Sai Kiran Final Project Mba

Study on Capital Structure
2016-17
INTRODUCTION
Industry Profile
Industries are the pointing lights of the growth of the country. The development and
growth of a country largely depends on industrialization of its economy. India is basically
an agriculture based country. Post-independence, India has given importance to the
growth of industrial development five year planning programs.
Government has taken a leading march to uplift the movement of industrialization. For
any country small or big developed or developing need good infrastructural facilities such
as roads dams, tunnels etc. The infrastructural facilities are the primary needs for the
transportation or movement of goods. Roads play a vital role in this aspects. Tremendous
development has taken place in science And technology which has mechanized every
work in every field. Manually carried out work is productive and time consuming. Thus
to increase efficiency and productivity mechanical equipment came in to existence and
almost every field is mechanized. As such the demand for such mechanical equipments
has increased tremendously. The incorporation of the industry during the first five year
plan when India was economically weak. The main objective of setting up of industries
was to manufacture heavy earth moving equipments rail coaches and heavy duty trucks.
Defence products etc.
Growth and Development of the Industry
 Construction and Mining Equipment Industry: - The construction and mining

equipment industry plays a vital role in the economic development of our country.
This industry is closely linked with major development around infrastructural
sectors such as coal and mineral, mining, irrigation, road, power
projects,ports,stell,cement etc.
The GOI is actively engaged in raising funds from multilateral financial
development institution such as the World Bank, International Finance
Corporation (IFC) and Asia development bank(ADB) to promote various
infrastructure projects across India. Construction companies in India are typically
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Civil engineering companies which undertake construction work on a contract
basis in sectors like roads, mining, structures, power project etc
The earth moving equipment machinery industry rail manufacturing industry has
achieved a certain level of machinery the changes in machinery design are more
evolutionary, Even so there is continuous progress of new technology in to the
machinery. Currently the new technology that is the focus of several new standard
projects involves the addition of electronic devices and software to the machinery.
 Railway and Metro Products Industry: - Indian railways are considered as the
back bone of our national transport. It is worlds second largest system under one
management which has an extensive route length. It is often described as the
nations lifetime with its vast network and reach. Indian railways are largest
employees according to the railways budget 2007.
Over the last few years Indian railways has managed to achieve a dramatic
reinvention of its business and is presently witnessing one of the most impressive
and unprecedented expansion in the history. The freight and passenger traffic on
Indian railways has been growing at CAGR of 9.4% the revenue has grown even
faster at 12.9 the sharp upturn in the performance has come about has a result of
conscious strategy to recapture the predominant position of railways in the
transport sector.
 Defence Products Industry: - Defence production is under the department of

defence production (DDP). The DDP deals with indigenization, development and
production of defence equipment both in the public and private sectors. It caters to
production infrastructure for aircraft t and helicopters,warships,submarines,heavy
vehicles and earthmovers,missles a variety of electronic devices and components
for the defence sector and alloys and special purpose steel. DDP has substantial
infrastructure developed over the consisting of 40 ordinance factories and 8
defence public undertaking including BEML
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Chapter.2
INTRODUTION TO FINANCE:
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In our present day economy finance is defined as the provision of money at the time
when it is acquired. Every enterprise whether big, medium of small needs finance to carry
on its operation and to achieve its targets. In fact, finance is so indispensable today that it
is rightly said to be the lifeblood of an enterprise. Without adequate finance no enterprise
can possibly accomplish its objectives
Definition of Finance
Finance is one which describes it as that administrative area of set of administrative

functions in an organization which have to do with the management of the flow cash so
that the organization will have the means to carry out its objectives as satisfactorily as
possible and at the same time to meet its obligation
According to Entrepreneurs Finance is concerned with cash. It is so since every business

transaction involves cash directly or indirectly
As such it deals with the situations that require the selection of specific liability as well as
the problem of size and growth of enterprise. The analysis of these decisions is based on
the expected inflow and outflow of funds and their affect upon managerial objective
Types of Finance
1. Public Finance: - They are further classified in to various types
a) Public Finance
b) Government finance
c) State Government
d) Local Government
e) Central Government
2. Private Finance: - They are further classified in to various types
a. Personal finance
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b. Personal Finance
c. Business finance
d. Finance to Profit.
Types of Finance
The subject finance has been classified in to two types
 Public finance
 Private finance
 Public finance: - Public finance deals with the requirements receipts and
disbursement of funds in the government institutions like states, local self-
government and central government
 Private finance: -is concerned with requirements receipts and disbursements of

funds in case of an individual a profit seeking business organization and a non
profit organization
Thus private finance can be classified into
 Personal Finance
 Business Finance
 Finance of nonprofit organization
Meaning of Business Finance
The word business literally means a state of being busy. All creative human activities
relating to the production and distribution of goods and services for satisfying human
wants are known as business. It also includes all those activities which indirectly help in
production and exchange of goods such as transport, insurance, banking and warehousing
etc. Broadly speaking the term business includes industry trade and commerce
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Definition of Business Ethics
According to Prather and wert Business finance deal primarily with raising
administering, and disbursement funds by privately owned business units operating in
non-financial fields of industry.
Or
According to Guthmann and dougall Business finance can be broadly defined as the
activity concerned with the planning, raising, controlling and administering the funds
used in the business.
Finance Function
Finance Function is the most important of all business function. It remains a focus of all
activities. It is not possible to substitute or eliminate this function because the business
will close down in the absence of finance. The need for money is continuous. The
development and expansion of business rather than needs more commitments for funds.
Aims of Finance function
 Acquiring sufficient funds: - the main aim of finance is to assess the financial
needs of an enterprise and then finding out some suitable sources should be
commensurate with the needs of business. If funds are needed for longer period
then long term sources like share capital,debentures,term loans may be explored.
 Proper Utilization of Funds: - though rising of funds is important but their

effective utilization is more important. The funds should be used in such a way
that maximum benefit is derived from them. The returns from their use should be
more than the cost. The funds committed to various operations should be
effectively utilized.
 Increasing Profitability: - The planning and controlling of finance aims at

increasing profitability of the concern. It is true the money generates money. To
increase profitability, sufficient funds have to be invested. A proper control
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should also exercised so that the scare resources are not frittered away on
uneconomical operation
 Maximizing Firms value: - Finance function also aims at maximizing the value
of the firm. It is generally said that a concerns value linked with its profitability.
Even though the profitability influences a firms value but it is not all. Besides
profits the type pf source used for raising funds, the costs of funds, the condition
of money market, the demand for product are some other considerations which
also influence a firms value.
Scope of Finance Function
 Estimating financial requirements: - the first task of financial manager is to

estimate short term and long term requirements of his business. For this purpose,
he will prepare a financial plan for present as well as for future. The amount
required for purchasing fixed assets as well as needs of funds for working capital
will have to be ascertained.
 Deciding capital Structure: - Capital structure refer to the kind and proportion of
different securities for raising funds. After deciding about the quantum of funds
required it should be decided which type of securities should be raised. It may be
wise to finance fixed assets through long term debts. A decision about various for
funds should be linked to the cost of raising funds.
 Selecting pattern of investment: - after preparing a capital structure an

appropriate source of finance is selected. Various sources, from which the finance
may be raised include share capital, debenture, financial institutions, commercial
banks, public deposit etc. If finance are needed for short period then banks, public
deposit and financial may be appropriate. The needs, purpose object and cost
involved may be the factor influencing the selection of suitable source of
financing.
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 Proper cash Management: - Cash management is also a important task of
finance manager. He has to asses various cash needs at different times and then
make arrangements for arranging cash.
Cash may be required to
 Purchase raw material
 Make payments to creditors
 Meet wages bill
 Meet day to day expenses
The usual source of cash may be
 Cash Sales
 Collection of debts
 Short term arrangements with banks etc
Introduction to Financial Management
According to van horne and wachowiz financial management is concerned with

the acquisition, financing and management of asset with some overall goal in
mind. Financial management has to forecast expected events in business and
note their financial implements.
Objectives of financial management
 Profit maximization
 Wealth maximization
 +Profit maximization: - Profit earning is the main aim of every economic

activity. A business being a financial institution must earn profit to cover its cost
and provide funds for growth. No business can survive without earning profit.
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Profit is measure of efficiency of a business enterprise. Profit also serves as
protection against risk which cannot be ensured. The accumulated profit enable
business to face risks like a fall in price, competition from other units, adverse
government policies etc. Thus profit maximization is considered as the main
objective of business.
Arguments in favour of profit maximization as the objective of business
 When profit earning is the aim of business then profit maximization should be the
obviously objective
 Profitability is a barometer for measuring efficiency and prosperity of a business

enterprise. Thus profit maximization is justified on the ground of rationally
 Profitability is essential for fulfilling social goals. A firm by pursing the objective
of profit maximization also maximizes socio=economic welfare.
 Wealth Maximization: - is the appropriate objective of an enterprise. Financial

theory assets that wealth maximization is the single substitute for a stock holders
utility. When the firm maximizes the stockholders wealth., the individual
stockholders can use this wealth to maximizes his individual utility. It means that
by maximizing stockholders wealth the firm is operating consistently towards
maximizing stockholders utility
Introduction to Capital Structure
Every organization requires funds to run and maintain its business the required funds may
be raised from short term sources or long term sources or a combination both the sources
of funds, so as to equip itself with an appropriate combination of fixed assets and current
assets. Current assets to a considerable extent are financed with the help of short term
sources.
Normally, firms are expected to follow a prudent financial policy, as revealed in the
maintenance of net current assets. These net positive current assets must be financed by
long term sources. Hence long term sources of funds are required to finance for both.
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 Long term assets (fixed assets)
 Net working capital (Positive Current assets).
A firm can easily estimate the required funds by a detailed study of the investment
decision. In other words, anticipation of the require funds may be estimated analyzing the
investments decision. Once anticipation of require funds is completed then the next step
is financial for the manager to make decisions related to the finance or the selected
investment decisions. Generally capital is raised from the prime source are
 Equity
 Debt
Then the questions are what should be the proportion of equity and debt in the
capital structure of a company.
As the objective of a firm should be directed towards the maximization of the

valve of the firm, the capital structure decision should be examined from the point of its
impact on the firm. If the valve of the firm can be affected by capital structure, a firm
would like to have a capital structure, which maximizes the market valve of the firm.
There exist conflicting theories on the relationship between capital structure and the valve
of the firm.
Meaning of Capital structure
Capital structures refer to the mix of long-term of sources of the funds, such as
debentures, long-term debt and preference shares. Some companies do not plan there
capital structure they may face considerable difficulties in raising funds to finance there
activities. May also fail to economize the use of their funds.
Features of an appropriate capital structure
The capital should be planned generally keeping in view the interest of the equity
shareholders, being the owners of the owners of the company. An appropriate capital
structures should have the following features:
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 Return
 Risk
 Flexibility
 Capacity
 Control
Approach to establish capital structure:
There are 3 most common approaches to decide about a firms capital structures.
1. EBIT-EPS APPROACH: For analyzing the impact of debt on EPS.
2. VALUATION APPROACH: To know value of the company.
3. CASH FLOW APPROACH: For analyzing the firms ability to Serve debt.
Practical Considerations in determining capital structures:
 Concern for dilution of control

 Desire to maintain operating flexibility.
 Ease of marketing capital inexpensively.
 Capital for economics of scale.
 Agency costs.
Capital structure decisions are significant finance of the corporate firm in that
they influence the return as the risk of equity shareholders.
That there exist close Nexus between optimum judicious debt and the market
valve/valuation of the firm is well recognized in literature of finance. While the excessive
use of debt may endanger every survival of the corporate firms, the conservative policy
may deprive its equity-holders the advantage of debt as a cheaper source of finance to
magnify their rate of return.
Following such an over-conservative policy runs counter the basic objective of financial
decision making to maximize the wealth of equity holder.
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Apart from financial risk return consideration, non-financial factors are also likely
to be very decisive in designing capital structure of the corporate famous for instance use
of debt, unlike equity doesnt dilute the controlling power of existing owners in brief,
debt is not an unmixed blessing and, hence a dilemma for the corporate finance manager.
ASSUMPTIONS
 Firms employ only two types of capital, debt and equity.

