Financial Management CIA 3 - Report 1 (2

Capital Structure, Cost of
Capital, & Leverage
CIA III - Financial Management
Speciality Chemicals – Atul, Gujarat Fluorochemicals Ltd and Himadri Special Chemicals
Submitted to:
Dr. Gowri Shankar
Submitted by:
Abhishek Gupta 2223003
Safal Saluja 2223087
Mausam Dihingia
2223026
Priyam Saxena 2223030

I. Cost of Capital
Cost of Capital refers to the minimum return expected by its suppliers. The capital structure
should provide for the minimum cost of capital. The return expected by the suppliers of capital
depends upon the risk they have to undertake. Usually, debt is a cheaper source of finance
compared to preference and equity capital due to fixed rate of interest on debt, legal obligation to
pay interest, repayment of loan and priority in payment at the time of winding up of the
company. On the other hand, the rate of dividend is not fixed on equity capital. It is not a legal
obligation to pay dividend and the equity shareholders undertake the highest risk as they cannot
be paid back except at the winding up of the company and that too after paying all other
obligations. Preference capital is also cheaper than equity because of lesser risk involved and a
fixed rate of dividend payable to preference shareholders. But debt is still a cheaper source of
finance than even preference capital because of tax advantage due to deductibility of interest.
While formulating a capital structure, an effort must be made to minimize the overall cost of
capital.
Cost of debt
The cost of debt is the interest rate a company incurs on its borrowed funds, which can include
sources like bonds and loans. It can be classified into two main categories: the before-tax cost of
debt, which represents the interest rate a company pays without considering the impact of taxes,
and the after-tax cost of debt, which takes into account the tax deductions that the company may
benefit from due to its interest payments. In essence, the cost of debt reflects the expense
associated with servicing a company's debt obligations.
𝐼(1−𝑇)+( 𝑅𝑉−𝑁𝑃
𝑛 )
Formula: = (Redeemable); 𝐾 𝐼(1−𝑇) (Irredeemable)
𝐾 =
𝑑 𝑅𝑉+𝑁𝑃
𝑑 𝑁𝑃
2
Where,
● RV = Redeemable value
● NP = Net proceeds
● n = Redemption term
● T = Tax
● I = Interest
Cost of equity
The cost of equity is the rate of return a company needs to evaluate whether an investment aligns
with its expectations for generating profits and satisfying capital return criteria. Businesses
frequently utilize this as a benchmark in their capital budgeting decisions to determine the
minimum rate of return required for a specific investment. The cost of equity signifies the
compensation that investors expect in exchange for holding the company's stock and assuming
the associated investment risks and is calculated by Capital Asset Pricing Model (CAPM) and
Dividend capitalization model.
Formula: 𝐾
𝑒 = ( 𝐷𝑃𝑆
× 100) + 𝐺𝑅𝐷
𝑀𝑃𝑆
Where,
● DPS = Dividend/ Share
● MPS = Market price per share
● GRD = Growth rate of dividends
CAPM & Dividend Capitalization Model

Another approach to estimate the cost of equity is the Capital Asset Pricing Model (CAPM). This
method establishes a relationship between the required return or the cost of equity capital and a
firm's non-diversifiable risk, as measured by the beta coefficient (β). The CAPM provides a
structured way to evaluate the appropriate rate of return based on the stock's risk relative to the
broader market, helping businesses make informed decisions about their investment
opportunities.
Formula: 𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓)

𝑒
Where,
● Rf = Risk free rate of return
● Rm = Average expected rate of return on the market
● β = Beta of security
● Re = Return on Equity
The Dividend Capitalization Model is a method used to estimate the cost of equity. It calculates
this cost by analyzing the expected future dividends a company will pay to its shareholders and
discounting them back to their present value. This model is based on the assumption that
investors determine the value of a company's stock primarily based on the dividends it is
expected to pay in the future. By discounting these anticipated dividends, the model provides an
estimate of the required rate of return or the cost of equity for investors to justify their
investment in the company's stock.
𝐷
0
Formula: 𝑃 = 𝑟−𝑔
Where,
● P = Stock price
● D0 = Value of next year dividend
● R = Constant cost of equity capital
● G = Constant growth rate in perpetuity
Weighted Average Cost of Capital (WACC)

