About the company:

In November 1975, the government-owned coal mining company Coal India Limited (CIL)
was established. In spite of its modest initial production of 79 Million Tonnes (MTs), CIL is
now the world's largest coal producer and one of the greatest corporate employers, employing
248550 people. (as on 1st April, 2022). Through its subsidiaries, CIL operates in 84 mining
locations scattered across eight (8) Indian states. As of April 1, 2022, Coal India Limited
managed 318 mines, 141 of which were underground, 158 opencast, and 19 mixed mines.
The company also oversaw the management of other facilities, such as workshops, hospitals,
and so on. There are 76 vocational training centres and 21 training institutes under CIL. The
largest corporate training institute in India and a state-of-the-art management training "Centre
of Excellence," Indian Institute of Coal Management (IICM) runs under CIL and offers
multi-disciplinary programmes.
CIL is a Maharatna firm, an honour bestowed by the Indian government on a select few state-
owned businesses to enable them to grow and become global behemoths. Out of the nation's
more than 300 Central Public Sector Enterprises, only ten are a part of the privileged club.

(i) Determine and comment on the Capital Structure of the Company for the
past 5 years including current year (2021-22, 20-21, 19-20, 18-19 & 17-18).
Analyze whether the Capital Structure is Optimum or Not?
 OPTIMUM CAPITAL STRUCTURE
12000
10000
8000
6000
4000
2000
0
Mar'22 Mar'21 Mar'20 Mar'19 Mar'18

EBIT Earning Per Share

Market Price Per Share

Analysis: The objective of financial management Is to design a capital structure which can
provide highest wealth i.e., highest MPS, which in turn depends on EPS. Therefore, higher
the EPS, more optimum the capital structure. The effect of leverage on the EPS emerges
because of the existence of fixed financial charge. The most optimum capital structure is in
year march 2020.

(ii) Calculate Cost of Debt, Cost of Preference Share Capital, Cost of Equity Capital,
Cost of Retained Earnings and Overall or Weighted Average Cost of Capital of the
Company for the past 5 years (2021-22, 20-21, 19-20, 18-19 & 17-18) on the basis of
Financial Statements/Reports.
 (iii) Calculate Operating Leverage, Financial Leverage and Combined
Leverage of 5 years (2021-22, 20-21, 19-20, 18-19 & 17-18). Analyze and
comment on the calculated leverages.

Leverage Analysis
1.01

0.99

0.98

0.97

0.96

0.95
OPERATING LEVERAGE FINANCIAL LEVERAGE COMBINED LEVERAGE

2021-2022 2020-2021 2019-2020 2018-2019 2017-2018

1. Operating leverage: It is the relationship between sales and EBIT and indicates
business risk. It means the tendency of operating income (EBIT) to change
disproportionately with change in sale volume. This proportionate is caused by
change in operating fixed cost, which does not change with change in sales volume.
Operating leverage Analysis – measures % change in EBIT which results from a 1%
change in Sales.
  2021-22: If sales increase by 1% then EBIT increases by 1.001%. If sales decrease by
1% then EBIT decreases by 1.001%.
 2020-21: If sales increase by 1% then EBIT increases by 1.004%. If sales decrease by
1% then EBIT decreases by 1.004%.
 2019-20: If sales increase by 1% then EBIT increases by 1.006%. If sales decrease by
1% then EBIT decreases by 1.006%.
 2018-19: If sales increase by 1% then EBIT increases by 1.0017%. If sales decrease
by 1% then EBIT decreases by 1.0017%.
 2017-18: If sales increase by 1% then EBIT increase by 1.006%. If sales decrease by
1% then EBIT decrease by 1.006%.
High fixed cost means high operating leverage. Low fixed cost means low operating
leverage. In the above case, it is observed that as the fixed cost increased, operating leverage
also increases.
it is high operating leverage which is riskier because 1% decrease in sales would result in
1.006% decrease in profits.
2. Financial Leverage: It is the relationship EBIT and EPS and indicates financial risk.
It maybe be defined as the use of funds with fixed cost in order to increase earnings
per share. Financial leverage analysis: measures % change in EBT which results from
1 % change in EBIT.
 2021-22: If EBIT increase by 1% then EBT increases by 1.001%. If EBIT decrease by
1% then EBT decreases by 1.001%.
 2020-21: If EBIT increase by 1% then EBT increases by 1.00021%. If EBIT decrease
by 1% then EBT decreases by 1.00021%.
 2019-20: If EBIT increase by 1% then EBT increases by 1.00047%. If EBIT decrease
by 1% then EBT decreases by 1.00047%.
 2018-19: If EBIT increase by 1% then EBT increases by 1.0017%. If EBIT decrease
by 1% then EBT decreases by 1.0017%.
 2017-18: If EBIT increase by 1% then EBT increase by 0.9723%. If EBIT decrease
by 1% then EBT decrease by 0.9723%.
3. Combined leverage: It is the relationship between sales and EPS and indicates total
risk i.e., both business risk and financial risk. It may be defined as the potential use of
fixed costs, both operating and financial which magnifies the effect of sales volume
change on the earning per share of the firm. It indicates the effect the changes in sales
will have on EBT. Combined leverage analysis:
 2021-22: If sales increase by 1% then EBT increases by 1.001%. If sales decrease by
1% then EBT decreases by 1.001%.
 2020-21: If sales increase by 1% then EBT increases by 1.0046%. If sales decrease by
1% then EBT decreases by 1.0046%.
 2019-20: If sales increase by 1% then EBT increases by 1.0067%. If sales decrease by
1% then EBT decreases by 1.0067%.
 2018-19: If sales increase by 1% then EBT increases by 1.00334%. If sales decrease
by 1% then EBT decreases by 1.00334%.
 2017-18: If sales increase by 1% then EBT increase by 1.09776%. If sales decrease by
1% then EBT decrease by 1.09776%.

(iv) Determine the Financial Break Even Point and EBIT-EPS Indifference Analysis for
5 years (2021-22, 20-21, 19-20, 18-19 & 17-18).
 Financial Break Even Point
₹200.00
₹180.00
₹160.00
₹140.00
₹120.00
₹100.00
₹80.00
₹60.00
₹40.00
₹20.00
₹-
2022 2021 2020 2019 2018

Series1
 EPS-EBIT INDIFERRENCE POINT ANALYSIS
₹200.00
₹180.00
₹160.00
₹140.00
₹120.00
₹100.00
₹80.00
₹60.00
₹40.00
₹20.00
₹-
1 2 3 4 5

EBIT EPS

Analysis: There exists no indifference point analysis because after tax cost in all the plans
other than equity shares is not same and hence forth one plan will be better than the other
plan at all the point. Therefore, there exists no indifference point.