 The firm has a policy of paying 100% dividends.
 The corporate and personal income taxes do not exist.
 The operating profit (EBIT) is not accepted to grow.
 The total assets are given and do not change.
 Business risk is constant over time and is assumed to be independent of its capital
structure.
Practical Considerations in Determining Capital Structure
The determination of capital structure in practice involves additional considerations in

addition to the condemns about EPS,Valve cash flow. Attitudes of managers with regard
to financing decisions are quite often influenced by their desires, not to lose control to
maintain operating flexibility and to have convenient and cheaper means of raising funds.
The most important considerations are: -
 Concern for dilution of control
 Desire to maintain operating flexibility
 Ease of marketability capital inexpensively
 Capacity for economic of scale
A. Widely Held Companies: -The ordinary shareholder the directors of the

company. Of company issues new shares, there is risk of dilution of the
control. This is not a very important consideration in the case of widely
held companies. The share of a company is widely scattered. Most of the
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shareholders are not interested in taking active part in the companys
management they do not have time and money to attend the meetings.
B. Closely Held Companies: - the consideration of maintain control may be

significant in case of ac closely held small company. A shareholder or a
group of shareholders can purchase all or most of the new share and
control the company. Even it the owner manager hold the majority shares,
there freedom to manage the company will be curtailed when they go
initial public offerings to avoid the risk of loss of control, small companies
may slow their rate of growth or issue preference shares or raise debt
capital. If closely held companies can ensure a wide distribution of shares
they need not worry about the loss of control so much.
C. Flexibility: - is one of the most serious considerations in setting up the

capital structure .Flexibility means the firms ability to adapt its capital
structure to the needs of the changing conditions. The company should be
able to raise funds without undue delay and cost whenever needed to
finance the profitable investments. It should also be in a position to
redeem its preference capital or debt whenever warranted by the
conditions.
D. Loan Covenants: -Restrictive covenants are commonly included in long

term agreements and debentures. These restrictions curtail the companys
freedom in dealing with the financial matter and put inflexible position.
Convent ants in loan agreements may include restriction of distribute cash
dividends to incur working capital at a particular Level.
E. Early Replay ability: - A considerable degree of flexibility will be

introduced if a company has the discretion of early replaying its debts
preference share capital. This will enable management to retire or replace
cheaper source or finance for the expensive one whenever warranted by
the circumstances. When a company has excess cash flows and does not
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have profitable investments opportunities it becomes desirable to retire
debt.
F. Reserve Capacity: -The flexibility of capital structure also depends on the

companys debt capacity. The greater the debt capacity and the greater the
availability of unused debt capacity, the greater it will not in a position to
borrow additional funds to finance unforeseen and unpredictable expect at
restrictive and favorable terms. Therefore, company should not borrow to
limits of its capacity but keep available some unused or raise funds in
future to some sudden demands for finance.
G. Marketability: -means the readiness of investors to purchase a security in

a given period of time and to demand reasonable return. It does not
influence the initial capital structure but it is an important consideration to
decide about the appropriate timings of security issues. Due to the
changing market sentiments the company has to decide whether to rsie
funds with an equity issue or a debt issue.
H. Market Conditions: - if the share market is depressed the company

should issue debt and wait to issue equity shares till the share market
revives. During boom period in the share market it may be benefit for the
company to issue shares at high premium.
I. Flotation Cost: - are not a very important factor influencing the capital
structure of a company. flotation cost is incurred only when the funds are
externally raised. The costs of floating a debt are less than the cost of
floating and equity issue. This may encourage a company to use debt
capital no flotation costs as a percentage of funds raced will decline with
larger amount of funds. Therefore, it can be important consideration in
deciding the size of security issue.
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Capacity of Raising Fund
The size of the company may influence its capital and availability of funds from different
sources. A small company finds great difficulties increasing long term loans. If it is able
to obtain some long term loan it will be available at a higher rate of interest and
inconvenient terms. The highly restrictive conventants in loan agreements in case of
small companies make their capital structure very inflexible and management cannot run
business freely without any interference. Small companies therefore depend on share
capital and retained earnings for their long term funds. It is quite difficult for small
companies to raise capital in the capital markets.
Benefits of Capital Structure
 Long term dept:- By standard accounting definition long term debt includes
obligations that are not due to be repaid within the next Months . Such debt
consists mostly of bonds r similar obligations including a great variety of notes
capital lease obligations and mortgage issues.
 Preferred stock:- This represents an equity interest in the corporation but one
with claims ahead of the common stock, and normally with no rights to share in
the increased worth of a company if it grows.
 Common stockholders equity:- this represents the underlying ownership on the

corporation s books it is made up of
 The nominal par of stated value assigned to the shares of outstanding

stock.
 The capital surplus or the amount above par value paid the company
whenever it issues stock.
Demerits of Capital Structure
 Financial Stress: - The most common demerits to the use of the debt is the can
exert on a company. Companies that have a high debt to equity ratio in their
capital structure may see an increased risk in potential bankruptcy. Without enugh
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equity as a cushion to absorb potential asset losses declines in asset value cab
further spread in to debt prompting debt holders to seek court protection. The
burden of making or going debt payments can also cause financial distress on a
company. Failure to make scheduled payments may force a company in to default
status.
 Financing Cost: - There often is a tradeoff between obtaining in expensive debt

financing in the present and potentially sustaining higher financing costs in the
future. Because the use of debt adds financial distress and increases the risk of
potential bankruptcy for a company future investor both debt and equity investors
may require require higher rates of return on their investments, increasing a
company financing costs. While companies should take benefit of debt financing
they should also use debt within companies should take a benefit of debt
financing they should also use debt within their borrowing ability to avoid or
reduce potential negative effects.
DEFINITION AND SYMBOLS
BASIC SYSMBOLS
S=Total market value of money.
B= Total market value of debt.
I= Total interest payments.
V= Total market value of the firm. (VS+B).
NI=Net income available to equity holders.
BASIC DEFINITION
1. Cost of debt=Interest/Market value DebtX100
Valve of debt (B) =I/K1
2. Cost of equity (Ke) = (DI/Po) +g (if there is income tax)
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Where DI= net divided;
3. Overall cost of=EBIT/value of the companyX100
Po=current market price of shares
g=br(r=rate of return)
(If there is no IT) Ke= (E 1(X) N) = (EBIT-I orNI)/s
Per share basis (PO) =E1/K
Total basis(s) =PON=(EBIT-1)/Ke
Weighted average cost of capital
K0=W1K1=W2K2 (w1, w2 are relative weight) or
K0= (I-NJ)/ (v=EBJT/V
Where V=EBIT/K0
Determinants of Capital Structure
1. Cost of borrowings (CB): When the cost of borrowing increases, the

dependence on borrowed funds is likely to decline. As a result, the leverage ratio is
expected to have a negative relationship with the cost of borrowing. The cost of
borrowing can be measured as total interest payment as percentage of total borrowings of
total borrowings of the firm.
2. Cost of Equity (CE): If the cost of equity increases, the firm is likely to
depend more on debt than equity capital. Therefore, the leverage ratio can be accepted to
be an increasing function of the cost of equity. This variable can be measured as the ratio
of dividend payment to share capital of the company.
3. Size of the Firm (SF): It has been suggested by a number of authors that the
size of the firm is likely to be positively related to the leverage ratio. The rational behind
this view is provided by Warner (1977), and Angchua and McConnell (1982). They have
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argued that the ratio of direct bankruptcy costs to have firm s valve decreases as the valve
of firm is said to be negligible is also argued that the larger firms are more diversified and
they have easily access to the Capital Markets, and borrow more favorable interest rates.
Also Chung (1993) argued that the larger firms have lower agency costs associated with
the assets substitution and under investment problems which mostly arise from the
conflicting interests of shareholders? Further, the similar firms are more likely to be
liquidated when they are in financial distress. All, such considerations suggest a positive
relationship between the firm size is measured as the volume of total assets of firm and
the leverage ratio.
4. Probability (PR): Myers (1977) suggested that the firms prefer retained
earnings as their main source of financing. Their second preference is for debt financing
followed by new equity issues, which might be due to the significant transaction cost of
issuing new equity. It is suggested that the observed capital structure of the firm would
reflect the cumulative requirements for external financing. An unusually profitable firm
with a slow growth rate will end up with an unusually low leverage low ratio compared
with the industry average in which it operatives. On the other hand, an unprofitable firm
in the same industry will end up with a relatively high leverage ratio. The profitability of
the firm enables it to use retained earnings over external finance and therefore, one
should accept a negative.
Association between the profitability of the firm and its debt ratio. Barton and
Gordon (1988) have also argued that a firm with high rates would maintain a relatively
lower debt level because of its ability to finance itself with internally generated funds.
This is consistent with the proportion that the management of firm desire flexible and
freedom from the profitability of the firm. Which can be measured as the ratio of
operating income to total assets, will be negatively related to the debt level of the firm?
5. Growth Rate (GR): The growing firms need more funds. The greater the
future need for the funds, the more likely that the firm will retain earnings or issue debt.
A firm is except to rarely on debt financially to rely on debt financing to maintain its debt
ratio as its equity increases due to the large retention of earnings. Thus the firm s debt
level and growth rate are expected to have a positive relationship. This variable can be
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measured as the annual growth rates are expected to have a positive relationship. This
variable can be measured as the annual growth rate of total assets of the company.
6. Collateral Valve of Assets (CVA): Some capital structure theories have

argued that the type of assets owned by the firm affects its capital structure choice. Scott
(1977) a suggested that by selling the secured debt, the firms can increase the valve of
their equity by taking away the wealth without payment, from their existing unsecured
debtors. By issuing debt secured by assets, the firm can avoid higher interest costs and
high issuing cost. For these reasons the firms with assets that can be used as collateral
may be expected to issue more debt. Therefore, the collateral valve attribute can be one
of the determinants of capital structure of the firm. This variable can be measured as the
ratio of accounts receivable plus net fixed assets to total assets, and it can be expected to
be positively related with the leverage ration.
7. Liquidity (LQ): Liquidity ratios are mostly used to judge a firms ability to
meet its short term obligations. The liquidity ratio may have conflicting affects on the
capital structure decisions of the firm. First, the firm with higher liquidity rations might
have relatively higher debt rations. This is due to greater ability to meet short-term
obligations. Form this viewpoint one should accept a positive relationship between the
firm liquidity position and its debt ratio. However, the firms with greater liquid assets
may use these assets to finance their investments. If this happens there will be a negative
relationship between the firms liquidity ratio and debt ratio. We include the liquidity as
the argument in our capital structure determination model. It is measured as the ratio of
current assets to current liabilities and the direction of its effect on capital structure is
allowed to be empirically determined.
8. Non-Debt Tax Shields (NDTS): DeAndelo and Masulis (1980) presented a

model of optimal capital structure that incorporated the impact of corporate taxes
personal taxes and non-debt related corporate tax shields such as deprecation, investment
tax credits, etc. They argued that to use less borrowed capital. NDTS [Operating Income-
Interest Payments-(tax payments/corporate tax rate)]/Total assets. The relationship
between the non-debt tax shields and leverage ratio can be expected to be negative.
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THEORIES OF CAPITAL STRUCTURE
Different kinds of theories are have been
1. Net Income Approach(NI)

