,18,716 90,12,44,947
1,39,18,03,766 1,01,46,29,997
Loan funds
Secured loans C 28,15,50,102 29,64,92,947
Unsecured loans D 21,96,22,000 24,46,95,000
50,11,72,102 54,11,87,947

Deferred tax liability

Deferred tax liability 25,03,97,136 20,99,52,818
Less:- Deferred tax Assets 3,81,11,364 7,31,87,934
21,22,85,772 13,67,64,884
TOTAL 2,10,52,61,640 1,69,25,82,828
APPLICATION OF FUNDS
Fixed assets
Gross block E 1,85,31,65,250 1,32,20,20,234
Less: Depreciation 50,19,41,957 44,14,75,638
Net block 1,35,12,23,923 88,05,44,596
Capital working progress 4,58,43,001 16,43,32,340
1,39,70,66,294 1,04,48,76,936
Investments 1,63,63,918 1,44,30,960
Current assets, loan and advances
Inventories G 1,35,93,30,982 1,43,18,24,825
Sundry debtors H 10,80,11,642 11,21,33,122
Cash and bank balance I 6,81,47,393 5,02,62,789
Other current assets J 15,13,709 10,21,849
Loans and advances K 46,65,45,285 38,99,83,272
200,35,49,011 1,98,52,25,857
Less: current liabilities 131,17,17,583 1,35,19,50,925
Current liabilities
Provisions
Net current assets 69,18,31,428 63,32,74,932
TOTAL 2,10,52,61,640 1,69,25,82,828

Page 78
BALANCE SHEET AS ON 31ST MARCH2013
Schedule As at 31st March As at 31st March
2013 2012
SOURCES OF FUNDS
Shareholders funds
Share capital A 11,33,85,050 11,33,85,050
Reserves and surplus B 1,44,75,96,744 1,27,84,18,716
1,56,09,81,794 1,39,18,03,766
Loan funds
Secured loans C 19,36,77,300 28,15,50,102
Unsecured loans D 17,99,22,000 21,96,22,000
37,35,99,300 50,11,72,102

Deferred tax liability

Deferred tax liability 29,58,16,139 25,03,97,136
Less:- Deferred tax Assets 3,85,87,149 3,81,11,364
25,72,28,990 21,22,85,772
TOTAL 2,19,18,10,084 2,10,52,61,640
APPLICATION OF FUNDS
Fixed assets
Gross block E 2,07,88,63,416 1,85,31,65,250
Less: Depreciation 59,75,83,948 50,19,41,957
Net block 1,48,12,79,468 1,35,12,23,923
Capital working progress 7,28,45,659 4,58,43,001
1,55,41,25,127 1,39,70,66,294
Investments 12,65,92,017 1,63,63,918
Current assets, loan and advances
Inventories G 1,32,75,07,945 1,35,93,30,982
Sundry debtors H 11,45,09,441 10,80,11,642
Cash and bank balance I 17,67,30,095 6,81,47,393
Other current assets J 28,08,246 15,13,709
Loans and advances K 14,02,58,734 46,65,45,285
1,76,18,14,461 200,35,49,011
Less: current liabilities L 131,17,17,583
Current liabilities 1,16,87,78,350
Provisions 8,19,43,171
Net current assets 51,10,92,940 69,18,31,428
TOTAL 2,19,18,10,084 2,10,52,61,640

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BALANCE SHEET AS ON 31ST MARCH 2014
Schedule As at 31st March As at 31st March
2014 2013
SOURCES OF FUNDS
Shareholders funds
Share capital A 11,33,85,050 11,33,85,050
Reserves and surplus B 65,54,81,537 49,62,80,973
76,88,66,587 60,96,66,023
Loan funds
Secured loans C 82,67,28,433 1,03,97,20,204
Unsecured loans D 18,88,33,000 18,75,70,830
1,01,55,61,433 1,22,72,91,034

Deferred tax liability

Deferred tax liability 23,67,36,546 24,27,99,798
Less:- Deferred tax Assets 12,33,34,550 9,87,89,550
11,34,01,996 14,40,10,248
TOTAL 1,89,78,30,016 1,98,09,67,035
APPLICATION OF FUNDS
Fixed assets
Gross block E 1,27,66,39,656 1,26,62,84,128
Less: Depreciation 37,32,40,318 31,14,59,113
Net block 90,33,99,338 95,48,25,015
Capital working progress 6,15,21,594 5,92,88,422
96,49,20,932 1,01,41,13,437