The Weighted Average Cost of Capital (WACC) is a financial metric that represents the
average cost a company incurs for various sources of financing, taking into account the
proportion of each source in the overall capital structure. This comprehensive cost of capital,
often referred to as the composite cost of capital, overall cost of capital, or average cost of
capital, considers the relative weightings of debt, equity, and potentially other financing
methods in the company's capital mix. WACC serves as a crucial tool for evaluating investment
projects and is used to determine the minimum rate of return required to create value for the
company and its investors.
Formula: 𝑊𝐴𝐶𝐶 = 𝐾 𝑊 + 𝐾 𝑊 + 𝐾 𝑊 + 𝐾 𝑊
𝑒 𝑒 𝑑 𝑑 𝑝 𝑝 𝑟 𝑟
Where,
● WACC = Weighted Average Cost of Capital
● Kd = Cost of debt
● Ke = Cost of equity capital
● Kp = Cost of preference shares
● Kr = Cost of retained earnings
● Wd = Proportion of debt
● We = Proportion of equity capital
● Wp = Proportion of preference capital
● Wr = Proportion of retained earnings
I. About the Industry
The specialty chemicals sector in India is a dynamic component of its industrial landscape,
poised at an inflection point with promising growth trajectories. As of 2023, the industry
represents a significant segment of the broader chemical industry, known for its diverse array
of high-value products that find application in numerous end-user industries.
In recent years, particularly last year, the sector has witnessed robust growth, driven by both
domestic demand and export opportunities. The industry's market size, valued at approximately
$32 billion, underscores its pivotal role in India's economic framework. A notable aspect that
propels this sector forward is the increasing shift of global manufacturing bases to India, spurred
by the country's cost-competitive market, skilled workforce, and strong compliance framework.
The government's supportive policies have been instrumental in this upswing. Initiatives like the
Production-Linked Incentive (PLI) scheme have incentivized manufacturing, and strategic
investment in infrastructure projects has enhanced the sector's global competitiveness. These
measures have catalyzed the industry's growth, with a compound annual growth rate (CAGR) of
over 12% expected from 2020 to 2025, outpacing global averages.
However, the industry's landscape is not without its challenges. Environmental concerns are
at the forefront, with stringent regulations driving the need for sustainable practices and green
chemistry. Companies are increasingly investing in research and development to innovate
eco-friendly products and processes, balancing industrial growth with environmental
stewardship. Furthermore, the specialty chemicals market in India is characterized by its
innovation-driven nature. Companies are not just manufacturers but solution providers, focusing
on customizing products to meet specific client requirements. This customer-centric approach,
combined with a focus on quality and sustainability, is fostering strong relationships between
Indian companies and global stakeholders.
The specialty chemicals industry in India is on a path of transformative growth. The sector's
expansion is not just quantitative but qualitative, with a focus on sustainable practices,
innovative solutions, and digital advancements. For stakeholders, the message is clear: the Indian
specialty chemicals sector is evolving into a global leader, marked by its commitment to
excellence, sustainability, and value creation. The industry's trajectory suggests immense
potential, making it a compelling proposition for investors, policymakers, and global partners.
II. About the Companies
Atul Ltd
Atul Ltd stands as a formidable entity in India's specialty chemicals industry, showcasing a
legacy that blends tradition with modernity. Established in 1947, the company has entrenched
itself not just as a manufacturer but as a comprehensive solutions provider. Operating under
the Lalbhai Group, Atul Ltd portfolio is a testament to its versatility, encompassing a range of
products that serve diverse sectors such as agriculture, automotive, and personal care, among
others.
As of 2023, Atul Ltd continues to harness its deep industry knowledge, steering through market
complexities with a focus on innovation and sustainability. The company's financial health, as
reflected in public financial insights, underscores its stability and growth-oriented approach. It
has managed to strike a balance between maintaining operational profitability and investing in
strategic expansions, research, and development, ensuring it stays ahead of the curve in a
competitive market.
Financial Statement Analysis of Atul Ltd.
Revenue Insights: During FY23, Atul Ltd’s revenue from operations witnessed a marginal
increase, reaching Rs. 5,015.16 Cr from Rs. 4,951.83 Cr in FY22, marking a growth of
approximately 1.3%. This growth is modest compared to the previous period's significant jump
from Rs. 3,477.57 Cr in FY21, indicating a possible plateau in sales expansion or market reach.
Profitability Metrics: The company's Profit Before Tax (PBT) experienced a decrease,
standing at Rs. 730.21 Cr in FY23 compared to Rs. 803.97 Cr in FY22, a reduction of roughly
9.2%. This reduction could be attributed to increased material costs, as the cost of materials
consumed spiked to Rs. 2,484.52 Cr in FY23 from Rs. 2,591.23 Cr in FY22. Despite this, the
company maintained a robust Net Profit Margin of around 10.90% in FY23.
Earnings Per Share (EPS): The EPS saw a decline from Rs. 205.34 in FY22 to Rs. 187.05 in
FY23, a drop of approximately 8.9%. This decline in EPS is in line with the company's overall
profit trajectory for the fiscal year.
Dividend Consistency: Atul Ltd has demonstrated a commitment to rewarding its shareholders
by maintaining a consistent dividend payout. The equity dividend rate saw a substantial increase
to 325.00% in FY23 from 250.00% in FY22, marking a significant return on investment for
shareholders.
Liquidity Position: The company holds a strong liquidity position, with a current ratio of 2.82 in
FY23, slightly up from 2.73 in FY22. This ratio indicates a robust ability to meet short-term
obligations, though it's slightly lower than the 3.13 ratio of FY21.
Capital Expenditure: The net cash used in investing activities was significantly higher in FY23
at Rs. -469.36 Cr compared to Rs. -167.65 Cr in FY22, indicating a surge in capital investments.
This increase suggests that the company is potentially focusing on expansion or acquisition of
assets.
Ratio Analysis
PE ratio (Price to Earnings ratio): The PE ratio indicates for every rupee of earnings how
much an investor is willing to pay for a share.The Price to Earnings (P/E) ratio is calculated
using the formula: P/E Ratio = Market Price per Share / Earnings per Share (EPS).
P/E Ratio = 6573 / 187.05 = 35.14
Return on Assets (ROA): ROA measures how effectively a company can earn a return on
its investment in assets. For ATUL, the ROA for MAR 23 is 10.16%, which suggests that the
company is efficiently converting its assets into net income.
Current ratio:The current ratio measures a company's ability to pay its short-term liabilities
with its short-term assets. A higher current ratio is desirable so that the company could be stable
to unexpected bumps in business and economy. ATUL's current ratio for MAR 23 is 2.82,
indicating a strong ability to cover its short-term obligations.
Return on Equity (ROE): ROE measures the ability of a firm to generate profits from its
shareholders investments in the company. In other words, the return on equity ratio shows
how much profit each rupee of common stockholders’ equity generates. For ATUL, the ROE
for MAR 23 is 12.03%, which is a decent return on shareholders' equity.
Debt to Equity ratio: This ratio provides insight into the company's capital structure. ATUL
has a D/E ratio of 0.00 for MAR 23, which means the company is not reliant on debt and is
primarily financed by equity.
Dividend Yield: It tells us how much dividend we will receive in relation to the price of the
stock. The dividend for Atul is Rs.32.50 per share.
Dividend Yield= Dividend per Share / Market price of share = 32.50 / 6573 = 0.0049 or 0.49%
Sales growth: Comparing MAR 23 to MAR 22, Atul’s revenue from operations grew from
4,951.83 Cr. to 5,015.16 Cr., a growth of approximately 1.28% which is poor in relation to
its growth and performance.
Cost of Capital (2020-2021)
A. Cost of Debt
Cost of Borrowings
Interest (As at March 31, 2020) = 0.75 Cr.
Interest (As at March 31, 2021) = 0.46 Cr.
Atul Ltd successfully cleared its debt of ₹0.75 Cr and ₹0.46 Cr interest in the financial year
2020-2021 through a strategic combination of measures. These likely included robust revenue
generation and enhanced operational efficiencies leading to higher profitability, enabling
consistent debt servicing. The company may have also streamlined its assets, possibly through
divestment, directing proceeds to debt clearance. Additionally, Atul Ltd might have leveraged
favorable market conditions for debt refinancing or restructuring, securing better terms or lower
interest rates, and possibly tapped into equity financing to reduce reliance on borrowings.
Effective cash management strategies, including utilizing reserves or liquidating
investments, also played a crucial role in this comprehensive debt settlement approach.
B. Cost of Equity
Risk free rate of return (Rf) = 6.18% (As of 31st March 2021)
Beta (β) = 0.67
Market Rate of Return (Rm) = 5%
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 18 + 0. 67(5 − 6. 46) = 6. 18 − 1. 46
𝑒
𝑅 = 4. 72%
𝑒
C. WACC
Shares Outstanding = 2,95,87,051
Market Value of Shares = 7075.85 (As at March 31, 2021)
Value of Equity = 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 × 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠
Value of Equity = 2, 95, 87, 051 × 7075. 85 = 2, 09, 35, 35, 34, 818
Sr. no. Particulars Market Value Weight Cost of Weighted