2. Net Operating Income Approach(NOI)
3. The Traditional Approach
4. Modigliani and Millar Approach(MM)
1. Net Income Approach (NI): This approach introduced by Durand. A firm can
minimize weighted average cost of capital and increase the valve of the firm and
share valve in the market. This approach is based upon the following
assumptions:
(I) The cost of debt is less than the equity.
(ii) There are no taxes.
(iii) The risk percentages of inversion are not changed by
The use of the debt.
Degree of leverage
The reasons for assuming cost of debt is less then cost of Equity are that interest
rates are lower than divided rates due to element of risk and the benefit of tax as the
interest is a deductible expense.
The total market value of a firm on the basis of NI is:
V=S+D
V=Total market value of firm.
S=Total market value of equity shares
(or)
NI/Equity capitalization rate.
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D=market valve of debt.
Weighted Average Cost of Capital can be calculated as:
KO=EBIT/V
Degree of leverage:
The reasons for assuming cost of debt is less than the cost of equity are the interest
rates are lower than dividend rates due to elements of risk and benefit of tax as the
interest is a deductible expense.
The total market value of firm on the basis of NI is:
V = S+D
V = Total market value of firm
S= Total market value of equity share
(or)
NI/Equity capitalization ratio
D=Market value of debt.
Weighted average cost of capital can be calculated as
KO = EBIT/V
2. Net Operating Income Approach: This theory suggested by Durand. It is opposite

to the NI approach. Here Change in the capital structure of a company does not effect in
the market valve of the firm and the weighted cost of capital remains constant whether
the debt-equity mix is 50:50 or 20:80 or 0:100. This theory presumes that:
(i) The market capitalizes the valve of the firm as a whole

(ii) The business risk remains constant.
(iii) There are no corporate taxes.
The valve of the firm can be determined as:
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V=EBIT/KO
KO=Overall cost of capital
Ke(0/0)
Ko(0/0)
Ki(0/0)
OX
Leverage and cost of capital(NOI)
The market valve of equity is:
S=V-D
S=Market value of equity shares
V=Total market value of firm
D=Total market value of debt
3. The Traditional Approach
The traditional approach also known, as Intermediate Approach is a compromise

between the two extremes of income approach and net operating Income approach.
According to this theory, the valve of the firm can increase initially or the cost of
capital can be decreased by use more debt is a cheaper sources of funds than equity.
Thus, a proper debt-equity mix can reach the capital structure When the increased
cost of equity cant be offset by the advantage of low cost debt. Thus the overall cost
of capital according to this theory, decrease up to a certain point, remains more are
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less unhinged for moderate increase in debt thereafter, and increase or rise beyond a
certain point
Ke
Ko
Kd
5. Modigliani -Miller
Traditional Approach (MM) Approach:
The MM thesis
relating to the relationship between capital structures, cost structures, cost of capital
and valuation is a kin to the NOT approach, in other words, does not provide
operational justification for the irrelevance of the Capital Structures. The MM
proportion supports the NOT approach relating to the independence of the
independence of the capital of the degree of leverage level of debt-equity ratio.
In (Rs)
V
(0/0)Ko
Vo
Degree of Leverage (B/V)
Basis Proportions
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1) The overall cost of capital (KO) and the valve of the firm (V) are independent of
the capital structure.
2) Ke is equal to the capitalization rate of a pure equity stream plus premium for
financial risk\to the difference to the pure equity capitalization (Ke) time the
ratio of debt to equity.
3) The cut off rate for investment purposes is completely independent of the way
in which an investment is financed.
Assumption
a) Perfect capital market the implication of a perfect capital market is that.

 Securities are infinitely divisible.
 Investors are free to busy/sell securities.
 Investors can borrow without restrictions;
 There is no transaction cost.
 Investors are rational.
b) Given the assumption of perfect information and rationally.
c) Business risk is equal among all firms with in similar Operating environments.
INVESTMENTS:
Total investments, as on 31st March, 2008 is Rs.4782.66 Lakhs as against Rs.2887.28

Lakhs as on 31st March, 2007.
1. FINANCIAL
TURN OVER AND PROFIT: BHARATH EARTH MOVERS LIMITED recorded a
turnover of Rs. 344032.16 Lakhs during 2007-08 as against Rs.251645.89 Lakhs during
2006-07.Net profit after Tax is Rs. 38335.04 Lakhs as compared to Rs.26568.32 Lakhs
during the previous year i.e.2006-07
CAPITAL STRUCTURE:
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The authorized share capital of BHARATH EARTH MOVERS LIMITED is
Rs.12000.00 Lakhs. The issued, subscribed and paid up capital 575435 shares of Rs.10/-
each allotted as fully paid up with out payments being received in cash pursuant to a
scheme of amalgamation and 5949480 shares of Rs.10/- each allotted as fully paid up
bones shares by way of capitalization of reserve, 400000 shares of Rs.10/- each Rs.3.75/-
per share received in cash and balance credited as bonus by way Capitalization of
Reserve 45743318 ordinary Shares of Rs.10/- each fully paid Rs.4574.16 Lakhs.
2. SECURED LOANS
1. TERM LOANS from
a) Rs.50833 Lakhs from State Bank of India.
b) Rs.4880 Lakhs from State Bank of Hyderabad.
c) Rs.1632 Lakhs from State Bank of Bikaner & Jaipur
d) Rs.3256 Lakhs from State Bank of Indore.
e) Rs1221 Lakhs from State Bank of Mysore.
3. FROM SCHEDULED Banks 12650.96 Lakhs
4. UNSECURED LOANS:
By Fixed Deposits Rs.164.22 Lakhs
By Security Deposits from selling agents and others Rs.12246.08 Lakhs
Short term Loans Rs.11511.06 Lakhs
Interest free loan from State Industrial & Investment Corporation of Maharashtra Ltd.
Rs.16.05 Lakhs.
5 .RESERVES AND SURPLES:
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 CAPITAL RESERVE:-During the year the company has not transferred any
capital.
 GENERAL RESERVE:-Rs.4000 Lakhs have been transferred from profit &
Loss account during the year. The closing balance as on 31st march 2015 is
Rs.31391.5 Lakhs
 FOREIGN PROJECT RESERVE:-During the year, the company did not make
Foreign Project Reserve.
CAPITALISATION STATEMENT
Sl.no Particulars As on 31-03-2008(in lakhs)
Debt:
a)Short term
A b)Long term Debt 97106.02 24375.36
B Total Debt 121481.38
a)Equity Share Capital
C b)Results and Surplus 4574.16 93617
D Total Equity 98191.16
Total Valve of the company

E Debt/Equity Ratio 1.23%
5. SHARE CAPITAL:
The company did not raise any Capital during the year under report. The authorized
Capital Company is 1,20,00,00,000 Equity Shares of Rs.10/- each. The ISSUED AND,
SUBSCRIBED, PAID-UP CAPITAL of the company is 4, 57, 43,318 Equity shares of
Rs.10/- each fully paid.
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2016-17
YEAR TOTAL DIVIDEND TOTAL PAID UP CAPITAL
PAID
2014-15 2943.45 4574.16
2013-14 2086.35 4574.16
2012-13 1546.76 4574.16
2011-12 1303.97 4574.16
2010-11 1290.11 4574.16
2009-10 1036.11 4574.66
6. DIVIDENDS:
7. PROFIT:
Profit before Depreciation & Tax Rs.64180.08 Lakhs during the current year 2014-
15against previous year 2013-14 was Rs.40008.97 Lakhs. Provision for Income Tax for
the year 2014-15 Rs.16500 Lakhs as against previous year 2006-07 Rs.7500 Lakhs.Profit
after Tax works out Rs. 26568.32 Lakhs in 2014-15 against Rs.26568.32 Lakhs for the
year of 2006-07.
8. EPS Calculation:
Particulars 2012-13 2013-14 2014-15
Net Profit After Tax (Rs.in

Lakhs) 4570.92 26568.32 38335
No. of Equity shares 45743.318 45743.318 45743.318
EPS 9.99 58.08 83.8
Face Valve of Share 10/- 10/- 10/-
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9. WORKING RESULTS:
Particulars 20014-15 2013-14 2012-13 2011-12 2010-11
Turnover in Lakhs 156572.15 170901.53 187781.55 251645.89 344032.16
Interest 3149.73 2041.1 2278.97 2991.29 5210.72
Depreciation 5359.18 5349.2 5157.17 5830.64 8926.89
PBT 8299.5 4351.28 8092.92 34178.32 55253.19
Provision for tax 2000 1000 3400 7500 16500
PAT 6299.5 3351.2 4570.92 26568.3 38335
Dividend & Tax 1143.5 1143.5 1372.29 1829.73 2558.5
Research & Design
TITLE OF THE STUDY:
A Study on Capital Structure , at Bharat Earth Movers Limited.
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INTRODUCTION:
In the broadest sense of the word, the definition of research includes any gathering of
data, information and facts for the advancement of knowledge. The purpose of research
can be a complicated issue and varies across different scientific fields and disciplines. At
the most basic level, science can be split, loosely, in to two types, pure research and
applied research. Therefore, the asset of company can be financed either by increasing
the owners claim or the creditors claim. The owners claim increasing when the firm rises
from by equity or by retaining the earnings the creditors claims increase by borrowings.
The financial structure of an enterprise is shown by left hand side of balance sheet, long
term claims are said to form the capital structure of the enterprise. The term capital
structure used to represent the proportionate relationship between the equity and debt
capital structure influences the shareholders return and risk
Research Design
Meaning: The research design refers to the overall strategy that you choose to integrate
the different components of the study in a coherent and logical way, thereby, ensuring
you will effectively address the research problem; it constitutes the blueprint for the
collection, measurement and analysis of data.
Definition of Research Design
According to David J Luck and Ronald S Rubin, A research design is the

determination and statement of the general research approach or strategy adopted of the
particular project. It is the heart of planning. If the research design adheres to the
research objective, it will ensure that the clients needs are served.
OBJECTIVES OF THE STUDY:
 Primary Objectives:
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To know the overall effectiveness of in Rail Coach and metro division of BEML
LIMITED.
Secondary Objectives of the study:
 To ascertain the impact of capital structure on sales, Gross profit and Earning per
share
 To ascertain and analysis whether the unit of BEML have an Optimum capital
structure
 To ascertain the determination of capital structure
 To compare the efficiency between one firm and other
 To reflect the financial position of the BEML
 To know the Capital structure of the company
 To know about the soundness of the financial performance of the company
 To examine the factors affecting the financial &operational performance of the
company
 To assess market strength and position of the company.
 To establish trends this is helpful in preparing future plans.
Significance of the Study
The analysis and interpretation of capital structure is made by using various techniques of
analysis each having their own merits and demerits. The company to derive meaningful
decisions concerning financial matters can evidently use the report. Moreover, the study
is confined to BHARATH MOVERS LIMITED ONLY
STATEMENT OF THE PROBLEM:
Type of research design used:

