FINANCIAL MANAGEMENT

CIA 1.1

DIFFERENT SOURCES OF FINANCES AVAILABLE

Submitted To: Prof. Bina Celine Dorathy M

Submitted By: Rohit Goyal 2123531
3 BBA FIB B
INDUSTRY CHOSEN: TYRES MANUFACTURING UNIT

Companies Chosen: MRF Tyres and GoodYear

INTRODUCTION TO MADRAS RUBBER FACTORY (MRF)

Fig: Logo of MRF

Madras Rubber Factory (MRF) is an Indian multinational tyre manufacturing firm that is the largest
tyre producer in India and the world's sixth-largest. Chennai, Tamil Nadu, India is the company's
headquarters. Rubber items, such as tyres, treads, tubes, and conveyor belts, as well as paints and
toys, are manufactured by the firm. The MRF Pace Foundation in Chennai and the MRF Challenge
in motorsport are both operated by MRF. In 1946, K. M. Mammen Mappillai established the
Madras Rubber Factory in Tiruvottiyur, Madras, as a toy balloon manufacturing plant. In 1952, the
firm expanded into tread rubber production. In November 1960, Madras Rubber Factory Limited
was established as a private company.

MRF now supplies tyres to over 65 nations throughout the globe, including the United States,
Europe, the Middle East, Japan, and the Pacific area. Its international offices are now located in
Dubai, Vietnam, and Australia.
INTRODUCTION TO GOODYEAR

Fig: Logo of GoodYear

Frank Seiberling established the Goodyear Tire & Rubber Company, an international American
tyre manufacturer, in 1898. The company is headquartered in Akron, Ohio. As of 2017, Goodyear,
Bridgestone (Japan), Michelin (France), and Continental are the top four tyre manufacturers
(Germany).

Charles Goodyear (1800–1860), an American who developed vulcanised rubber, inspired the name
of the business. Due to their simplicity of removal and low maintenance requirements, the original
Goodyear tyres quickly gained popularity.

When Goodyear decided to invest in a tyre production facility in Dalian in 1994, it became the first
international tyre producer to enter China.

Sources of raising funds for Long Term

Long-term sources of finance help get funds for a more extended period of time, say more than a
year. Eg: debt, equity shares, preference shares, and retained earnings.
The long-term sources of finance used are :
1. EQUITY SHARE CAPITAL - Equity share capital, one of the most cost-effective ways
for a corporation to raise long-term cash, creates inflows of funds through dilution of
ownership. There are no set costs associated with ordinary equity shares. Dividends are paid
only to equity owners if the company makes sufficient profits; however, dividend payments
are not required by law. Because equity shares have no maturity date, there is no duty to
redeem them. If the company has a larger equity foundation, it will have a better chance of
obtaining favourable debt financing conditions. As a result, issuing equity shares increases
the firm's credit quality.
2. RETAINED EARNINGS – - Retained earnings are the accumulated profits earned by the
Group and its associates till date, less transfer to general reserves, dividend (including
dividend distribution tax) and other distributions made to the shareholders. Retained profits
are essentially a percentage of undistributed profit that a company keeps as free reserves for
future expansion and diversification plans. This is also known as reinvested profits or
retained earnings. It increases the company's net worth because it belongs to equity
shareholders. Because it no longer needs to rely on outside sources for its financial needs,
the company's creditworthiness improves. Such a firm is able to pay regular and balanced
dividends because of its ability to use retained revenues to pay dividends in years with
insufficient income. However, because the dividend rate is very low in proportion to the
firm's profitability, excessive profit reinvestment may cause shareholders to lose money.
3. UNSECURED LOANS - An unsecured loan is one that is issued with no security. These
are high-risk loans because the lender will have no recourse if the borrower defaults. As a
result, unsecured loans are only available to individuals/professionals with a solid credit
rating, which demonstrates their creditworthiness and responsibility to repay obligations on
time.
Another condition that is emphasised on to assure repayment capacity is a consistent
income. The addition of a co-applicant increases the likelihood of the unsecured loan being
approved. However, the interest rate on an unsecured personal loan is significantly greater
than the interest rate on a secured loan.
4. Borrowings - the act of taking money from an outside party and paying it back over time,
with some additional interest. The maturity period of long-borrowings is more than a year
 and is used to finance the long-term growth and development operations of the organization
and to fund the purchase of long-term assets.
5. Lease liability - it is a financial obligation, for the payments required by a lease, discounted
to present value. It enables the business to acquire land, property, services, etc., for a
specific period( more than a year).
6. Other non-financial liabilities - these include payment obligations to be made by the
organization to third parties for loan borrowings and obligations maturing in more than a
year. These include taxes payable, warranty payments, insurance contacts, and payments.
7. Equity share capital - share capital is the money a company raises by issuing shares of
common or preferred stock. The total of equity share capital is listed on the balance sheet. It
provides adequate funds to run the business as a whole and finance all the major activities
involved in running the business.
8. Other equity - it means any shares of capital stock and any other securities that are
exercisable to purchase, convertible into, or exchangeable for shares of capital stock of the
company.