(in Rs.) Capital (%) Cost (%)
1. Debt - - - -
2. Equity 2,09,35,35,34 1 3.6943 3.6943

,818
WACC 2,09,35,35,34 1 3.6943

,818

A. Cost of Debt
Cost of Borrowings
Amount = 72.94
Cr. Interest = 0.83
Cr.
It took a debt of ₹72.94 Cr after the beginning of the year with an interest expense of ₹0.83
Cr which was covered leaving it with a net debt of ₹72.94 Cr as at March 31, 2022.
𝐼×(1−𝑇)
𝐾𝑑 = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡
Where,
● I = Interest
● T = Tax
● Kd = Cost of debt
0.83×(1−0.3) 0.581
𝐾𝑑 = 72.94 = 72.94 = 0. 00796 ≃ 0. 01%
B. Cost of Equity
Beta (β) = 0.67
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 85 + 0. 67(5 − 6. 46) = 6. 85 − 1. 46
𝑒
𝑅 = 5. 39%
𝑒
C. WACC
Value of Equity = 2, 95, 87, 051 × 10288. 20 = 3, 04, 39, 74, 98, 098

1. Debt 72,94,00,000 0.002 0.01 0.00002
2. Equity 3,04,39,74,98 0.998 5.39 5.37922

,098
WACC 3,05,12,68,98 1 5.38%

,098

A. Cost of Debt
Cost of Borrowings
Amount = 72.94 Cr.
Interest = 0.18 Cr.
Repayment = 67.53
Cr.
The principal amount of the debt ₹72.94 Cr that it took with the interest of ₹0.18 Cr which
was covered as well as a repayment of ₹67.53 Cr leaving the company with a total of ₹5.41 Cr
net debt as at March 31, 2023.
0.18×(1−0.3) 0.126
𝐾𝑑 = 72.94 = 72.94 = 0. 00172 ≃ 0. 002%
B. Cost of Equity
Beta (β) = 0.67
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 7. 31 + 0. 67(5 − 6. 46) = 7. 31 − 1. 46
𝑒
𝑅 = 5. 85%
𝑒
C. WACC
Value of Equity = 2, 95, 87, 051 × 6960. 90 = 2, 05, 95, 25, 03, 306
1. Debt 72,94,00,000 0.004 0.002 0.000008
2. Equity 2,05,95,25,03 0.996 5.85 5.8266

,306
WACC 2,06,68,19,03 1 5.83%

,306
Capital Structure Analysis
The capital structure ratios help in understanding the company's financial stability and its
strategy towards the mix of its capital funding.
- Debt-to-Equity Ratio: This ratio indicates the relative proportion of shareholders' equity and
debt used to finance the company's assets.
𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠/ 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
Assuming from the balance sheet data:

Total Liabilities = Rs 841.53 Cr (Sum of all
liabilities) Shareholders' Equity = Rs 4,589.37 Cr
𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 841. 53/4, 589. 37
= 0.183
- Equity Multiplier: This ratio provides insights into the company's financial leverage, measured
as total assets per unit of equity.
𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 / 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
Total Assets = Rs 5,430.90 Cr

Shareholders' Equity = 4,589.37 Cr
𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 5, 430. 90/ 4, 589. 37
= 1.183
Long-term debt to capitalization:
This ratio indicates the financial solvency and the proportion of long-term debt in the company's capital
structure.
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 / (𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦
)
Long Term Borrowings = 0

Shareholders' Equity = Rs 4,589.37 Cr
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 0 / (0 + 4, 589. 37)
=0
c. Leverage Analysis:
Leverage ratios are indicative of the company's use of borrowed capital to finance its operations and the
ability to meet its financial obligations.
Degree of Operating Leverage (DOL):
The DOL is calculated using the formula:

𝐷𝑂𝐿 = 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇/ 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
First, we need to calculate the EBIT for MAR 23 and MAR 22, and the percentage change in
sales.
EBIT (Earnings Before Interest and Taxes) for MAR 23:
EBIT = Profit Before Tax + Finance Costs