Conclusive Research Design:
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Conclusive research design is typically more formal and structured than exploratory
research. It is based on large representative samples, and the market information
obtained is subjected to quantitative analysis. Conclusive research is designed to assist
the decision maker in determining, evaluating and selecting the best course of action to
take in a given situation. As shown in the figure conclusive research designs may either
be descriptive or casual.
Implementation of the research design:
Out of various types of research design, conclusive research design is implemented to

the complete the work.
Research Methodology
The process used to collect information and data for the purpose of making business
decisions. The methodology may include publication research, interviews, surveys and
other research techniques and could include both present and historical information.
In other words, research methodology is the way to try to figure out new ideas for the
development of the company.
Data Collection
Data collection considered the fieldwork, which was looking for all types of people in
all areas to participate in research studies. Data collection process includes field work
and desk work for collecting all relevant data and information. Field work includes
interviewing the personnels by interacting them face to face by visiting them in home or
arranging group meetings at any preferred place.
METHODOLOGY OF DATA COLLECTION:
The methods of data collection have been done under two heads:
 PRIMARY DATA
 SECONDARY DATA
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 PRIMARY DATA:
Primary data was collected through discussions with higher authorities and managers
regarding. The procedures implementation of cost control / reduction measures other
functions performed by them.
 SECONDARY DATA:
It is the data collected from Bill of material, purchase procedures followed in placement
of purchase orders,
Stores operations data, SAP output of work order performances obtained from higher
authorities regarding work order costs and product Costing methods.
SCOPE OF THE STUDY:
A study was conducted in Rail Coach and metro division BEML Ltd" to analyses the
Capital structure techniques in detail. Maintaining optimum long term funds is the
difficult task for the organization. It is to be maintained in such a way that performance
of the organization should not get affected and act as a motivation force for to increase
efficiency between one firm and other. This study highlights problem implementing in
Capital structure
LIMITATIONS OF THE STUDY:
Although the study is conducted in an exhaustive manner as possible, it suffers from

certain limitation.
 Research has taken only 3-year data for the analysis and evaluation for finding out
the rate of interest of the company. Since time was shorter in nature lacks
incomplete evaluation of the firm
 The secondary was largely depending on the secondary data profit and loss
account and balance sheet of the KPR builders
 The time spent in the company was not sufficient
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 The study is only interim reports
 Due to the limited time available the authenticity of conclusion draws based on
the observation made cannot be ensured
 The figures and facts claimed in the annual reports and other forms are assumed
to be true
 It is based in the data supplied by the factory personal
 Discussion about the project could be conducted only with a few officials due to
the time constant
 Highly confident matters could not be procured due to know and unknown
reasons
 It is confined to the city of Bangalore.
 Time was major constraint so research study could not be made in depth.
Research Methodology Flow Chart

PROBLEM STATEMENT
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IDENTIFY OBJECTIVES
OBJECTIVE 1 OBJECTIVE 2 OBJECTIVE 3
INFORMATION COLLECTION
PRIMARY INFORMATION SECONDARY INFORMATION
INTERVIEWS / LITERATURE REVIEW

QUESTIONAIRE
DATA ANALYSIS /
INFORMATION
TABLES GRAPHS &

FIGURES
FINAL RESEARCH
CONCLUSION
Overview OF the Chapter Scheme:
The data collection, analyses, interpretation etc., are chapterised in the following order:
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 Introduction: It is the introduction chapter for the study. In this chapter, the
researcher is introduced to the readers. It gives an over vie of the study.
 Company Profile: Company profile includes, introduction about the company,

there products and their competitors etc., are considered.
 Research Design: It considered the title of the study, introduction, statement of

the problem, scope of the study, objective of the study etc.
 Analyses & Interpretation: Analyses & Interpretation is the main part of the
research. It analyses & interprets the full cost sheet of the company.
 Findings: - This chapter gives the details on the findings dealt with analysis and
interpretation
 Suggestions: - This chapter provides details of suggestions depending upon the

findings
 Conclusions: - This is finally the overall performance of the depending upon the
companys structure
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CHAPTER-3
LITERATURE REVIEW
Capital structure, or what is generally known as capital mix, is very important to control
the overall cost of capital in order to improve the earnings per share of shareholders.
After globalization and liberalization, various financial sector reforms were started by
governments, such as reducing rates of interest etc., which directly affected the capital
structure planning of firms. Due to this situation, the fertilizer industry also reorganized
their capital structure.
The financing of a capital structure decision is a significant managerial decision.

Initially, the company will have to plan its capital structure at the time of its promotion.
Subsequently, whenever funds have to be raised for finance and investment, a capital
structure decision is involved.
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In this research article, researchers try to evaluate the concept of capital structure, capital
structure planning and patterns of capital We found that both companies are using the
maximum possible long-term debt in their capital structure planning.
During the study period, the various companies raised more and more long-term funds
to meet their development and expansion needs because debt is a cheaper source of
finance, especially from 1994 1995 onwards when rates of interest decreased regularly in
the Indian capital market
COMPANY PROFILE
Background and Inception of the Company
BEML Limited (formerly Bharat Earth Movers Limited) was established in May 1964 as
a Public Sector Undertaking for manufacture of Rail coaches & Spare parts and Mining
Equipment at its Bangalore Complex. The Company has partially disinvested and
presently Government of India owns 54 percent of total equity and rest 46 percent is held
by Public, Financial Institutions, Foreign Institutional Investors, Banks and Employees.
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During the Financial year 2008-2009, BEML achieved a sales turnover of INR 3013
crores and a pretax profit of INR 387 crores. The export earnings touched INR 304
crores. BEML Limited (BEML) conferred with Mini-Ratna Category-1 Status and under
the administrative control of Ministry of Defence, is a multi-technology company
offering high-quality for diverse sectors of economy such as coal, mining, steel,
limestone, power, irrigation, construction, road building, aviation, defence, metro and
railways.
BEML is ranked as The Largest and Most Profitable Construction Equipment

Company by Construction World-NICMAR, 2007. It has emerged in the forefront of
heavy engineering Industry with a track record of growth and revenues for over four
decades. For its innovative management practices the company has been awarded the
Golden Peacock Innovation Management Award. BEML has also been rated as The
Fourth Largest Wealth Creator in the Country by Dalalo Street Magazine. In Keeping
with the global technology trends, the company is setting up R&D Centre of Excellence
for Research in Metro Rail System in Bangalore.
NATURE OF THE BUSINESS:
In past three decades, BEML has been expressed as leading corporate giant in
manufacturing sophisticated earth moving equipments for vital applications in diverse
sectors of economy. BEML operates on three major business verticals for associated
equipment manufacturing:
 Mining and Construction Business:
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BEML Limited offers a comprehensive and diverse range of mining machinery for both
opencast and underground mines. BEML produces machines such as Electric Rope
Shovels, Hydraulic Excavators, Bulldozers, Wheel Loaders, Wheel Dozers, Dump
Trucks, Motor Graders, Pipe Layers, Tyre Handlers, Water Sprinklers and Backhoe
Loaders. Besides, BEML also manufactures mammoth Walking Draglines for cost-
effective operations in the opencast mines. BEML has ventured in to underground mining
with opencast mines. BEML has ventured in to underground mining with products such
as Side Discharge Loader, Load Haul Dumper, Winch, Winder, Granby Car, Skip etc.
The Boom in the mining industry has opened up new avenues for BEML in contract
mining. BEML has formed a joint venture company with its partner, Midwest Granite
Limited and P T Sumber Mitra Jaya, Indonesia to take up contract mining within the
country and overseas. The joint venture company is called BEML-Midwest Limited and
the company will bid for coal and other mining contracts in India and abroad.
 Rail and Metro Business:
In recent years, BEML limited has forayed in to high-tech Metro Trains deployed for
intra-city commuting. BEML is expanding its infrastructure to meet the greater needs of
metro projects coming up in the country. Also, BEML supplies equipment to Indian
Railways which include Integral Rail Coaches, Overhead Electric Inspection Cards,
Postal Vans, Ac/Dc Electric Multiple Units, D-EMUs, Utility Track Vehicles, Track
Laying Equipment, Broad-Gauge Rail-bus, Treasury Vans, and spoil Disposal Units etc.
 Defense Business:
Being Indias leading defense equipment manufacture, BEML Limited keeps the Indian
Army and other defense forces abreast with state-of-the-art military equipment. The
company manufactures variants of Tatra vehicle for all terrain operations including
Bridge Layer, Field Artillery Tractor, Medium & Heavy Recovery Vehicle, Pontoon
Mainstream Bridge Systems, Crash Fire Tenders, Mobile Mast Vehicle, etc. BEML also
supplies Engineering Mine Ploughs, Tank Transportation Trailers, Weapon Loading
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equipment, Armored Recovery Vehicle, Milrail Coaches and Wagons apart from Aircraft
Weapon Loading Trolley and Aircraft Towing Tractor. BEML Plays a stellar role in the
countrys Integrated Guided Missile Development Project by supplying ground support
vehicles. The company has also created a world class test track at its KGF Complex to
test define equipment and vehicles.
VISION
To become a market leader, as a diversified company supplying products and service to

