Department of Management Sciences: Assignment Ii
Department of Management Sciences: Assignment Ii
Department of Management Sciences: Assignment Ii
INTERNAL COMPONENT II
ASSIGNMENT II
(CAPITAL STRUCTURE EVALUATION)
SUBMITTED BY
NAME : DEEPAK K
REG NO : 19206016
BATCH : 2019-2021
DATE : 28/06/2020
Mahindra & Mahindra was founded as a steel trading company on October 2, 1945
in Ludhiana as Mahindra & Muhammed by brothers Kailash Chandra Mahindra and Jagdish
Chandra Mahindra along with Malik Ghulam Muhammad. Anand Mahindra, the present
Chairman of Mahindra Group is the grandson of Jagdish Chandra Mahindra. After India
gained independence and Pakistan was formed, Muhammad emigrated to Pakistan.
Muhammad acquired Pakistani citizenship and settled in Lahore, and in 1948 become
Pakistan's first finance minister. Thereafter, the company changed its name to Mahindra &
Mahindra in 1948. It eventually saw a business opportunity in expanding into manufacturing
and selling larger MUVs, starting with the assembly under license of the Willys Jeep in India.
Soon established as the Jeep manufacturers of India, the company later commenced
manufacturing light commercial vehicles (LCVs) and agricultural tractors.
Over the past few years, the company has taken interest in new industries and in foreign
markets. They entered the two-wheeler industry by taking over Kinetic Motors in India.
M&M also has a controlling stake in the REVA Electric Car Company[9] and acquired South
Korea's SsangYong Motor Company in 2011. In 2010–11 M&M entered in micro drip
irrigation with the takeover of EPC Industries Ltd in Nashik.
In October 2014, Mahindra and Mahindra acquired a 51% controlling stake in Peugeot
Motocycles.
In December 2015, Mahindra and Mahindra Ltd and affiliate Tech Mahindra Ltd, through a
special purpose vehicle (SPV), have agreed to buy a 76.06% stake in Italian car designer
Pininfarina SpA, for €25.3 million (around Rs.186.7 crore).
In January 2017, Mahindra and Mahindra Ltd (M&M) acquired a 75.1 equity stake in
Hisarlar Makina Sanayi ve Ticaret Anonym Şirketi (Hisarlar), a farm equipment company,
marking its entry into Turkey.
In September 2017 Mahindra and Mahindra Ltd acquired Erkunt Traktor Sanayii AS, a
Turkish tractor maker and its foundry business for ₹800 crore.
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Automobiles
Mahindra & Mahindra's Kandivali Unit, Auto Sector Main gate overlooking Western Express
Highway, Mumbai
Mahindra & Mahindra, brands its products as "Mahindra", produces SUVs, saloon cars,
pickups, lightweight commercial vehicles, heavyweight commercial vehicles, two wheeled
motorcycles and tractors. Mahindra maintains business relations with foreign companies
like Renault SA, France.
1988 Mahindra CJ 640 DP, Peugeot XDP 4.90 diesel engine – Jeep CJ derived model with 4-
door closed body
M&M has a global presence and its products are exported to several countries. Its global
subsidiaries include Mahindra Europe S.r.l. based in Italy, Mahindra USA Inc., Mahindra
South Africa and Mahindra (China) Tractor Co. Ltd. In 2015, Mahindra re-entered the
Philippine market after a brief presence in 1990s
Mahindra began assembling the Jeep CJ3 in 1954, and light commercial vehicles in 1965. In
1979 the licensed assembly of Peugeot diesel four-cylinder engines and transmissions began,
and in 1982 a tie-up with Kia Motors to build their four-speed KMT90 transmission and
transfer case was announced. Mahindra's MM range was a mainstay of the line-up and was
eventually also offered with a 1.8-liter Isuzu petrol engine in addition to International and
Peugeot diesels. Mahindra started making passenger vehicles firstly with the Logan in April
2007 under the Mahindra Renault joint venture. M&M made its maiden entry into the heavy
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trucks segment with the Mahindra Truck and Bus Division, the joint venture
with International Truck, USA.
