ASSIGNMENT

PGDM Batch 2019-21

Academic Session 2019-20

Term – III

Name: Jatin Gupta

Subject: Corporate Finance

Subject Code: PG-20

Roll No: GM 19074

Question No. 1: Go through the annual report of a firm (it should be your minor project’s
company) and find out what does it state with respect to the four decision areas of financial
management. Also write down the critical points that emerge in this context.
Ans: In my minor project there are two companies were allotted and on the various financial
decision an important role in organization of a firm.
In my minor project i had allotted two companies and I have choosen a LG Electronics and
showing a financial decision of a company but before we understand that what is financial
decision
Financial Decision are 3 types:
Financing Decision:
 In the financial decision it is concerned with the procurement of funds and
analysed various sources from which such funds can be produced.

 In financing decisions every firm raised two questions and these questions are
following and I would also compare my minor project company LG Electronics.

https://retail.economictimes.indiatimes.com/news/consumer-durables-and-
information-technology/consumer-electronics/lg-india-aims-to-corner-27-pc-tv-
market-in-2019/70159859

C:\Users\user\Downloads\19 4Q_Earning Release of LGE.pdf

https://www.lg.com/global/investor-relations-reports
In the above data in will showed a LG Electronics of 2019 of 1st quarter to show the
consolidated statement and it is shown in PDF File and that will be attached in Footer

https://www.stockopedia.com/ratios/total-cash-dividends-paid-4989/

In the above data in will showed a LG Electronics of 2019 of 1st quarter comparison with
2018 4th quarter of LG Electronics and it is shown in PDF File and that will be attached in
Footer

https://retail.economictimes.indiatimes.com/news/consumer-durables-and-
information-technology/consumer-electronics/lg-india-aims-to-corner-27-pc-tv-
market-in-2019/70159859

C:\Users\user\Downloads\19 1Q_Earning Release of LGE.pdf

C:\Users\user\Desktop\2018 4TH quarter.pdf

https://www.lg.com/global/investor-relations-reports
  How much finance needed?

 From where such finance can be produced.

I will give analyses of LG Electronics by his financing decision roles in an organization and I
would relate the first quarter report of consolidated sales of revenues and incomes and
following and I will give relevant proof of this information by added in the footer and you
can checked it from the link.
There are some financing decision of LG Electronics are:
 In 2019 LG Electronics achieved a milestone and its showing in the first quarter of
2019.
 LG Electronics has announced the consolidated sales of 14.92 trillion (USD 13.27
billion and operating profit of 900.6 billion (USD 801.25 million) for the first quarter
of 2019

 In the overall first quarter revenues and operating income declined comparison in
2019 versus 2018.

 The home company appliances reported record of first quarter of sales and profits and
the operating income was 1090 percent higher than the fourth quarter of 2018 and
reflecting improved the cost structures across major business units.

 In the 2019 the LG Electronics the deposits earned from financial institution is same
from quarter 1 of year 2019 and there is change in amount from December 31 st 2018
to March 2019 but in the march the company is not audited.

 In the 2019 the LG Electronics the trade receivables and other receivables is increased
from 2018 to 2019 in the first quarter of 2019 and comparison to 4th quarter of LG
Electronics

Investment Decision:
In the Investment decision is related to utilization of funds and investing and investing in
long term and short-term funds.
In Investment decision every firm it is concerned with the procurement of funds and analysed
various sources from which such are utilized in a proper way.
 Where to invest the finance?

 Comparing investment options through long term and short-term investment.

I will give some factual data from the newspapers from the following data:
 In 2019 the LG Electronics captures 27% market share of television industry and the
funds allocated as per consumer demands and want and implementing new
technologies like artificial intelligence and to the affordable segment.

 In 2019 the LG Electronics formed OLED TV line up allow users to take voice
control one step further with Amazon Alexa and Google Assistant available out of the
box and various allocation of funds utilized in the proper manner.

 The company is only selling inverter air-conditioner models in the country whose
contribution to total AC sales has gone up from 12% in 2016 to 32% in 2017,
shooting up to 60% in 2018 with fall in prices. LG has also launched inverter
models in window AC.

 Company had increased AC price by 2% during start of the calendar year and does
not expect any further hike. The company had hikes AC prices twice last year
whereby the price went up by 7-8%.

 In the year 2018-19 the company assets increased dramatically and in the year 2018
the assets worth Rs 44,328,423 and in 2019 assets worth Rs 45,936,704 and its
showing that proper utilization of funds and positive signal through the competitors in
the market.

 The paid-up capital same in 2018 and 2019 because the amount received from
shareholders equally partition and market share of LG Electronics remain constant.