Mining & Construction, Railway & Metro and Defense Service and emerge as an
International Player.
MISSION
1. Improve competitiveness through organizational transformation & collaboration /

strategic alliances / joint ventures in technology.
2. Grow profitably by aggressively pursuing opportunities in national and

international markets.
3. Attract and build people in a rewarding and inspiring environment by fostering

creativity and innovation.
OBJECTIVES:-
 To maintain a dominant position in design, development, manufacture and

marketing of Defense, Earthmoving, & Construction and Rail & Metro
equipment.
 To diversify and grow.
 To provide total engineering solutions to its customers.
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 To internationalize operations by enhancing exports.
 To improve profitability.
 To maintain State-of-the-Art technology for all products.
 Re-orientation of the business operations to match present scenario.
 Continuous building of skills and competencies to bring about Executive

Effectiveness for Management Succession.
COMMITMENT TO QUALITY POLICY:
BEML Limited views Quality improvement as a business strategy and hence remains
proactive in the areas of product and service quality. At BEML, a Corporate Quality
Policy emphasizing Total Quality Management ensures that quality system adopted
results in precuts services and processes that meet stringent standards and requisite
performance criteria. A separate Quality Department spearheads the thrust towards Total
Quality Management. All the manufacturing units of the company have been certified for
ISO 9001-2000 Quality Management System Standards. The facilities include custom
made test tracks to evaluate performance of the equipment.
Also, the manufacturing divisions are augmented with test facilities available at its R&D /
Technology Division. Laboratories at R&D, KGF and Mysore Complex are accredited to
National Accreditation Board for Laboratories (NABL) covering Calibration of Flow,
Pressure, Torque and Mechanical Instruments. Both EM and HP Divisions of KGF
Complex have been accredited with ISO 14001-2004 EMS certification. Well
established vendor base is a key strength of BEML. Vendor assessment and development
is a key component of the companys strategy for achieving Total Quality. Quality
Improvement initiatives required for both evolutionary and revolutionary improvements
are in place. Concept of 5S, Kaizen and Quality Circles are practiced at grass root level.
BEML is actively pursuing Six Sigma methodologies to achieve breakthrough in
process/ product improvements. In 2006, it has launched company-wide Six Sigma
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2016-17
movement and the initiative has gained momentum with many on-going projects
progressing well and completed projects being implemented successfully.
Quality Function Deployment is actively pursued in the organization. Cross-functional

teams routinely visit customer sites to capture Voice of Customer . Such actions have
resulted in incorporating a number of product improvements to fine tune product features
on both in-house developed as well as collaborated products to suit specific customer
requirements and operating conditions. BEML actively promotes small group activities to
encourage and enhance Quality Culture at all levels. The small group activity teams
regularly participate in regional/national/international level competition and have
achieved recognition as meritorious performers. It is our proud privilege to mention that
our QC teams have raised the BEML flag high in the international arena by
winning.Silver Medal in the recently concluded ICQCC 2009 international
competition held at Sebu, Philippines. Gold Medal in the ICQCC-2008 international
competition held at Dhaka, Bangladesh
PRODUCT PROFILE:
BEML limited (formerly known as Bharat Earth Movers Limited) as a full- fledged
corporation was established in 1964 with Bangalore Complex as the mother unit. The
Bangalore Complex (the then Rail Coach Factory) was in existence from 1947.
As a part Of Aircraft Factory (currently Hindustan Aeronautics Limited) initially, the

division was manufacturing Rolling Stock producing various models of Broad Gauge
Coaches. Subsequently, over the years, the metro coaches and some of the defence
42
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products manufacturing also has been added in this complex. The products manufactured
at Bangalore Complex are:-
 Rail & Metro
 Stainless Steel Metro Cars for DMRC
 Passenger Coaches
 Dc Electric Multiple Units
 AC Electric Multiple Units
 Overhead Equipment Inspection Cars
 Rail Bus
 Treasury Vans
 Spoil Disposal Units
 Track Laying Equipment
 Sky Bus
 Mil Rail Coaches
 Utility Track Vehicle(UTV)
DEFENCE:
 Variants On BEML-Tatra Trucks
 Prithvi Missile Launcher
 Field Artillery Tractor
 Crash Fire Tender
 Pontoon Bridge System
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 Trailers-50T,20T
 Railway Products for Defence
 Wagons
 Military Rail Coach
PRODUCTS OF BEML
 Mining and Construction:
Crawler Dozers Wheel Dozers Excavators Dump Trucks
Loaders Backhoe Loaders Walking Dragline Rope Shovel
Sprinklers Graders Underground Tyre Handler C-Crane
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Mining
 Rail and Metro:
Stainless Steel Metro Cars Passenger Coaches AC Electric Multiple Units
Stainless Steel A C EMUS DC Electric Rails Bus Multiple Units Rail Bus
Overhead Equipment Inspection Cars:
Treasury Vans Spoil Disposal Track Laying Sky Bus Units

Equipments
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Utility Track 8-WheelerOHE 4-WheelerOHE
 Engines:
Diesel Engines Diesel Generator Set
 Hydraulic Aggregates:
Hydraulic Pump Hydraulic Cylinder Hydro-Pneumatic Control Valve
Suspension
 Power Line Aggregates:
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Transmission Axle Bevel Gear
 Aggregates for BMP:
Transmission Ejector & Air Cleaner Final Drive

Assembly
AREA OF OPERATION:
BEML has 9 manufacturing units spread over the following locations:
1. Kolar Gold Fields (KGF) Complex (around 100 Km from Bangalore)
 Earth Moving Divisions
 Rail Coach Unit II
 Heavy Fabrication Unit
 Hydraulic & Power Line Division
2. Mysore Complex (around 130 Km from Bangalore)
 Truck Division
 Engine Division
3. Bangalore Complex:
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 Rail & Metro Division
4. Vignyan Industries,
A subsidiary located at tarikere (around 300km from Bangalore)-Steel Castings.
5. Palakkad Complex
Defence & Rail Division BEMLs wide network of sales offices enables buyers with
ready access to its wide range of products. Also, the full-fledged service centers and parts
depots offer total equipment care, maintenance contracts and rehabilitation services.
LEADERS IN INDIA & GOING GLOBAL: -
BEML Limited has an expanding international presence in more than 52 countries spread
worldwide including Syria, Tunisia, UAE, Jordan, Suriname, South Africa, U.K Sri-
Lanka, Bangladesh, Philippines, Indonesia, Oman, Nepal etc. An Export house with Star
Exporter status, BEML has proven strength in export of engineering goods as well as
other equipment. Plans are in the offing to setup assembly operations at Morocco,
Suriname and Indonesia in partnership with local players. Besides, BEML has an
international office-cum-warehouse in Malaysia and an international procurement office
in China. BEML has dealers/Distributor operating from Syria, Tunisia, Srilanka & UAE
and representatives in Morocco and Suriname. With an effective system of Extension
Service Management, BEML has its marketing network in Middle East, Africa and Far
East Countries. BEML has secured repeat orders from countries like Syria and Tunisia
for its products in view of their commendable performance.
GLOBAL MANAGEMENT OF BEML:
BEML Malaysia Sdn-Bhd, at Johor, an International Warehouse-cum-office has been

launched recently to cater to the after sales support for Far East Countries. BEML Brazil
Ltd, at Espirito Santo, Brazil has been launched to have the manufacturing facilities for
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catering to the requirements of the LATAM Region. Plans are in the offing for
establishments in other potential territories.
COMPETETORS OF BEML:
The following are the competitors for BEML RAIL COACHES
 CATERPILLAR INC
 L&T
 KOMATSU
 TELCO
 JCB
 VOLVO
 DOZCOMETRO
 ALSTON FRANCE
 CAF SPAIN
 BOMBARDIAN
 CAVARKI JAPAN
 SIEMENS GERMANY
 HINDUSTAN MOTORS
 TATRA UDYOG
 ASHOK LEYLAND
 JESSOP ENGINEERING
 LARSEN & TOURBO
 INEGRAL COACH FACTORY
 HITACHI
 WASPO
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Bankers
 State Bank of India
 State Bank of Mysore
 Canara Bank
 State Bank of Maharashtra
 Bank of India
 Central Bank of Baroda
 Punjab National Bank
 State Bank of Patiala
 State Bank of Bikaner and Jaipur
 Union Bank of India
 State Bank of Sourashtra
 State Bank of Huderabadh
Exports
 Syria
 South Africa
 Moracco
 Myanmar
 Bahrain
 Afghanistan
Customers
Government/Public Sector
 Coal India Limited
 Neyvel lignite Corporation
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 Rajasthan State Mines and Minerals
 National development Corporation
 Hindustan Copper Limited(HCL)
Future Growth and Prospects
A Parliamentary committee has asked finance ministry to grant the company

Infrastructure statute. This would enable BEML to import components free to import
duty and vastly improve its bottom line. The privatization of BEML is currently being
discussed by the core group of secretaries. The Company has drawn up VISION 2013
with an ambitious growth rate of 12% CAGR for crossing 5,000 Cr turnovers with this
emerging prospects, BEML has plans to cross 5,000 Cr in the next 2 years and is poised
to achieve 10,000 Cr mark by 2016-17 and the company is gearing up with necessary
infrastructure for achieving the same.
1. Mc Kinsey 7-s Frame work
Mc Kinsey 7S framework. Developed in the early 1980s by Tom Peters and

Robert Waterman, two consultants working at the McKinsey & Company
consulting firm, the basic premise of the model is that there are seven internal
aspects of an organization that need to be aligned if it is to be successful.
The Seven Elements
The McKinsey 7S model involves seven interdependent factors which are

categorized as either hard or soft elements: -
Hard Elements Soft Elements
Strategy Shared Values
Structure Skills
Systems Style
Staff
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Hard elements are easier to define or identify and management can directly influence
them: These are strategy statements; organization charts and reporting lines; and formal
processes and IT systems.Soft elements, on the other hand, can be more difficult to
describe, and are less tangible and more influenced by culture. However, these soft
elements are as important as the hard elements if the organization is going to be
successful.The way the model is presented in Figure 1 below depicts the interdependency
of the elements and indicates how a change in one affects all the others.
Figure .1 The McKinsey 7S Model
STRUCTURE
STRATEG SYSTEMS
Y
SHARE
D
VALUES
SKILLS STYLE
STAFF
Structure
A structure is the hierarchy of authority and accountability in an organization. These

relationships are frequently diagrammed in organizational chats most organizations use
some mix structure pyramidal matrix or networked ones to accomplish their goals. A
structure is the formalizing the relationship, roles and responsibility in order to organize
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and perform work. In simple terms structure is the pattern in which various partner or
components are interrelated or interconnected. So, organization structure is the pattern to
relationships among various activities and positions. Because persons hold these
positions, the structure is the relationship among people in the organization.
INFRASTRUCTURAL FACILITIES:
BEML has its manufacturing units at Kolar Gold Fields, Mysore and Bangalore,
incorporating hi-tech manufacturing facilities with sophisticated CNC machines, arc-
welding robots, etc A Multi-million rupee heavy equipment shop turns out to be a
critical structure for industry. The company owns a captive foundry at Tarikere (M/s
Vignyan Industries). It has all basic facilities required for manufacturing and also
specialized machines and equipments for manufacturing different product.
Defence product in BEML
 Tank Transportation trailer