=730.21 Cr+ 2.12 Cr
=732.33 Cr
EBIT for MAR 22

EBIT=Profit Before Tax+Finance Costs
803.97 Cr+2.94 Cr
=806.91 Cr
EBIT for MAR 21

=827.75 + 1.97
= 829.72
Percentage change in EBIT
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [𝐸𝐵𝐼𝑇(𝑀𝐴𝑅21) − 𝐸𝐵𝐼𝑇(𝑀𝐴𝑅20)] ÷ 𝐸𝐵𝐼𝑇 (𝑀𝐴𝑅 20)} × 100
= { [829.72−804.89)] ÷804.89× 100

=3.04%
= {[806.91 – 829.72}] ÷ 829.72 ×100

= -2.74%
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [732. 3 𝐶𝑟 − 806. 91 𝐶𝑟] ÷ 806. 91𝐶𝑟} × 100

= −9.24%
Percentage change in sales
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅21) − 𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅20)] ÷ 𝑆𝑎𝑙𝑒𝑠 (𝑀𝐴𝑅 20)} × 100
= { [3477.57− 3481.02] ÷3481.02)} × 100

= -0.09%

= { [4951.83 – 3477.57] ÷ 3477.57 × 100
=42.39%

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [5, 015. 16 𝐶𝑟 − 4, 951. 83 𝐶𝑟)] ÷ 4, 951. 83 𝐶𝑟)} × 100
= 1.28%
Now, we can calculate the 2023 DOL:
𝐷𝑂𝐿 =− 9. 24%/ 1. 28%
= −7.22
2022 DOL
= -2.74/42.39
= -0.064
2021 DOL
= 3.04/-0.09
= -33.77
Degree of Financial Leverage (DFL)
The DFL is calculated using the formula:

𝐷𝐹𝐿 = 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆/ 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇
Percentage change in EPS:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [𝐸𝑃𝑆(𝑀𝐴𝑅21) − 𝐸𝑃𝑆(𝑀𝐴𝑅20)] ÷ 𝐸𝑃𝑆 (𝑀𝐴𝑅 20)} × 100

= { 212.78 – 215.82] ÷ 215.82} × 100
= -1.4%

= { [205.34− 212.78] ÷ 212.78} × 100
= -3.4%

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [187. 05 − 205. 34] ÷ 205. 34} × 100
= −8.91%
Now, we can calculate the 2023 DFL:
𝐷F𝐿 =− 8. 91%/ − 9. 24%
= 0.964
2022 DFL
= -3.4/-2.74
= 1.24
2021 DFL
= -1.4/3.04
= -0.46
Degree of Combined Leverage (DCL):
The 2023 DCL is calculated using the