Sources of Raising Funds for Short Term

Short-term sources of finance are those used to raise funds for short periods of time that are less
than a year. Eg: commercial paper, trade credit, certificate of deposit.

The short-term sources of finance used are:

1. Secured Term Loans: A secured business loan is one that you can get in exchange for a
personal guarantee or by pledging an asset as collateral. To secure a company loan against
property, for example, you must mortgage the real estate you own. It is typically taken for a
period of less than one year and is utilised by businesses to be invested in initiatives that
could either generate enough returns to pay off the loan or the firm anticipates receiving
cash flows from various sources in the coming months. This source of cash does not impose
a long-term responsibility on the business, nor does it impose ongoing interest payments.
2. Unsecured short-term loans: As the name suggests, these loans are utilised for short-term
purposes and are at the discretion of the company. Because no collateral is attached to these
loans, banks must charge higher interest rates to offset the risk. Revolving loans provide
 borrowers with the option of variable payment schedules. In comparison, term loans are a
horrible idea. Length loans vary from revolving loans in that they have a set interest rate
and period. Term loans are best for those who need money for fixed assets or long-term
investments.
3. Foreign currency loans: The sensitivity rate of 5% is utilised for reporting foreign
currency risk to key management staff internally, and it represents management's judgement
of the reasonably possible change in foreign exchange rates. Only outstanding foreign
currency denominated monetary items are included in the sensitivity analysis, which
changes their translation at the period end for a 5% change in foreign currency rates. A
positive value implies an increase in profit or equity when the rupee rises by 5% against the
applicable currency. A 5% depreciation of the rupee against the corresponding currency
would have a comparable impact on profit or equity, and the balances below would be
reduced.
4. Borrowings - the act of taking money from an outside party and paying it back over time,
with some additional interest. The maturity period of short-borrowings is less than a year
and is used to finance shortages in working capital.
5. Lease liability - it is a financial obligation, for the payments required by a lease, discounted
to present value. It enables the business to acquire land, property, services, etc., for a
specific period( less than a year).
6. Trade payables - they are obligations to pay for goods and services that have been acquired
from suppliers in the ordinary course of business. Payment is due within a year.
7. Other financial liabilities - these include financial instruments such as commercial papers,
non-convertible debentures, etc., all payable within a year and help the organization finance
its immediate operations and working capital shortages.
8. Other current liabilities - these include financial obligations that the company has to make
to third parties within the present year. These liabilities include interest payments, interest
expenses, accrued costs, etc.
9. Provisions - it is the amount set aside from the profits made by the organization to finance
its expansion, growth, and development activities( retained earnings).
 SOURCES OF RAISING FUNDS OF MRF TYRES

SOURCE 2020-2021 ( in cr.) 2019-2020 ( in cr.) 2018-2019 ( in cr.)

OF
FUNDING
SHORT-
TERM
FUNDS
1. BORROWING - 3.73 299.15
2. LEASE 78.61 64.29 -
LIABILIT
Y
3. TRADE 19.97 17.24 5.44
PAYABLES
DUE TO MSE’s

4. TRADE 545.57 428.73 452.84

PAYABLE
DUE TO
OTHER
THAN MSE’s
5. Other current 112.66 0.44 420.54
financial
liabilities

6. Other current 37.58 18.55 21.93

liabilities

7. provisions 22.20 14.33 12.67

TOTAL 816.59 546.31 1212.57
LONG-
TERM
SOURCES
DEBT

1) borrowings - - 125.67
2) Lease liability 216.92 178.13 -
3) Other 0.44 0.47 0.78
non-current
financial
liabilities
 EQUITY

1) Equity share 647.77 647.77 624.08

capital

2) Other equity 11,657.51 10,487.75 4,970.40

TOTAL 12522.64 11314.12 5720.93
OVERALL TOTAL 13338.99 11860.43 6933.5
YEAR ON YEAR CHANGES ANALYSIS OF MRF TYRES

The year 2020 saw the onset of a global pandemic that hindered and shut down economic trade and
economies as a whole around the world. That prevalent situation saw a downfall in production,
consumption, investments, and employment in the economy.