 PMs Bridge
 Crash fire tender
 Aircraft towing tractor
 Aircraft weapon loading trollery
 Missile launcher on tratra
 Missile launcher on tatra
 Ammunition loader vehicle
 Wagons
 Milrail coach
 Pontoon bridge system
WORK FLOW MODEL:

ORDERS
MARKETING
CORPORATE PLANNING
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PLANNING AND
PURCHASE DEPARTMENT
Director
Director PURCHASE
Director Director Director
(Defence) Director
(Mining& (Metro & (Human
Construction) Railways) (Finance)
STORES Resource)
CGM
RAIL CGM (Mining CGM (Metro CGM
(Defence
COACH & & Railway) CGM (HR)
(Finance)
Aerospace) Construction) DEFENCE
MANUFACTURING
GM
TATRA TRAILER PMS
SUB - ASSEMBLY Asst GM

M F G - SHOP M F G SHOP
M F G SHOP
FINISHING Senior
SUB - ASSEMBLY ManagerSUB ASSEMBLY SUB ASSEMBLY
ROLL OUT
Manager
ROLL OUT EJECTOR &
AIR
DELIVERY CLEANER
Asst
Manager
ORGANISATIONAL STRUCTURE OF BEML:
Officers /
Engineers
Supervisors (S4,
S3, S2, S1)
54
Group E, D, C, B,
A employees
2016-17
DEPARTMENTAL FUNCTIONS-ROLES & RESPONSIBILITIES:
 PRODUCT DESIGN DEPARTMENT:
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In BEML, the product design is done in-line with the production. The design for
the new product is given by this department. Technically qualified design engineers are
involved in the process. The specifications, designs, layout and required materials for the
product are designed and specified. The drawings of the product indicate the dimensions,
size shape and every minute detail of the product. The final drawing is then forwarded to
the Planning department.
 PLANNING DEPARTMENT:
In BEML, the planning department performs two major functions:
 Material Planning
 Facilities Planning
Materials planning involve the decision to decide whether the raw materials
required for the production should be manufactured or bought from vendors, etc
Facilities planning involve the plan for machineries, available man hours,
machine efficiency, etc Planning department functions in hand with Finance
department.
 PURCHASE DEPARTMENT:
In purchase section is decentralized and each section is responsible for the procurement
of its requirement. The purchase section is involved in procuring only the requires
amount of material so as to minimize the expenditure in inventory and keep the inventory
as minimum as possible. The major functions of this department are:
 Identification and selection of suitable source of supply of materials.
 Analyzing of bids and prices by ensuring fair opportunity to the supplier.
 To keep in view, the Govt. regulation in regard to purchase and tax.
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 Issue of purchase orders, follow up for suppliers.
 PRODUCTION CONTROL/PROGRESS DEPARTMENT:
The production control/progress department plays a vital role in monitoring the

movement of products from one process to another until the finished goods are delivered.
The various functions of this department are:
 Provide job cards to direct employees.
 Deciding on raw materials
 Calculation of MODVAT.
 Giving orders to agencies (sub-contracts), if required.
 Calculations of wastage, tolerance and acceptance of the product.
 The Consolidated materials request (CMR) is used by the progress

department.
 PRODUCTION DEPARTMENT:
BEML, Bangalore complex is specialized in producing rail coaches and defence

equipments. Hence production department is divided in to three groups:
 Defense
 Rail Coaches
 Metro rail
The various facilities of production department are:-
 To reduce cost of production
 To meet the changes in production schedule. The overall production process is

carried out in different stages.
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 FINANCE DEPARTMENT:
BEMLs growth in terms of turnover and profitability besides investment in the block
asset and working capital has been tremendous over a period of time. Unless proper
accounting of the various transactions of the company are done systematically, the
control on various departments and functions of the company will be suffered. The
overall finance department contains various sections:
 Pay Rolls
 Bills Payable
 Cash Office
 Budgets, Reports & Costs (MIS)
 Bills Receivable
 Provident Fund
 Book Keeping
The main Function of Finance department is procurement of raw material on the

requirements and constraints. Procuring is done just in Time (JIT) to avoid inventory
cost. Final purchase order is issued to the purchase department.
 EQUIPMENT SHIPPING DEPARTMENT:
In BEML, this shipping department functions as a part of marketing department, but has
its own functions. The main function of this department is to dispatch the finished
products after receiving the approval from inspection. The goods are delivered through
various modes of shipment depending on the types of product. They are:
 Rail
 Road
 Wagons-for defense products.
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The department is also responsible for deciding on insurance to be taken for the product
and also the time of dispatch. It should dispatch immediately after inspection. So as to
reduce the inventory cost.
 MARKETING DEPARTEMNT:
BEML has an effective marketing network that provides customer with immediate access
to BEML, wide range of products and services. The company s marketing strength and
reach has enabled it to achieve a share of even 70% in the Indian market. The corporate
headquarter is in Bangalore but the Central marketing unit has been shifted to KGF where
most of the equipment for commercial purpose are manufactured. It has regional offices,
a large number of direct offices, spare parts depot and service centers located within the
country and also abroad.
 Human Resource Department:
The HR department is the central part which combines all the departments in the
company.
 HR Vision:
HR will be a Dynamic, Pro-Active & Strategic Business Partner to enable BEML to

maintain its leadership position in all its Business Domains
 HR Mission:
 To continuously innovate evaluate and realign HR practices with the

environment, business strategies/ directions and employee expectations to
maintain relevance to attract, nurture and retain talent.
 To foster a spirit of creativity and innovation amongst the employees by

facilitating creation of a rewarding, inspiring and motivational organizational
climate.
 To act as a champion of change and managing the people implication of

organizational changes.
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 HR strategies:
 Align all HR activities with the Organizations Business Strategies.

 Employee Empowerment.
 Develop Leadership Capability.
 Manage Attrition and Retention of Key Personnel.
 Efficient and Effective Service Delivery.
 Develop Proactive Strategies on Employee Relations.
The Various Functions OF HR Department are;
 Wage & Salary administration.
 Recruitment & Selection
 Performance Appraisal
 Promotion & Manpower Planning
 Disciplinary procedure
 Training & Development
 Welfare & Safety, etc.
Ownership Pattern/ Shareholding as on 31.3.2011
BEML is a premier public sector company in INDIA under the ministry of defence. It has
a total capital consist of 22.5 Crore, other 14.37 Crore and reserves and surplus of
Rs.564.38crore
% To
Category No OF Shares
Equity
Promoters The President of India 22,500,000 54.03
Institutional Investors Mutual Fund at 39,44,364 57,41,939 9.47 1379
UTI. Banks/Financial institutional/ 53,50,497
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Insurance Companies *FLLS
2.95
Others Private Corporate Bodies Indian 12,30,056 25,28,138 6.07
Public NRIS Any Other Trust 2,21,824 1,27,682 0.53
0.31
Total 4,16,44,500 100.00
Objectives of the Study: -
 The primary objective of the organization study is to make the students to know
the practical applicability with respect to the theoretical concepts in business
decisions.
 To understand the behavior, culture of the organization and to know about the
various policies of organization and its performance and its future strategies.
It was a great experience in Bharat Earth Movers Limited, where I learnt many things
about the functioning of the company in accordance with the present market trends. The
interaction with the company gave me an insight and a first-hand experience of the
Industrial scenario in the competitive environment outside the realms of the institute.
The Main purpose of the organization study is to make the students acquainted with the
practical knowledge about the overall functioning of the organization.
First day of the training I was introduced to training section and had given an
opportunity to interact with senior manager of training department. I had the opportunity
to visit various departments like HRD, Administration, Canteen Payroll, Welfare,
Production etc. I had interaction with each department.
Heads and I came to know the real situation, duties, responsibilities and functions of the
departments. In spite of their busy schedules they were very much interested in
explaining to different concepts. It helped me a lot to relate to the theoretical concepts
learned in the classroom to the organizational functioning and understand the real life
application of the management.
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During the first four weeks, it was totally a new experience entering in to the
organization. I spent of my time in visiting various places in the huge factory, the various
departments interacting with people etc.
In the beginning of the training, I went to different production sites where the assembling
of the materials is taking places in the huge factory, the various departments interacting
with people etc.
In the beginning of the training, I went to different sites where the assembling of the
material is taking place, there I understood as to how the production work id divided and
how the responsibilities are allocated.
After the production site in the subsequent weeks I went to different departments like
finance, quality, HR, Planning etc. I was able to understand the importance of each
department and their contribution towards the achievements of the company objectives.
I got great opportunity to get a corporate exposure in such a huge company. I learnt the
functioning of the company in accordance with the present market trends. Employees
from every corner of the department helped me in getting the required information for the
successful completion of this project. They co-operated well when we had to disturb them
with so many queries in our mind to be cleared from the concerned person during the
visit to the respective departments.
The atmosphere was so friendly and I did not feel any tinge of difficulty during the
training period of four weeks which gave me a great deal information and knowledge as
to how an organization really functions.
SWOT ANALYSIS
Bharat Earth Movers Limited (BEML) in a premier ISO 9001-2000 company in India
& the second largest manufacturing of earth moving equipment in Asia. BEML has vital
application in diverse sectors of economy such as coal, mining, steel, cement, powder,
irrigation, construction, road building & railways. It has expanded its product range to
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cover high-quality hydraulics, heavy-duty diesel engines, welding robots &
understanding of heavy fabrication jobs. It was incorporated by government of India as a
private Limited Company on May 11, 1964 & went public on Feb 21, 1992.
The strengths, weaknesses, opportunities & threats are discussed below:
STRENGTH:
 BEML is four and half decade old company. The company has been quite strong
faced competition over a period of time. During this reign the experience gained
by the company is incredible. This is the major strength of the company.
 The certification of ISO 9001-2000 are great strength for the company when it
comes to getting orders, as the customers insist on such certifications for placing
orders.
 BEML has established its global foot-print in more than 55 countries including
Syria, Tunisia, UAE, Jordan, Suriname,
 South Africa, UK, Sri Lanka, Bangladesh, etc. BEML is adopting new strategies
to promote brand image and expand its international presence. Company has
opened its overseas offices in Malaysia and Brazil and China. The organizations
objectives. The employee union are highly supportive & Maintain healthy
relationship with the management.
 The company being the public sector undertaking is strengthened by constant
support from the government through receiving various subsidies & concessions.
The defense department has also been cooperative in strengthening the
organization.
WEAKNESSES:
 The infrastructure of BEML through spread over wide region is not well
planned. The old buildings are still with few repairs being done here &
there. This could possibly reduce the moral of the employees as the
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working environment really matters rather than organizations
profitability.
 Lack of scrap management is a serious issue in any organization. In
BEML scrap management is not so effective. The scrap is well maintained
in a corner allowing it to corrode.
 The overhead costs incurred by the company are quite high resulting in
increased cost of production.
OPPORTUNITIES:
 The company being awarded with the Mini-Ratna status allow the chief Managing
Director to take the important decision relating to collaborations, technology
transfer etc. Making the decision making process simple & fast increasing the
opportunities for the company to diversify.
 Coal production in the country is set to grow from the current level of 432 MT to
731 MT by 2012. The increased demand for coal is expected to provide sustained
growth for mining equipment business particularly with increasing demand for
higher capacity equipment.
 The exponential growth expected in Metro business segment with all cities with 4
million populations going the Metro way, Rail and Metro business is poised for a
robust growth in the coming years.
 Implementation SAP-an ERP package has increased the efficiency of the
organization. The efficiency could help the company to grasp more order.
THREATS:
 The threats faced by BEML in the global market are high. The global players like
Bombardier & Alston have well sophisticated technology which reduces the cost
of production; however they are ready to suffer losses for the sake of sustaining
the market. The tender quoted by these competitors are attractive & of low prices.
This is a serious threat faced by BEML.
 To protect share of Defense business against threat of opening up of Defense
sector to private players.
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 The economic policies of the country are continuously changing, posing threats
to the company.
 The salaries provide by the private sector are quite compared to the salaries being
paid at BEML. This will increase job hopper threats if talented employees are not
retained.
 The hardening of steel prices is one of the major concerns of the organization, as
the major raw material required for the production in steel.
Goals of BEML
To achieve and retain a dominate position in the manufacture and supply of earth
moving, construction, railway and Defence equipment by establishing high standards of
quality, capability and reliability
 To purse state the art and environment friendly technologies as well as develop
cost effective and value added products
 To be competitive response and continuously improve services so as to total
customer satisfaction
 To grow in to global company guided by a sense of vision and business ethics as
well as to maximize foreign earnings
 To conserve resources and eliminate waste through optimum utilization of
men,money material machinery.
Awards and Achievements: -
 CMD received the SCOPE Award for Excellence and Outstanding Contribution to the
Public Sector Management Medium PSE Category D for the year 2006-2007
 CMD received RakshaMantris Award for BEST DEFENCE PSU for the year 2007-2008
 CMD received the BEST PSU AWARD instituted by Indias leading B School, Indian
Institute of Planning & Management held at Bangalore on 25th March 2009
 Southern Region of EEPC India awarded BEML with Silver Shield for Star Performer as a
Large Enterprise for its outstanding contribution to Engineering Export held at Trivandrum
on 11th February 2009
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 CMD received the RakshaMantrisAward for Excellence for Best Performance in
Exports held at New Delhi on 7th November 2008
 CMD received the ROTARIAN AWARD of Vocational Excellence in their District