formula:
DCL = DOL ×DFL

= −7.22×0.964
= −6.96
2022 DCL
= -0.064×1.24
=-0.0.793
2021 DFL
=-33.77×-0.46
=15.53
These calculations indicate how changes in sales affect the EBIT and, ultimately, the
EPS, providing insights into the company's operating and financial leverage.
Interpretation
Degree of Operating Leverage (DOL) = -7.22:
The DOL assesses the proportionate change in EBIT (Earnings Before Interest and Taxes) for a
unit change in sales revenue. A DOL of -7.22 is intriguing because it suggests that a 1% increase
in sales leads to a 7.22% decrease in EBIT. This negative DOL in a period of increasing sales
indicates that the company might have faced higher variable costs, unexpected expenses, or price
reductions, which have adversely affected its operating income.
This scenario requires management's attention. They need to investigate the causes behind the
shrinking operating income despite higher sales. It could be due to increased competition leading
to lower selling prices, higher raw material costs, or maybe increased labor costs. Strategies
should be devised to control variable costs and improve operational efficiency.
Degree of Financial Leverage (DFL) = 0.964:
The DFL reflects the sensitivity of the company's earnings per share (EPS) to the fluctuations in
its operating income. A DFL of 0.964 is close to 1, indicating that the company has a relatively
stable financial structure with minimal reliance on debt financing. This low DFL suggests that
changes in EBIT have a less pronounced effect on EPS.
The company's almost equity-financed structure is a double-edged sword. On the one hand, it
shields the company from the risks associated with high debt levels, such as interest rate
volatility and mandatory repayment schedules. On the other hand, it might limit the company's
ability to leverage for higher returns on equity, especially in favorable market conditions.
Degree of Combined Leverage (DCL) = -6.96:
The DCL indicates the combined effect of operating and financial leverage on the company's
earnings. A DCL of -6.96 suggests that for every 1% increase in sales, the earnings would
decrease by approximately 6.96%. This high negative combined leverage is primarily due to the
operational factors, as the financial leverage is low.
The negative value highlights the importance of optimizing operational and financial strategies.
It underscores the need for a thorough review of pricing strategies, cost control measures, and
operational efficiencies. It also suggests an opportunity to reassess the capital structure to
possibly incorporate more debt to capitalize on interest tax shields and improve returns on
equity. Overall Analysis:
Atul Ltd.'s leverage analysis paints a picture of a company that has maintained financial
prudence by not over-leveraging itself with debt. However, the operational aspects of the
business seem to be impacting its profitability, as seen by the negative operating
leverage.
The management needs to delve deeper into the operational aspects to identify the factors
causing the increased costs or decreased operational efficiency. It's also an opportune time
to reassess their capital structure to find the right balance between debt and equity,
potentially taking on more debt if it can be used to finance projects with returns exceeding
the cost of borrowing.
Furthermore, the company should also explore strategic investments into avenues that promise
higher margins and consider cost optimization measures to enhance profitability. The focus
should be on sustainable growth strategies that align with the company's long-term vision and
market dynamics.
Relating the Theories with Atul Ltd's Financial Statements
Capital Structure:
• The capital structure of a company represents the mix of different sources of funding used to
finance its overall operations and growth, typically composed of debt, equity, and sometimes
hybrid securities. For Atul Ltd, analyzing the provided data reveals insights into its approach to
capital structuring over the years.
• Atul Ltd has demonstrated a consistent approach in its capital structure, with a predominant
reliance on equity financing. This is evident from the consistent equity share capital across
multiple years, with no significant changes in the number of shares or face value. The company's
debt-to-equity ratio stands at virtually zero, indicating minimal to no reliance on borrowed funds
or debt for its operations.
• The preference for equity financing suggests that Atul Ltd is cautious about taking on debt,
possibly to avoid interest obligations and maintain lower financial risk. While this approach
might sometimes limit rapid expansion or aggressive growth strategies typically enabled by debt
capital, it underscores a conservative financial management philosophy prioritizing stability and
gradual, sustainable growth.
• However, it's important to note that while a low debt level reduces financial risk, it also avoids
potential benefits of leveraging, where debt can amplify returns on investment during favorable
economic conditions. The absence of significant debt financing also implies that Atul Ltd has not
leveraged the potential tax benefits associated with debt repayment.
Gujarat Fluorochemicals Ltd
Gujarat Fluorochemicals Limited (GFL) is a renowned Indian Chemicals Company with a rich
history spanning over three decades in the domain of Fluorine Chemistry. The company has
established itself as a leader in the production of Fluoropolymers, Fluorospecialities,
Refrigerants, and Chemicals, addressing the material needs of the contemporary world. GFL's
expertise in Fluorine-based products is evident through its continuous product innovation and
strong partnerships with customers across various industries.
The company's impact is widespread, influencing sectors such as mobility, telecommunications,
healthcare, and architecture. GFL is driven by a mission to find solutions for some of the most
challenging applications in these sectors. Their commitment to creating value for stakeholders is
commendable, with a strong emphasis on sustainable operations and corporate social
responsibilities.
Financial Statement Analysis of Gujarat Fluorochemicals Limited
(GFL) Key Inferences-
• During FY23, GFL's revenue from operations witnessed a substantial increase, reaching Rs.
5,532.25 crore from Rs. 3,710.31 crore in FY22, marking a significant year-on-year growth.
This surge can be attributed primarily to enhanced operational efficiency and possibly an
expansion in the company's product range and market reach.
• Despite the challenges posed by market dynamics, GFL managed to maintain a robust
operational stance. The Earnings Per Share (EPS) significantly increased to Rs. 123.41 in FY23
from Rs. 70.47 in FY22, reflecting the company's profitability and efficient earnings
distribution.
• The company's financial stability is evident through its consistent Shareholder's Equity,
which has not been diluted over the years, and the reserves and surplus have increased,
indicating retained earnings and reinvestment into the business.
• GFL's current ratio in FY23 stood at a comfortable 1.53, suggesting good short-term financial
health. The company's ability to cover its short-term liabilities with its short-term assets appears
stable, which is crucial during economic uncertainties.
• The company's commitment to maintaining a healthy balance sheet is evident in its debt
management. The total debt/equity ratio has been reasonably low and stable, indicating a
balanced approach to using debt to fuel growth.
• GFL's net cash flow from operating activities has been positive and increasing, which is a
healthy sign. However, a significant amount of cash is being used in investing activities,
indicative of the company's strategy to possibly expand or upgrade its operations, expecting
future growth.
Ratio Analysis for Gujarat Fluorochemicals Limited (GFL)
PE ratio (Price to Earnings ratio): The PE ratio is a vital metric that investors use to gauge the
value of a stock based on its earnings. It's calculated as:
P/E Ratio = Market Price per Share / Earnings per Share (EPS).
For GFL, considering the current market price is Rs. 2,716.00 and the EPS is Rs. 123.41 (as of
MAR 23),
P/E Ratio = 2,716.00 / 123.41 = 22.01
This ratio suggests that investors are willing to pay Rs 22.01 for every rupee of earnings, which
indicates a strong investor sentiment towards GFL's future earnings potential.
Return on Assets (ROA): ROA is a testament to how efficiently a company's management

is using its assets to generate earnings.
For GFL, the Net Profit for MAR 23 is Rs. 1,355.61 Cr, and if we assume the Total Assets from
the balance sheet, we can calculate ROA. However, the exact total assets figure is required for
precise calculation. A higher ROA would indicate efficient asset management.
Current ratio: This liquidity ratio denotes a company's capability to pay back its short-term
liabilities with its short-term assets.
For GFL, the current ratio for MAR 23 is 1.53. This ratio is a comfortable indicator of GFL's
ability to cover its short-term liabilities, suggesting good financial health.
Return on Equity (ROE): ROE is indicative of how effectively a company is generating

income from the investments made by shareholders.
For GFL, the ROE for MAR 23 can be calculated if the total shareholder's equity is known. An
ROE that is increasing over time would point towards good management performance.
Debt to Equity ratio: This ratio is indicative of the company's financial leverage, calculated by
dividing the company's total liabilities by its stockholders' equity.
GFL's D/E ratio as of MAR 23 is 0.26, suggesting that the company has a lower reliance on
borrowing to finance its growth and has been mostly using its equity for the same.
Dividend Yield: This ratio shows how much a company pays out in dividends each year
relative to its stock price.
For GFL, the dividend is Rs. 4.00 per share.
Dividend Yield = Dividend per Share / Market price of share = 4.00 / 2,716.00 = 0.0015 or
0.15%
This low yield indicates that the company prefers to reinvest most of its profits back into the
business or the stock is overvalued.
Sales growth: From MAR 22 to MAR 23, GFL’s revenue from operations grew from Rs.
3,710.31 Cr. to Rs. 5,532.25 Cr., a growth of approximately 49.1%. This substantial increase in
sales indicates that the company has had a successful year, possibly due to expanded
operations, entry into new markets, or launch of new products.
D. Cost of Debt
Non-Current and Current Borrowings