As observed in the annual reports of MRF Tyres., there was a fall in the borrowings from external
parties, due to the risk of the inability of repayments due to the prevalent scenarios, and other
financial and current liabilities. There was a significant drop observed in the repayments of long-
term borrowings, short-term borrowings, financial liabilities, interest payments, and an increase in
the payment of lease liabilities and interest expenses.

Due to the expansionary policies, the large amount of supply chain logistics involved, and the huge
discount provided on every product from its MRP, Company needs a constant influx of funds, to
facilitate its operations and activities smoothly. With the fall in the debt of the company due to the
various scenarios, Company had to arrange for an alternative influx of finance to keep things afloat.
This came in the way of a rise in the equity share capital and other forms of equity, financial
liabilities and other current liabilities, lease liabilities, and trade credit received from MSEs and
other third parties.

Company saw a huge paradigm shift in its capital structure as it went from having a well-balanced
proportion between debt and equity to having a capital structure more solely focused on funding the
operations and assets of the business through equity and conservative debt.

INTEREST RATES AND REPAYMENT OPTIONS FOR THE AVAILABLE

SOURCES OF MRF TYRES
• Bank loans that are repayable on demand are secured by hypothecation of inventories and book
debts in an amount equal to the outstanding amount, with interest rates ranging from 6.60 percent to
8.85 percent (Previous year - 7.40 percent to 8.45 percent)

• The principal number of Debentures, interest, remuneration to Debenture Trustees, and all other
costs, charges, and expenses payable by the company in respect of Debentures are secured by a
legal mortgage of the company's land at Taluka Kadi, District Mehsana, Gujarat and hypothecation
by way of a first charge on Plant and Machinery at the company's plants at Perambalur, near
Trichy, Tamil Nadu, equal to the outstanding amount.

• 1800 (Previous year 3400), 10.09% Non-convertible Debentures of ` 10,00,000 each are to be
redeemed at par in three instalments.

• • USD 20 million ECB (Unsecured) from MUFG Bank, Ltd. (Old name: Bank of Tokyo-
Mitsubishi UFJ, Ltd) in May 2015 is for capital expenditures. Interest is paid half annually at a rate
equivalent to six months USD LIBOR plus 1.00 percent margin (previous year-six months USD
LIBOR + 1.00 percent margin). Beginning in May 2019, the stated Loan is completely hedged and
repayable in three equal yearly instalments at the conclusion of the fourth, fifth, and sixth years.

• ECB (Unsecured) from the HSBC Bank

a) The USD 20 million that was made available in October of 2015 was for capital expenditures.
Interest is paid half annually at a rate equal to the six-month BBA LIBOR + 1.25 percent margin
(previous year- six-month BBA LIBOR plus 1.25 percent margin). Beginning in October 2019, the
stated Loan is completely hedged and repayable in three equal yearly instalments at the conclusion
of the fourth, fifth, and sixth years.

b) The USD 45 million in December 2017 was set aside for capital expenditures. Interest is paid
half annually at a rate equivalent to the six-month BBA LIBOR plus a 0.80 percent margin
(Previous year six months BBA LIBOR plus margin of 0.80 percent). The aforementioned Loan is
fully hedged and will be repaid in full in December 2022.

• In February 2019, HSBC Bank provided a 150-crore rupee term loan for capital expenditure.
Interest is paid monthly at a rate equal to the three-month T-Bill rate plus a 1.49 percent margin
(previous year: 1.49 percent). In February 2024, the stated Loan will be repaid in full
SOURCES OF RAISING FUNDS OF GOODYEAR TYRES

SOURCE 2020-2021 ( in cr.) 2019-2020 ( in cr.) 2018-2019 ( in cr.)

OF
FUNDING
SHORT-
TERM
FUNDS
1. BORROWING 1503.90 1291.02 374.67
2. LEASE 7.74 12.50 -
LIABILIT
Y
3. TRADE 26.23 22.26 25.71
PAYABLES
DUE TO MSE’s

4. TRADE 708.30 919.13 635.14

PAYABLE
DUE TO
OTHER
THAN MSE’s
5. Other current 1708.81 353.42 394.81
financial
liabilities