Conference held at Bangalore on 9th February 2008
 CMD received the BEST CEO AWARD from Mr.SK Sharma, National President, Indian
Institute of Materials Management (IIMM) on 30th November 2007 at Chandigarh
 Conferred Star Performer Award by Engineering Export Promotion Council, Southern

Region on 24th November 2007
 Award for Excellence in Technology and Innovation from Confederation of India

Industries (CII)
 Rated AAA by ICRA in January 2007
 Received Golden Peacock Award for Innovation Management from Institute of Directors
on 14th January 2007
 Ranked 4th Best Wealth Creator among 21 Best Wealth Creators of India and the 1st
among PSUs (US$ 1 in 2002 has appreciated to US$62.64 in 2007) by Dalal Street Magazine
 Conferred Mini Ratna Category-1 Status by Ministry of Defense, Govt. of India

during August 2006
 Received Golden Export Award from Government of Karnataka, India during

August 2006
 Received Enterprise Excellence Award from Indian Institute of Industrial

Engineers during May 2006
 Received Excellent MOU rating in 2005-06
 Award for Outstanding Export Performance from Engineering Export Promotion

Council (EEPC) during February 2005
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 Award for The Largest and Most Profitable Construction Equipment Company
1st Rank from Construction World NICMAR 2007
 Awarded UDYOG RATAN AWARD (Gold Trophy) by Institute of Economic

Studies, New Delhi, during October 2004.
 Received Niryat Shree Gold Trophy from federation of Indian Export Organizations
for its outstanding export performance in Export House/Non SSI category for the
financial year 2000-2001.
 National Award for Import Substitution for Crawler Mounted Shovels(2 to 2.5
bucket Cu.,M.Capacity
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Chapter
Data Analysis and Interpretation
Particulars Rs. In lakhs
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Debt:
a)Secured loans 97106.02

A.
b)Un secured loans 24375.36
Total debt 121481.38
Equity Capital:
a)Equity share capital 4574.16

B.
b)Reserves andsurplus 93617
Total Equity Capital 98191.16
Total Value:
a)Capital Employed 219672.54

C.
Total Value of the Company 219672.54
D.
Debt/Equity Ratio 1.23
1) Capitalization Information For the year 2014-2015
2. EBIT-EPS ANALYSIS FOR THE YEAR 2014-15
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Particulars 2014-15(Rs. In Lakhs)
EBIT 60658.93
Less: Interest 5405.74
Profit before Tax 55253.19
Less: Provision for Tax 16500.00
Less: Provision for Fringe Benefit 418.19
Profit After Tax 38335
Proposed/Interim Dividend & Tax 6943
Earning Per Shares(EPS) 38335/4574.3318X10=83.80
[(PAT/Share capital)X 10]
 Overall cost of=EBIT/value of the companyX100

Ko=60658.93/219672.54X100=27.67%
 Cost of debt=Interest/Market value DebtX100
KD= 5405.74/121481.38X100=4.4
3. Ratios 2014-15
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Return on capital employed 48.12%
Return on Net worth 39.04%
Debt/Equity ratio 1.21
Interpretation:-
Total net value of BHARATH EARTH MOVERS LIMITED was increased in the year
2007-08 from87280.00 to121481. Equity capital of the BHARATH EARTH MOVERS
LIMITED.
Same as the previous year. The value is 4574.16 Lakhs. Debt Equity ratio was recorded
as1.23 in the year 2007-08.Net worth of the company 39.04 in the financial year 2014-15.
Earning per share of the company was Rs.83.80
FINANCIAL ANALYSIS FOR THE YEAR 2013-2014
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Capitalization Information
A. Debt:
Total debt 87289.00
B. Equity Capital:
b)Reserves and surplus 60869.28
C. Total Value:
a)Capital Employed 152732
Total Value of the Company 152732
D. Debt/Equity Ratio 1.33
2. EBIT-EPS ANALYSIS
EBIT 37528.63
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Less: Provision for 110.00

Fringe Benefit
Profit After Tax 26568.32
Proposed/Interim 2086.35
Dividend & Tax
Earning Per Shares(EPS) [(26568.32/4574.3318)X10]=58.08
[(PAT/Share capital)X
10]
Overall cost of=EBIT/value of the companyX100
KO=37528.63/152732X100
KO=24.57%
Cost of debt=Interest/Market value DebtX100
Kd=3350.30/87289.00X100
Kd=3.83%
3. Ratios 2013-14
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Return on capitalemployed 40.85%
Interpretation:-
Total net value of BHARATH EARTH MOVERS LIMITED was increased in the year
2013-2014 from 62135.45 to 87280.00. Equity capital of the BHARATH EARTH
MOVERS LIMITED was same as the previous year. The value is 4574.16 Lakhs.Debt
Equity ratio was recorded as 0.98 in the year 2013-14 Net worth of the company 40.59%
in the financial year 2013-14Earning per share of the company was Rs.58.08.
FINANCIAL YEAR FOR THE YEAR 2012-2013
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1. Capitalization Information
Debt:
A. a)Secured loans 41336.83
Total debt 62135.43
Equity Capital:
B. a)Equity share capital 4574.16
Total Value:
C. a) Capital Employed 103740.48
b) Value Added
Debt/Equity Ratio 1.45
D.
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EBIT 11368.29
Less: Provision for Fringe 122.00

Benefit
Proposed/Interim Dividend & 1564.76

Tax
Ko=11368.29/103740.48X100
Ko=10.95%
Kd= 3275.37/62135.43X100
Kd=5.27%
3. Ratios 2012-2013
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Current ratio 2.8
Interpretation
Total debt value of BHARATH EARTH MOVERS LIMITED was increased in the year
2012-13 from 50455.24 to 62135.45.Equity capital of the BHARATH MOVERS
LIMITED was same as the previous year. The value is 4574.16 Lakhs.Debt/Equity ratio
was recorded as 0.99 in the year 2012-13.Net worth of the company 10.98% in the
financial year2012-13. Earnings per share of the company were Rs.9.99.
FINANCIAL YEARS 2011-2012
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Debt:
A. a)Secured loans 26051.36
Total debt 50455.23
Equity Capital:
B. a)Equity share capital 4574.16
Total Value:
C. a)Capital Employed 88169.82
2. EBIT-EPS
ANALYSIS
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EBIT 7116.02
Less: Provision for Tax 1000
Less: Provision for Fringe -

Benefit

Tax
Ko=7116.02/88169.82 X 100
KO=8.07%
KD= 2764.74/50455.23X100
KD=5.47%
3. Ratios 2011-12
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Current ratio 2.73
Interpretation:
Total debt value of BHARTH EARTH MOVERS LIMITED was increased in the year
2011-12 from 44663.73 to 50455.24. Equity capital of the BHARATH EARTH
MOVERS LIMITED was same as the previous year. The value is 4574.16 Lakhs. Debt
Equity ratio was recorded as 0.69 in the year 2011-12Net worth of the company 8.88% in
the financial year 2011-12Earnings per share of the company was Rs.7.33.
FINANCIAL YEARS FOR THE YEAR 2010-2011
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Capitalization Information
A. Debt:
Total debt 44663.73
B. Equity Capital: 4574.16
b)Reserves and surplus
C. Total Value:
Total Value of the

Company
79512.00
D. Debt/Equity Ratio
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EBIT 8642.85

Benefit

Tax
Ko=8642.85/79512X100
Ko=10.86%
Kd= 3432.28/44663.73X100
Kd=7.86%
3. Ratios 2010-11
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Current ratio 2.51%
Debt/Equity ratio 1.28%
Interpretation:
Total debt value of BHARATH EARTH MOVERS LIMITED was increased in the year
2010-11 from 44090.21 to 44663.73.Equity capital of the BHARATH EARTH
MOVERS LIMITED was same as the previous year. The value is 4574.16 Lakhs.Debt
Equity ratio was recorded as 0.88 in the year 2010-11Net worth of the company 18.07%
in financial year 2010-1 Earnings per share of the company was Rs.13.77.
FINANCIAL YEARS FOR THE YEAR 2009-2010
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A. Debt:
Total debt 44090.20
B. Equity Capital: 4592.66
b)Reserves and surplus
C. Total Value:
Total Value of the 77966.6