Mahindra produces a wide range of vehicles, including MUVs, LCVs and three-wheelers. It
manufactures over 20 models of cars, including larger, multi-utility vehicles like
the Scorpio and the Bolero. It formerly had a joint venture with Ford called Ford India
Private Limited to build Passenger cars.
At the 2008 Delhi Auto Show, Mahindra executives said the company was pursuing an
aggressive product expansion program that would see the launch of several new platforms
and vehicles over the next three years, including an entry-level SUV designed to seat five
passengers and powered by a small, turbocharged Diesel engine. True to their word,
Mahindra & Mahindra launched the Mahindra Xylo in January 2009, selling over 15,000
units in its first six months.
Also in early 2008, Mahindra commenced its first overseas CKD operations with the launch
of the Mahindra Scorpio in Egypt, in partnership with the Bavarian Auto Group. This was
soon followed by assembly facilities in Brazil. Vehicles assembled at the plant in Bramont,
Manaus, include Scorpio Pik Ups in single and double cab pick-up body styles as well
as SUVs.
Mahindra planned to sell the diesel SUVs and pickup trucks starting in late 2010 in North
America through an independent distributor, Global Vehicles USA, based in Alpharetta,
Georgia. Mahindra announced it would import pickup trucks from India in knockdown kit
(CKD) form to circumvent the Chicken tax. CKDs are complete vehicles that were assembled
in the United States from kits of parts shipped in crates. On 18 October 2010, however, it was
reported that Mahindra had indefinitely delayed the launch of vehicles into the North
American market, citing legal issues between it and Global Vehicles after Mahindra retracted
its contract with Global Vehicles earlier in 2010, due to a decision to sell the vehicles directly
to consumers instead of through Global Vehicles. However, a November 2010 report quoted
John Perez, the CEO of Global Vehicles USA, as estimating that he expected Mahindra's
small Diesel pickups to go on sale in the United States by spring 2011, although legal
complications remained, and Perez, while hopeful, admitted that arbitration could take more
than a year. Later reports suggested that the delays may be due to Mahindra scrapping the
original model of the truck and replacing it with an upgraded one before selling them to
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Americans. In June 2012, a mass tort lawsuit was filed against Mahindra by its American
dealers, alleging the company of conspiracy and fraud.
Mahindra & Mahindra has a controlling stake in Mahindra REVA Electric Vehicles. In 2011,
it also gained a controlling stake in South Korea's SsangYong Motor Company.
Mahindra launched its relatively heavily publicised SUV, XUV500, code named as W201 in
September 2011. The new SUV by Mahindra was designed in-house and it was developed on
the first global SUV platform that could be used for developing more SUVs. In India, the new
Mahindra XUV 500 came in a price range between ₹1,140,000–1,500,000. The company was
expected to launch three products in 2015 (two SUVs and pme CV) and an XUV 500 hybrid.
Mahindra's two wheeler segment launched a new scooter in the first quarter of 2015. Besides
India, the company also targeted Europe, Africa, Australia and Latin America for this
model. Mahindra President Mr. Pawan Goenka stated that the company planned to launch six
new models in the year. The company launched the CNG version of its mini truck Maxximo
on 29 June 2012. A new version of the Verito in Diesel and petrol options was launched by
the company on 26 July 2012 to compete with Maruti's Dzire and Toyota Kirloskar Motor's
Etios.
Mahindra has also entered an app based intra-city cargo platform known as SMARTSHIFT, a
first-of-its-kind load exchange platform for Small commercial vehicles. It enable's
businessmen who wish to transport cargo & transporters to find each other. The platform
enables contact, negotiation & sealing the deal between the two parties at just the click of a
button!
Mahindra Automotive North America (MANA), the company's U.S. subsidiary, opened a car
manufacturing plant in Detroit, Michigan on 20 November 2017. The plant employs 250
people, and is the first automotive production facility to open in Detroit in 25 years. The first
product from the new facility was launched on March 2, 2018 as the Mahindra Roxor. In
September 3 Mahindra Marazzo was launched.