Investments 1,14,32,776 1,14,32,776

Current assets, loan and advances
Inventories G 1,35,29,84,499 1,53,82,60,271
Sundry debtors H 12,48,86,536 7,31,85,488
Cash and bank balance I 5,52,57,959 5,30,91,438
Other current assets J 6,52,331 12,98,174
Loans and advances K 6,04,77,777 20,40,18,611
1,59,42,59,102 1,86,98,53,982
Less: current liabilities 67,27,82,794 91,44,32,890
Current liabilities
Provisions
Net current assets 92,14,76,308 95,54,21,092
TOTAL 1,89,78,30,016 1,98,09,67,035

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BALANCE SHEET AS ON 31ST MARCH 2015
Schedule As at 31st March As at 31st March
2015 2014
SOURCES OF FUNDS
Shareholders funds
Share capital A 11,33,85,050 11,33,85,050
Reserves and surplus B 1,45,46,89,267 1,43,42,19,329
1,56,80,34,317 1,54,76,04,442
Loan funds
Secured loans C 27,46,77,379 43,88,86,979
Unsecured loans D 23,97,59,000 18,40,00,000
51,44,36,379 62,28,86,979
Deferred tax liability
Deferred tax liability 28,78,93,073 30,13,40,523
Less:- Deferred tax Assets 34,18,50,93 4,74,62,323
25,37,07,980 25,38,78,200
TOTAL 233,61,78,676 242,43,69,621
APPLICATION OF FUNDS
Fixed assets
Gross block E 217,85,03,874 2,16,25,26,621
Less: Depreciation 79,66,49,926 70,11,93,785
Net block 138,18,53,948 146,13,32,836
Capital working progress 1,40,65,017 1,44,95,59,4
139,59,18,965 147,58,28,430
Investments 5,38,45,587
F 5,36,53,134
Current assets, loan and advances
Inventories G 128,45,84,247 126,77,78,839
Sundry debtors H 3,62,65,260 6,09,19,4285
Cash and bank balance I 57,86,88,27 20,84,05,389
Other current assets J 18,15,538 23,12,881
Loans and advances K 21,44,20,338 20,23,86,069
159,49,54,210 1,74,18,02,606
Less: current liabilities
Current liabilities 59,53,89,436 73,47,84,951
Provisions 11,31,50,650 11,21,29,598

Net current assets 70,85,40,086 84,69,14,549

TOTAL 233,61,78,676 242,43,67,621

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BALANCE SHEET AS ON 31ST MARCH 2016
Schedule As at 31st March As at 31st March
2016 2015
SOURCES OF FUNDS
Shareholders funds
Share capital A 11,33,85,050 11,33,85,050
Reserves and surplus B 159,25,95,072 145,46,49,267
170,59,80,122 156,80,34,317
Loan funds
Secured loans C 15,08,00,5833 27,46,77,379
Unsecured loans D 27,0,75,000 22,97,59,,000
42,38,75,583 51,44,36,379

Deferred tax liability

Deferred tax liability 27,33,87,498 28,78,93,073
Less:- Deferred tax Assets 3,55,22,337 3,41,85,093
23,78,65,161 25,37,07,980
TOTAL 236,77,20,866 233,61,78,676
APPLICATION OF FUNDS
Fixed assets
Gross block E 224,42,54,858 217,85,0,874
Less: Depreciation 89,19,10,077 79,66,49,926
Net block 135,23,44,781 138,18,53,948
Capital working progress 1,74,77,285 1,40,65,017
136,98,22,066 139,59,18,965
Investments 18,95,93,192 5,8,45,587
Current assets, loan and advances
Inventories G 110,98,19,602 128,45,84,247
Sundry debtors H 5,05,57,226 3,62,65,260
Cash and bank balance I 5,5,11,251 5,78,68,827
Other current assets J 52,89,046 18,15,538
Loans and advances K 30,25,24,380 21,44,20,338
152,17,01,505 159,49,54,210
Less: current liabilities 57,67,90,672 59,53,89,436
Current liabilities 13,66,05,225 11,31,50,650
Provisions 71,33,95,897 70,85,40,086
Net current assets 80,83,05,608 88,64,14,124
TOTAL 236,77,20,866 233,61,78,676

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