Company
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EBIT 78992.57

Benefit

Tax
Ko=7899.57/77960X100
Ko=10.13%
Kd= 4659.58/44090.20X100
Kd=10.5%
3. Ratios 2009-2010
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Current ratio 2.06
Interpretation:
Total debt value of BHARATH EARTH MOVERS LIMITED was 44090.21 Lakhs.
Equity Capital of the BHARATH EARTH MOVERSLIMITED was 4592.66 Lakhs. Debt
Equity Ratio was recorded as 1.12 in the financial year 2009-2010.Net Worth of the
company was 8.03% in the year 2009-2010.Earning per share of the company was
Rs.6.04 Lakhs.
Findings
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General Findings
1) The firm has achieved all time high turnover of Rs.3357 crores during the financial
2012 with increase of 544 crores registering a growth of 18.06% over the previous
year.
2) For the year 2011, the international business has taken a new dimension by achieving
an all-time export of over 304 crores a growth of 52% over 2010
3) During the year major export were made to Indonesia,Thailand,Oman,Saudi
Arabia,Zimbabwe,Sudan and Myanmar bringing the BEML global reaches to over 50
countries.
4) The company profit before tax stood at Rs.186 Crore register a decline growth of
41.69% and over previous year 2011 this is the highest ever profit earned by the
company which was possible through steps such as controlling product mix of
equipment
5) Increase of spares manufactured and sold and cost control measures implemented.
The study of financial Performance of BEML has brought in to some interesting
findings with the help of financial statements for the studies are highlighted below: -
1. The current ratio of BEML is unsatisfactory which is an indication that in the
past 3 years the organizations short term liquidity was unsatisfactory and the
organization is not in the position to meet the current liabilities on date and
also found that the company is not trading within its resources
2. The companys current assets include more of Inventory than liquid assets
which is block of capital
3. There is no proper management of current assets as the current assets turnover
ratio is fluctuating every year.
4. The gross profit ratio is decreasing year due to decrease in sales which is not a
good sign for the organization
5. The company is not maintaining a stable net profit the ratios are fluctuating
due to decrease in operating and non-operating expenses every year.
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6. The companys debt equity ratio is favorable to the company as if utilizing its
own funds. The ratio is fluctuating slightly every year which shows good sign
of organization financial position
7. Fixed assets to net worth are being increasing year after which indicates that
the proportion fixed assets financed by the owners are in the fixed assets.
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Suggestions
1. The company should maintain adequate cash position to meet its immediate
contingencies
2. Assets of the company should be maintained in proper way without
decreasing so that it will improve the profits of the company
3. The asset has variations and decreased from the past year. So the company has
to take necessary steps to increase the assets for the coming years
4. The company should reduce its operating and non-operating expenses to
increase its profits
5. Finally, there should be proper co-ordination and communication between and
among the departments to achieve its goals and profits
6. It has to use the reserves and funds to pay back its loans
7. There should be made a proper and optimum utilization of debts acquired
from various sources if the debts are utilizing properly there will be
consistency and growth in the financial position of the company
8. The financial position and performance of the unit must be appraisal
frequently so that its efficiency can be measured and improved.
9. To carry on the business on a planned strategy so that to avoid risk involved in
it to meet the basic needs of the organization
10. One of the analyzing of funds flow statement is done the following can be
suggested to their company for minimizing losses and maximize future
profits.
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Conclusion
After analyzing the financial position of BHARATH EARTH MOVERS LIMITED
and evaluating its Capital Structure Analysis in respect of Ratio Analysis and source and
utilization of founds. The following conclusions are drawn from the project preparation.
The progress of BHARATH EARTH MOVERS LIMITED shows that Equity Capital
to Rs.41605.00 Lakhs from during the year, and the Net worth of the Company 39.04%.
Regarding Capital Structure Analysis Equity Capital was decreased from 2014-15 to
2009-2010 and t0otal Debt Valve increased from 87289.00 to 121481.00 Lakhs during
the year Regarding Capital Structure Analysis Turn Over was increased and decreased in
the year 2010--11 and profit after tax was increased during the year 2014-15
Regarding Capital Structure Analysis Equity Ratio was decreased from 1.23 to 1.33 and
current ratio decreased from 2.8to 2.39.
From the above study can be said that the BHARATH EARTH MOVERS LIMITED
financial position on Capital Structure Analysis is quite satisfactory.
90
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91
2016-17
BEML LIMITED,Rail coach and metro division , Bangalore
Balance Sheet as at
(Rs in Lakhs.)
Note 31st March 31st March 31st March
Particulars
B 2009 2010 2011
I. EQUITY AND LIABILITIES
(1) Corporate Control Account
(a) Share capital 1 - -
(b) Reserves and surplus 2 (9,389.80) 1,416.88 4605.13
(2) Share application mone y pe nding

allotme nt
(3) Non-curre nt liabilitie s
(a) Long-term borrowings 3
(b) Deferred tax liabilities (Net) 4 - -
(c) Other Long term liabilities 3 7,688.20 6,890.73 9333.35
(d) Long-term provisions incliding
11,113.37 12,313.37
Depreciation 5 10,033.44
(4) Curre nt liabilitie s
(a) Short-term borrowings 3
(b) Trade payables 3 9,044.59 10,326.40 21021.06
(c) Other current liabilities 3 20,660.50 9,790.36 17563.69
(d) Short-term provisions 5 1,137.15 9,487.62 6012.45
Divisional Contorl Account 5A 86,910.60 94,660.34 102924.62

TOTAL 126,084.68 143,685.70 173773.7
II. ASSETS
(1) Non-curre nt asse ts
(a) Fixed assets 6
(i)Tangible assets 10,968.79 19,685.73 24680.18
(ii)Intangible assets 585.20 783.33 995.39
(iii)Capital work-in-progress 7 1,155.80 12,682.72 2735.33
(iv)Intangible assets under development 8 - -
(b) Non-current investments 9 - -
(c) Deferred tax assets (net) 4 - -
(d) Long-term loans and advances 11 639.64 4,868.55 10319.32
(e) Other non-current assets 12 - -
(2) Curre nt asse ts
(a) Current investments 9 - -
(b) Inventories 13 38,632.77 32,900.51 28555.08
(c) Trade receivables 10 54,297.17 48,789.54 67378.24
(d) Cash and cash equivalents 14 97.80 26.30 57.77
(e) Short-term loans and advances 11 19,539.30 23,687.93 38886.92
(f) Other current assets 12 168.21 261.09 165.44
TOTAL 126,084.68 143,685.70 173773.7
92
2016-17
93
2016-17
Balance Sheet as at
(Rs in Lakhs.)
Particulars
B 2009 2010 2011

allotme nt
11,113.37 12,313.37
(b) Trade payables 3 9,044.59 10,326.40 21021.06

TOTAL 126,084.68 143,685.70 173773.7
II. ASSETS
(a) Fixed assets 6
(b) Inventories 13 38,632.77 32,900.51 28555.08
TOTAL 126,084.68 143,685.70 173773.7
94
2016-17
95
2016-17
96
2016-17
Balance Sheet as at
(Rs in Lakhs.)
Particulars
B 2009 2010 2011

allotme nt
11,113.37 12,313.37
(b) Trade payables 3 9,044.59 10,326.40 21021.06

TOTAL 126,084.68 143,685.70 173773.7
II. ASSETS
(a) Fixed assets 6
(b) Inventories 13 38,632.77 32,900.51 28555.08
TOTAL 126,084.68 143,685.70 173773.7
97
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98
2016-17
Bibliography:
Text Book
 Strategic Cost Management
By Ravi. M. Kishore.
 Information Obtained Online:
 www.bemlindia.com
 www.allbusiness.com
 www.google.com
99
2016-17
FEED BACK CONTROL PROCESS:
ESTABLISHMENT OF
NORMS & STANDARDS
REVISION OF NORMS,
STANDARDS &
REMEDIAL MEASURE
INTRODUCTION OF REPORTING OF
NORMS IN TO SYSTEM VARIANCES
ANDANALYSIS
THERE OF
ACTUAL RESULTS vs.

ESTABLISHED NORMS
VARIANCE AND REVIEW

OF VARIANCES
100
2016-17
101

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Study on Capital Structure

Growth and Development of the Industry

 Construction and Mining Equipment Industry: - The construction and mining

 Defence Products Industry: - Defence production is under the department of

Finance is one which describes it as that administrative area of set of administrative

According to Entrepreneurs Finance is concerned with cash. It is so since every business

1. Public Finance: - They are further classified in to various types

2. Private Finance: - They are further classified in to various types

The subject finance has been classified in to two types

 Private finance: -is concerned with requirements receipts and disbursements of

Thus private finance can be classified into

 Finance of nonprofit organization

Meaning of Business Finance

Aims of Finance function

 Proper Utilization of Funds: - though rising of funds is important but their

 Increasing Profitability: - The planning and controlling of finance aims at

Scope of Finance Function

 Estimating financial requirements: - the first task of financial manager is to

 Selecting pattern of investment: - after preparing a capital structure an

Cash may be required to

 Purchase raw material

 Make payments to creditors

 Meet wages bill

 Meet day to day expenses

The usual source of cash may be

 Short term arrangements with banks etc

Introduction to Financial Management

According to van horne and wachowiz financial management is concerned with

Objectives of financial management

 +Profit maximization: - Profit earning is the main aim of every economic

Arguments in favour of profit maximization as the objective of business

 Profitability is a barometer for measuring efficiency and prosperity of a business

 Wealth Maximization: - is the appropriate objective of an enterprise. Financial

Introduction to Capital Structure

As the objective of a firm should be directed towards the maximization of the

Meaning of Capital structure

Features of an appropriate capital structure

Approach to establish capital structure:

1. EBIT-EPS APPROACH: For analyzing the impact of debt on EPS.

2. VALUATION APPROACH: To know value of the company.

Practical Considerations in determining capital structures:

 Concern for dilution of control

 Firms employ only two types of capital, debt and equity.

The determination of capital structure in practice involves additional considerations in

 Concern for dilution of control

 Desire to maintain operating flexibility

 Ease of marketability capital inexpensively

 Capacity for economic of scale

A. Widely Held Companies: -The ordinary shareholder the directors of the

B. Closely Held Companies: - the consideration of maintain control may be

C. Flexibility: - is one of the most serious considerations in setting up the

D. Loan Covenants: -Restrictive covenants are commonly included in long

E. Early Replay ability: - A considerable degree of flexibility will be

F. Reserve Capacity: -The flexibility of capital structure also depends on the

G. Marketability: -means the readiness of investors to purchase a security in

H. Market Conditions: - if the share market is depressed the company

Benefits of Capital Structure

 Common stockholders equity:- this represents the underlying ownership on the

 The nominal par of stated value assigned to the shares of outstanding

Demerits of Capital Structure

 Financing Cost: - There often is a tradeoff between obtaining in expensive debt

DEFINITION AND SYMBOLS

Study on Capital Structure

According to Entrepreneurs Finance is concerned with cash. It is so since every business

 Common stockholders equity:- this represents the underlying ownership on the

2. Net Operating Income Approach: This theory suggested by Durand. It is opposite

The traditional approach also known, as Intermediate Approach is a compromise