6. Other current 32.91 259.56 81.00

liabilities

7. provisions 1.33 1.33 0.42

TOTAL 3981.48 5149.22 1511.75
LONG-
TERM
SOURCES
DEBT

1. borrowings 3335.55 4,405.25 5893.92

2. Lease liability 17.61 32.57 -
3. Other 269.30 428.02 661.23
non-current
financial
liabilities

4. provisions 6.32 7.79 7.61

EQUITY
1. Equity share 98.86 98.86 98.71
capital

2. Other equity 2474.55 3531.50 3859.51

TOTAL 6202.19 8503.99 10520.98
GRAND TOTAL 10183.67 13653.21 12032.73
INTEREST RATES AND REPAYMENT OPTIONS FOR THE
AVAILABLE SOURCES

 Bank loans that are repayable on demand are secured by hypothecation of inventories and
book debts in an amount equal to the outstanding amount, with interest rates ranging from
6.60 percent to 8.85 percent

 By increasing our availability under the facility by about $230 million as of December 31,
2020, we added the value of the eligible machinery and equipment. Based on our current
liquidity, the interest rate for loans under the facility rose by 50 basis points to LIBOR +
175 basis points, and undrawn sums under the facility will be subject to a 25 basis point
annual commitment charge.

 We updated and restated our $2.0 billion first lien revolving credit facility on April 9,
2020. The term of the facility has been changed to April 9, 2025, and the borrowing base
has been increased by $100 million in addition to the value of eligible machinery and
equipment and the amount attributable to the value of our key trademarks. Based on our
current liquidity, the interest rate for loans under the facility rose by 50 basis points to
LIBOR + 175 basis points, and undrawn sums under the facility will be subject to a 25
basis point annual commitment charge..

NBFC’S And Development Agencies

● There are several NBFC’S providing collateral free loan to businesses such as HDFC
Business Loan, SBI Small Business Loan, Fullerton India Business Loan, Kotak
Mahindra Business Loan.
● Interest Rate 9.15% to 10.15%

Repayment Options
 ● As the interest rate of term loan and working capital from the Bank is the highest, our
priority will be to repay this loan first.
● As Debentures have a fixed maturity period, it is less of a concern. Though we
understand that interest would need to be paid at regular intervals.
● At last, we would recommend paying the IREDA loan as it has a long tenure of 10
Years and lowest interest rate among all.

Conclusion

The financial situation of a company plays an important role in determining the quality of
product or services the company provides. Funding is the fuel that powers a business. To
attain funding, a company can use different routes and channels which depend on the type of
the business, current position of the company and the objectives the company plans to
achieve. However, there are some other inevitable procedures a company must follow such as
the eligibility criteria and documents required for acquiring funds.

Thus, from the report we can conclude that MRF and GoodYear, being the largest Tyre
Manufacturing company and a public limited company, uses various sources of funds,
predominantly, Retained earnings, Equity capital and Debt capital for various applications.
The company is expected to repay the term loan and working capital from the bank due to
high interest rates. Being a public company helps these companies generate more capital as
anyone can invest in the company.

REFERENCES:
1. Limited, M. MRF Ltd financial results and price chart - Screener, from
https://www.screener.in/company/MRF/consolidated/

2. MRF Share Price, MRF Stock Price, MRF Ltd. Stock Price, Share Price, Live BSE/NSE,
MRF Ltd. Bids Offers. Buy/Sell MRF Ltd. news & tips, & F&O Quotes, NSE/BSE Forecast
News and Live Quotes, from
https://www.moneycontrol.com/india/stockpricequote/tyres/mrf/MRF

3. Stock Share Price | Get Quote | BSE, from https://www.bseindia.com/stock-share-

price/mrf-ltd/mrf/500290/

4. MRF – Investor Relations – Shareholder Info, from

https://www.mrftyres.com/shareholder-info

5. Debt Financing, from https://www.investopedia.com/terms/d/debtfinancing.asp

6. e- Finance Management, from https://efinancemanagement.com/sources-of-finance

7. How Equity Financing Works, from

https://www.investopedia.com/terms/e/equityfinancing.asp

8. Requirements to Obtain Bank Financing for Your Business, from

https://gatewaycfs.com/bff/bank-loan-requirements-businesses

9. From http://www.iepf.gov.in/IEPF/Eligibility_norms.html

10. From https://www.paisabazaar.com/business-loan/eligibility/

11. MRF (company) - Wikipedia, from https://en.wikipedia.org/wiki/MRF_(company)

12. Meaning of Capital Work in Progress | Bizfluent. https://bizfluent.com/about-7221654-

capital-work-progress-meaning.html
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sheetVI/GI11

14 Goodyear annual report 2020

https://www.goodyear.co.in/wp-content/uploads/Goodyear-India-Limited-Annual-
Report_2020-21.pdf