 In 2018 paid up capital of LG Electronics is Rs 904,169 and in 2019 its also same Rs.
904,169.
In the above data in will showed a LG Electronics of 2019 of 1st quarter to show the
consolidated statement and it is shown in PDF File and that will be attached in Footer

https://www.stockopedia.com/ratios/total-cash-dividends-paid-4989/
Dividend Decision:

 In this decision to taking decision whether profit is to be kept aside or distributed as

dividend and how much is to kept aside.

 How much profit is distributed to shareholders?

 How much profit should be kept as retained earnings?

 The company determine dividends considering the profit level, cash flow for the
current year, strategic investments in the future and raising shareholders value in the
market to increase shareholder value and shareholder return.

 Dividends for fiscal year 2019 to be approved by board of directors and to be

confirmed the shareholders meeting regarding dividend.

 The face value of share of last as following:

 From 2015 to 2019 the face value of share is same and no change and amount is Rs
5000

 The face value share means value of a share of stock is known as its par value, which
is the legal capital of each share of stock. A business must retain this legal capital in
its business and may not pay it out as dividends to shareholders. Face value, or par
value, has no relation to the market value of stock.

 From 2015 to 2019 cash dividend shares is different and following are following :
 In 2015: Rs. 400

 In 2016: Rs. 400

 In 2017: Rs. 400

 In 2018; Rs. 750

 In 2019: Rs. 750

 From 2015 to 2019 the cash dividend share is different because it depends upon the
liquidity of cash and from 2015 to 2017 it is amount to Rs: 400 but in 2018 -19 its
amount Rs: 750.

 Dividend per share is the total dividends declared in a year divided by the number of
outstanding ordinary shares issued. A cash dividend is a bonus paid to stockholders
generally as a part of the corporation's current earnings or accumulated profits and
will guide the investment strategy for many investors.

 From 2015 to 2019 the total cash dividends is changing according and showing are
following:

 In 2015: Rs. 72.9

 In 2016: Rs. 72.9

 In 2017: Rs. 72.9

 In 2018: Rs. 135.9

 In 2019: Rs. 135.9

 In the 2015 to to 2017 the total cash dividend is same but from 2018 to 2019 the total
cash dividend dramatically increased and its good for company stakeholders and
increase market share of LG company.
In the above data in will showed a LG Electronics of 2019 of 1st quarter to show the
consolidated statement and it is shown in PDF File and that will be attached in Footer

https://www.stockopedia.com/ratios/total-cash-dividends-paid-4989/
  The distribution of stocks to shareholders as stock dividends or bonus shares is a non-
cash activity.

Q.2Take the Balance sheet of a company (it should be your minor project’s company) and
calculate the cost from various sources of finance. Also, being a finance manager of the
respective company, comment on the position of cost of capital of the company.
Ans: Balance sheet of LG Electronics of 2018 & 2019

Market Price share in India: 27 percent

Dividend expected = Rs 750
Corporate tax = 30%
Rate of interest on irredeemable debentures = 2.70

Cost of Debt = Interest (1-t) / Net proceed * 100

Interest = Total borrowings*rate of interest/100
Current liability borrowings + Non liability borrowing
1532210+ 9523015 *2.70/100
= 1789331.405

Net Proceed = 11055225

Kd = 1789331.405 (1-3) / 11055225* 100
= -32.37
For the year ending March 2019 LG Electronics has 11055225 borrowing for which cost
is calculate as -32.37. the rate of corporate tax is 30% for the bank
Cost of Equity: Dividend / Market price of share * 100
Dividend = Rs 750
Rs 10 per share
750/10*100
7.5
Cost of equity= 7.5

For the year ending March 2019 LG Electronics has declared equity dividend Rs. 750
amounting to Rs 10 per share and dividend yield of 1.53%

Retained earning
Ke (1-t)
Ke = cost of equity
Ke = 7.5
7.5 (1-30)
-217.5
Retained Earnings= -217.5

For the year ending march 2019 LG Electronics has retained earnings of Rs. 120767078
for which cost is estimated -217.5 which is round off. The individuals tax rate is 30%
In the above data in will showed a LG Electronics of 2019 of 1st quarter to show the
consolidated statement and it is shown in PDF File and that will be attached in Footer

https://www.stockopedia.com/ratios/total-cash-dividends-paid-4989/
Recommendations:
In the above data in will showed a LG Electronics of 2019 of 1st quarter to show the
consolidated statement and it is shown in PDF File and that will be attached in Footer

https://www.stockopedia.com/ratios/total-cash-dividends-paid-4989/
 Company cost of capital is fine and it is in balanced position.

 In the previous 4 years company was over leverage when it was carrying too
much debt and unable to pay interest from loan and other expenses.

 As compare to other company LG has quite better cost of capital.

 As compare to other company LG retained earning was not in good position

because they showing in negative figure but in future it will be improved.