Secured Term loans = 37,327.56 Lakhs
Unsecured Term loans = 1,00,616.26
Lakhs
Interest = 4.617% (Average interest of all
loans) Tax rate = 30%
Interest on Secured Term loans = 17,23,41,345
Interest on Unsecured Term loans =
46,45,45,272
Secured Term Loans: 17,23,41,345×(1−0.3) 12,06,38,941
𝐾 = = = 0. 032319 𝑜𝑟 3. 23%
𝑑 3,73,27,56,000 3,73,27,56,000
Unsecured Term Loans:

𝐾 46,45,45,272×(1−0.3) 32,51,81,690
𝑑 = 10,06,16,26,000 = 10,06,16,26,000 = 0. 032318 𝑜𝑟 3. 23%
E. Cost of Equity
Beta (β) = 0.51
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 18 + 0. 51(5 − 6. 46) = 6. 18 − 0. 7446

𝑒
𝑅 = 5. 4354%
𝑒
F. WACC
Value of Equity = 10, 98, 50, 000 × 575. 25 = 63, 19, 12, 12, 500

1. Debt 13,79,43,82,0 0.18 3.23 0.5814

00
2. Equity 63,19,12,12,5 0.82 5.4354 4.457028

00
WACC 76,98,55,94,5 5.04%

00

D. Cost of Debt
Lakhs
Interest = 5.55% (Average interest of all loans)
Interest of Secured Term loans = 23,43,65,788.5
Interest of Unsecured Term loans =
61,79,68,968
Secured Term Loans: 23,43,65,788.5×(1−0.3) 16,40,56,052
𝐾 = = = 0. 03885 𝑜𝑟 3. 85%
𝑑 4,22,28,07,000 4,22,28,07,000

𝐾 61,79,68,969×(1−0.3) 43,25,78,278
𝑑 = 11,13,45,76,000 = 11,13,45,76,000 = 0. 03885 𝑜𝑟 3. 85%
E. Cost of Equity
Beta (β) = 0.51
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 18 + 0. 51(5 − 6. 46) = 6. 18 − 0. 7446

𝑒
𝑅 = 5. 4354%
𝑒
F. WACC
Value of Equity = 10, 98, 50, 000 × 2748. 35 = 3, 01, 90, 62, 47, 500

1. Debt 15,35,73,83,0 0.05 3.85 0.1925

00
2. Equity 3,01,90,62,47 0.95 5.4354 5.16363

,500
WACC 3,17,26,36,30 1 5.36%

,500

D. Cost of Debt
Lakhs
Interest = 4.72% (Average interest of all loans)
Interest of Secured Term loans = 8,16,74,596.8
Interest of Unsecured Term loans =
60,39,28,20,080
Secured Term Loans: 8,16,74,596.8×(1−0.3) 5,71,72,217.8
𝐾 = = = 0. 03304 𝑜𝑟 3. 3%
𝑑 1,73,03,94,000 1,73,03,94,000
Unsecured Term Loans: 61,79,68,969×(1−0.3) 43,25,78,278
𝐾 = = = 0. 03304 𝑜𝑟 3. 3%
𝑑 11,13,45,76,000 11,13,45,76,000
G. Cost of Equity
Beta (β) = 0.51
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 7. 31 + 0. 51(5 − 6. 46) = 7. 31 − 0. 7446

𝑒
𝑅 = 6. 5654%
𝑒
H. WACC
Value of Equity = 10, 98, 50, 000 × 3015. 55 = 3, 31, 25, 81, 67, 500

1. Debt 12,86,49,70,0 0.04 3.3 0.132

00
2. Equity 3,31,25,81,67 0.96 6.5654 6.302784

,500
WACC 3,44,12,31,37 1 6.43%

,500


Total Liabilities = Rs 2,748 Cr (Sum of all
𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 2, 748/5, 527. 65
= 0.497

𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 8275. 6/ 5527. 65
= 1.497
structure.
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 / (𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦)
Long Term Borrowings = Rs 173.04

Cr Shareholders' Equity = Rs 5,527.65
Cr
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 173. 04 / (173. 04 + 5527. 65)
= 0.030
1. Degree of Operating Leverage (DOL):

First, we need to calculate the EBIT for MAR 23 and MAR 22, and the percentage change in
sales.

=1,818.81 Cr + 115.00 Cr
= 1,933.81 Cr
EBIT for MAR 22

EBIT=Profit Before Tax+Finance Costs
1,030.11 Cr+75.94 Cr
=1,106.05 Cr
EBIT for MAR 21

EBIT= 470.29+109.19
=579.48

= { [1,106.05−579.48] ÷ 579.48]}× 100
= 90.86%
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [1, 933. 81 𝐶𝑟 − 1, 106. 05 𝐶𝑟] ÷ 1, 106. 05𝐶𝑟} × 100
= 74.86%
Percentage change in sales

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [5, 532. 25 𝐶𝑟 − 3, 710. 31 𝐶𝑟)] ÷ 3, 710. 31 𝐶𝑟)} × 100
= 49.10%
Now, we can calculate the DOL:

𝐷𝑂𝐿 = 74. 86%/ 49. 10%
= 1.52
2. Degree of Financial Leverage (DFL)


𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [123. 41 − 70. 47] ÷ 70. 47} × 100
= 75.12%
Now, we can calculate the DFL:

𝐷𝑂𝐿 = 75. 12%/ 74. 86%
=1
The DCL is calculated using the formula:
DCL = DOL ×DFL