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HISTORY
Mahindra & Mahindra was founded as a steel trading company on October 2, 1945
in Ludhiana as Mahindra & Muhammed by brothers Harikrishnan and
Jayakrishnan and Jagdish Chandra Mahindra along with Malik Ghulam Muhammad.[6] Anand
Mahindra, the present Chairman of Mahindra Group, is the grandson of Jagdish Chandra
Mahindra. After India gained independence and Pakistan was formed, Muhammad emigrated
to Pakistan. Muhammad acquired Pakistani citizenship and settled in Lahore, and in 1948
became Pakistan's first finance minister. Thereafter, the company changed its name to
Mahindra & Mahindra in 1948.[7] It eventually saw a business opportunity in expanding into
manufacturing and selling larger MUVs, starting with the assembly under licence of
the Willys Jeep in India. Soon established as the Jeep manufacturers of India, the company
later commenced manufacturing light commercial vehicles (LCVs) and agricultural tractors.
Over the past few years, the company has taken interest in new industries and in foreign
markets. They entered the two-wheeler industry by taking over Kinetic Motors in India.[8]
M&M took a 55% stake in the REVA Electric Car Company in 2010[9] and renamed it
to Mahindra Electric in 2016 following taking 100% ownership.[10]
South Korea's SsangYong Motor Company was acquired in 2011.[11] In 2010–11 M&M
entered in micro drip irrigation with the takeover of EPC Industries Ltd in Nashik.
In October 2014, Mahindra and Mahindra acquired a 51% controlling stake in Peugeot
Motocycles and acquired a 100% controlling stake in October 2019.[12]
In December 2015, Mahindra and Mahindra Ltd and affiliate Tech Mahindra Ltd, through a
special purpose vehicle (SPV), have agreed to buy a 76.06% stake in Italian car designer
Pininfarina SpA, for €25.3 million (around Rs.186.7 crore).
In January 2017, Mahindra and Mahindra Ltd acquired a 75.1 equity stake in Hisarlar Makina
Sanayi ve Ticaret Anonym Şirketi (Hisarlar), a farm equipment company, marking its entry
into Turkey and in September 2017 acquired another Turkish tractor and foundry business
Erkunt Traktor Sanayii AS for ₹800 crore.
8
In April 2020, the company ended its joint venture with Renault, with Mahindra & Mahindra
buying out Renault's stake. Renault continues to licence and supply key components such as
engines and transmissions to Mahindra & Mahindra.[13]
CAPITAL STRUCTURE :
The capital structure is the particular combination of debt and equity used by a company to
finance its overall operations and growth. Debt comes in the form of bond issues or loans,
while equity may come in the form of common stock, preferred stock, or retained earnings.
The capital structure is the particular combination of debt and equity used by a company
to finance its overall operations and growth. Debt comes in the form of bond issues or loans,
while equity may come in the form of common stock, preferred stock, or retained
earnings. Short-term debt such as working capital requirements is also considered to be part
of the capital structure.
KEY TAKEAWAYS
1. Capital structure is how a company funds its overall operations and growth.
2. Debt consists of borrowed money that is due back to the lender, commonly with
interest expense.
3. Equity consists of ownership rights in the company, without the need to pay back any
investment.
4. The Debt-to-Equity (D/E) ratio is useful in determining the riskiness of a company's
borrowing practices
Both debt and equity can be found on the balance sheet. Company assets, also listed on the
balance sheet, are purchased with this debt and equity. Capital structure can be a mixture of a
company's long-term debt, short-term debt, common stock, and preferred stock. A company's
proportion of short-term debt versus long-term debt is considered when analyzing its capital
structure.When analysts refer to capital structure, they are most likely referring to a
firm's debt-to-equity (D/E) ratio, which provides insight into how risky a company's
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borrowing practices are. Usually, a company that is heavily financed by debt has a more
aggressive capital structure and therefore poses greater risk to investors. This risk, however,
may be the primary source of the firm's growth.
Debt is one of the two main ways a company can raise money in the capital markets.
Companies benefit from debt because of its tax advantages; interest payments made as a
result of borrowing funds may be tax deductible. Debt also allows a company or business to
retain ownership, unlike equity. Additionally, in times of low interest rates, debt is abundant
and easy to access.