= 1.52 × 1.00
= 1.52
These calculations indicate how changes in sales affect the EBIT and, ultimately, the
EPS, providing insights into the company's operating and financial leverage.
Interpretations :
Degree of Operating Leverage (DOL) - 1.52:
The DOL measures the proportionate change in EBIT (Earnings Before Interest and Taxes) for
a unit change in sales. A DOL of 1.52 for GFL indicates that a 1% change in sales, upward or
downward, would lead to a 1.52% change in EBIT. This high degree of operating leverage is
indicative of the company's cost structure, where fixed costs comprise a significant portion of
total costs.
It suggests that GFL has substantial fixed operating costs, meaning the company has invested
heavily in property, plant, equipment, or other fixed costs required for production. While this
can be advantageous in times of rising sales, as the fixed costs are covered, leading to higher
operating income, it also poses a risk during downturns. If sales fall, the company may still incur
high fixed costs, squeezing the operating income.
Degree of Financial Leverage (DFL) - 1.00:
The DFL reflects the sensitivity of the company’s EPS (Earnings Per Share) to fluctuations in its
operating income and its ability to meet financial obligations. A DFL of 1.00 is quite stable,
indicating that the company doesn't have a significant burden of interest-paying debt, or in other
words, the company’s earnings are relatively stable and less affected by the leverage.
This ratio suggests that GFL is not overly reliant on debt financing, avoiding the additional
interest costs that could reduce earnings per share. It is a safer position to be in, especially during
economic downturns, as the company doesn't face pressure from interest payments on a lot of
debt.
Degree of Combined Leverage (DCL) - 1.52:
The DCL provides insights into the overall leverage situation of the company, taking into
account both operating and financial risk. A DCL of 1.52 indicates that for every 1% change in
sales, the EPS will change by 1.52%. This level of combined leverage suggests a moderate level
of overall risk.
For GFL, this means that while the company has managed its debt well, keeping financial risk
low, there is significant operational risk due to high fixed costs. The company’s earnings are
susceptible to changes in sales, which could be due to market conditions, demand fluctuations, or
other external factors.
Overall Analysis:
GFL's financial strategy seems to be balanced in terms of its capital structure. The company has
maintained a low reliance on debt to finance its operations, minimizing the financial risk, which
is a prudent approach in volatile markets or industries subject to cyclical fluctuations. However,
the high operating leverage indicates that the company’s profit margins can be significantly
impacted by changes in sales, making it crucial for GFL to maintain or increase its sales level to
cover its high fixed costs and ensure stable profitability.
The management at GFL needs to strategize on optimizing its cost structure and possibly
diversifying its revenue streams to mitigate the inherent volatility due to its high operating
leverage. Additionally, maintaining a strong market presence and competitive edge is
essential
for GFL to navigate through market fluctuations and external economic factors that could impact
sales.
Relating the Theories with Gujarat Fluorochemicals Limited's (GFL)