Equity allows outside investors to take partial ownership in the company. Equity is more
expensive than debt, especially when interest rates are low. However, unlike debt, equity
does not need to be paid back. This is a benefit to the company in the case of
declining earnings. On the other hand, equity represents a claim by the owner on the future
earnings of the company.
Firms can either issue either more debt or equity to fund its operations. By issuing equity,
firms give up some ownership in the company without the need to pay back investors; by
issuing debt, companies increase their leverage by needing to pay back investors. A
company's debt-to-equity ratio is a measure of risk for investors.
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Companies that use more debt than equity to finance their assets and fund operating activities
have a high leverage ratio and an aggressive capital structure. A company that pays for assets
with more equity than debt has a low leverage ratio and a conservative capital structure. That
said, a high leverage ratio and an aggressive capital structure can also lead to higher growth
rates, whereas a conservative capital structure can lead to lower growth rates.
Analysts use the debt-to-equity (D/E) ratio to compare capital structure. It is calculated by
dividing total liabilities by total equity. Savvy companies have learned to incorporate both
debt and equity into their corporate strategies. At times, however, companies may rely too
heavily on external funding, and debt in particular. Investors can monitor a firm's capital
structure by tracking the D/E ratio and comparing it against the company's industry peers.
BALANCE SHEET:
A balance sheet is a financial statement that reports a company's assets, liabilities and
shareholders' equity at a specific point in time, and provides a basis for computing rates of
return and evaluating its capital structure
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INTERPRETATION:
By comparing between theses three years the equity share capital is gradually increased .
Secured loans.
Unsecured loans.
SECURED LOANS:
A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then
becomes a secured debt owed to the creditor who gives the loan.
UNSECURED LOANS:
In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a
guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or
liquidation or failure to meet the terms for repayment.
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INTERPRETATION:
In the year 2018 the secured loan is 2153(in cr)and the unsecured loan is 94682(incr) and the
total debt is 96835(in cr).
In the year 2019 the secured loan is157195(in cr)and the unsecured loan is 0.00(incr) and the
total debt is 157195.00(in cr).
In the year 2020 the secured loan is 230027(in cr)and the unsecured loan is 0.00(incr) and
the total debt is 230027.00(in cr).
And from the above table we can see that in the year 2019 and2020 there is no unsecured
loan this is because in the year 2018the no of unsecured loan is higher due to the borrower
owed the creditors position for about 94682(in cr).so only the RIL industry have no
unsecured loans in the year 2019 and 2020.
The total liabilities can be calculated by summation of both equity and debt
Note:
The profit and loss (P&L) statement is a financial statement that summarizes the revenues,
costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The
P&L statement is synonymous with the income statement.
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Basic EPS
Diluted EPS
Year Equity share Basic EPS Diluted EPS
holders(in cr)
2018 6335 53.08 53.04
From the above table it can be interpreted that earnings per share can be calculated by
comparing the equity share holders.
when the equity share holder is increased the earning per share is decreased.
When the equity share holder is decreased the earnings per share is increased.
Year PBT(in cr) Tax(in PAT(in cr) PBT Tax in PAT Tax in
cr) ratio ratio
2018 45725 12113 33612 26.49% 36.03%
2019 47367 12204 35163 25.76% 34.70%
2020 40316 9413 30903 23.34% 30.45%
From the above table it can be interpreted that the tax is decreasing yearly wise.
CONCLUSION:
Debt to equity ratio reflects the relationships between the stockholders' equity and total
liabilities of the company. All businesses and investment projects need capital to operate.
However, All businesses and investment projects need capital to operate. However, financial
capital — the money tied up in the business, is not free. A project’s cost of capital is the
minimum expected rate of return the project needs to offer investors to attract money.
Simply put, the cost of capital is the expected rate of return the market requires to commit
capital to an investment. Thus, the cost of financial capital to a firm is the return the firm’s
investors (debt and equity holders) receive from lending their savings to be used by the
firm’s portfolio of investment projects.