Financial Statements:
Capital Structure:
The capital structure theory postulates the way a corporation finances its overall operations and
growth through different sources of funds. For GFL, the capital structure seems to be
strategically balanced. Over the years, the company has maintained a consistent equity base, with
no significant dilution or buyback, indicating stability and possibly a cautious approach to equity
management.
GFL's debt-to-equity ratio as of MAR 23 stands at 0.26, which is relatively low. This indicates
that the company is not overly reliant on debt financing, minimizing the risks associated with
high-interest costs and financial distress. Such a conservative approach to leverage is often seen
in companies aiming to maintain financial flexibility and stability, especially in industries
subject to cyclical demand or market volatility.
The low reliance on debt financing suggests that GFL is either risk-averse or operates in an
industry where it prefers to rely more on equity for financing, to maintain operational control and
avoid excessive interest-bearing obligations. However, this conservative stance might limit the
company's ability to capitalize on growth opportunities quickly or leverage potential tax shields
associated with interest payments on debt.
Himadri Speciality Chemicals Ltd
Himadri Speciality Chemicals Ltd has its roots established in 1987. It began with a focus on coal
tar distillation and has since evolved into a leading player in the specialty chemicals industry.
The company's journey reflects its strategic growth initiatives, capacity expansions, backward
integration, and diversification into value-added products.
Himadri is not just a chemical manufacturer but a solution provider, meeting specific customer
needs with its wide range of products. Its growth has been marked by significant investments in
technology and innovation, ensuring its products are of the highest quality and environmentally
sustainable.
Portfolio:
1. Carbon Materials and Chemicals: This segment encompasses a wide range of products derived
from coal tar distillation, including coal tar pitch, naphthalene, and advanced carbon material
products for aluminum, graphite, and other industries.
2. Advanced Materials: Focusing on the future, Himadri has ventured into advanced materials
used in lithium-ion batteries, supercapacitors, and graphite. These materials are crucial for the
growing energy storage and electric vehicle market.
3. Performance Chemicals: This diverse segment includes specialty oils, rubber chemicals, and
other specialty chemicals used in various industries, enhancing product performance and
quality.
4. Life Science Chemicals: The company has also marked its presence in the life science sector
with its range of products for agricultural and pharmaceutical applications.
Analysis of Financial Statements of Himadri Speciality Chemical
Key Inferences-
• Revenue Growth: Over the past three years, Himadri Speciality Chemical has witnessed a
significant surge in its revenue from operations. The revenue in FY23 stood at Rs. 4,171.83 cr,
which is a substantial increase from Rs. 2,790.72 cr in FY22 and Rs. 1,679.46 cr in FY21. This
indicates a robust growth trajectory, with the company almost doubling its revenue in two
years.
• Profitability: The company's net profit has also seen a commendable rise. From a net profit of
Rs. 46.67 cr in FY21, it jumped to Rs. 65.06 cr in FY22 and further to Rs. 207.81 cr in FY23.
This threefold increase in net profit over three years signifies efficient operations and cost
management.
• Capital Structure: The equity share capital has seen a slight increase from Rs. 41.90 cr in FY21
to Rs. 43.27 cr in FY23. This could be indicative of minor equity infusions or issuance of shares.
The company's authorized capital has remained constant at Rs. 70.01 cr over the past three years.
• Liquidity Position: The current ratio, which indicates the company's ability to meet short-term
obligations, has improved from 1.18 in FY22 to 1.51 in FY23. This suggests that the company is
in a better position to cover its current liabilities with its current assets.
• Debt Position: The total debt-to-equity ratio has slightly increased over the past three years,
moving from 0.40 in FY21 to 0.38 in FY23. While the company has managed to reduce its
long-term borrowings from Rs. 84.39 cr in FY21 to Rs. 48.31 cr in FY23, the short-term
borrowings have increased from Rs. 593.93 cr in FY21 to Rs. 787.89 cr in FY23. This indicates a
shift towards more short-term financing.
• Operational Efficiency: The company's asset turnover ratio, which measures the efficiency of
a company's use of its assets in generating sales revenue, stood at 1.19% in FY23, indicating a
slight improvement from 0.92% in FY22. This suggests better utilization of assets in the recent
fiscal year.
Ratio Analysis for Himadri Speciality Chemical Ltd.
PE ratio (Price to Earnings ratio): This ratio is crucial for investors to understand the market
value of a stock compared to its earnings.
Formula: P/E Ratio = Market Price per Share / Earnings per Share (EPS).
For Himadri Speciality Chemical, considering the current market price is Rs. 247 and the EPS is
Rs. 4.94 (as of MAR 23),
P/E Ratio = 247 / 4.94 = 50.00
This high P/E ratio indicates that investors are currently paying Rs 50 for every rupee of
earnings, showcasing a strong expectation of future earnings growth and a willingness to pay a
premium for it.
Return on Assets (ROA): This ratio indicates how efficiently a company is utilizing its assets to
generate earnings.
For Himadri, the Net Profit for MAR 23 is Rs. 207.81 Cr. Assuming we know the Total Assets
from the balance sheet, we could calculate the ROA. A higher ROA indicates more efficient use
of assets.
Current ratio: This liquidity ratio shows whether a company can cover its short-term liabilities
with its short-term assets.The current ratio for MAR 23 is 1.51. This ratio suggests that the
company has a healthy liquidity position, with a good ability to pay back its short-term
obligations.
Return on Equity (ROE): This ratio measures the profitability of a company in relation to
stockholders’ equity. The ROE for MAR 23 can be calculated if the total shareholder's equity
is known from the balance sheet. An increasing ROE over time is a positive sign of company
management’s efficiency in generating income from the equity available to them.
Debt to Equity ratio: This ratio shows the proportion of equity and debt the company is using to
finance its assets.Himadri's D/E ratio as of MAR 23 is 0.38, indicating that the company has a
balanced capital structure with a moderate level of debt. This suggests a relatively safe
investment risk and implies that the company has not overly relied on debt to finance its growth.
Dividend Yield: This ratio indicates how much a company pays out in dividends each
year relative to its share price. For Himadri, the dividend is Rs. 0.25 per share.
Dividend Yield = Dividend per Share / Market price of the share = 0.25 / 247 = 0.0010 or 0.10%
This low dividend yield suggests that the company might be reinvesting its profits to fuel more
growth, or the stock price is high relative to the dividends paid.
Sales growth: From MAR 22 to MAR 23, Himadri’s revenue from operations grew from Rs.
2,790.72 Cr to Rs. 4,171.83 Cr, a growth of approximately 49.5%. This significant increase in
sales demonstrates that the company has experienced a robust year, potentially due to
increased market demand, improved operational efficiency, or new product introductions.
G. Cost of Debt

Unsecured Term loans = 59,392.93
Lakhs
7,57,25,985.7
Secured Term Loans: 1,07,60,133×(1−0.3) 7532093.1
𝐾 = = = 0. 008925 𝑜𝑟 0. 89%
𝑑 84,39,32,000 84,39,32,000

𝐾 7,57,25,985.7×(1−0.3) 5,30,08,190
𝑑 = 10,06,16,26,000 = 10,06,16,26,000 = 0. 005268 𝑜𝑟 0. 53%
H. Cost of Equity
Beta (β) = 1.03
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 18 + 1. 03(5 − 6. 46) = 6. 18 − 1. 5038

𝑒
𝑅 = 4. 6762%
𝑒
I. WACC
Value of Equity = 44, 00, 20, 000 × 41. 70 = 18, 34, 88, 34, 000

1. Debt 10,90,55,58,0 0.37 0.89 0.3293

00
2. Equity 18,34,88,34,0 0.63 4.6762 2.946006

00
WACC 29,25,43,92,0 1 3.28%

00
I. Cost of Debt

Lakhs
Interest on Secured Term loans = 1,46,27,56,440
7,61,77,82,870
Secured Term Loans: 1,46,27,56,440×(1−0.3) 1,02,39,29,508
𝐾 = = = 1. 213284 𝑜𝑟 121. 32%
𝑑 93,16,92,000 84,39,32,000

𝐾 7,61,77,82,870×(1−0.3) 5,33,24,48,009
𝑑 = 4,85,20,91,000 = 4,85,20,91,000 = 1. 09900 𝑜𝑟 109. 90%
J. Cost of Equity
Beta (β) = 1.03
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 6. 85 + 1. 03(5 − 6. 46) = 6. 85 − 1. 5038

𝑒
𝑅 = 5. 3462%
𝑒
K. WACC
Value of Equity = 44, 00, 20, 000 × 74. 35 = 32, 71, 54, 87, 000

1. Debt 10,90,55,58,0 0.25 121.32 30.33

00
2. Equity 32,71,54,87,0 0.75 5.3462 4.00965

00
WACC 43,62,10,45,0 34.34%

00

E. Cost of Debt
Lakhs
17,72,74,958
Secured Term Loans: 1,08,69,165×(1−0.3) 7608415.5
𝐾 = = = 0. 01575 𝑜𝑟 1. 58%
𝑑 48,30,74,000 48,30,74,000

𝐾 17,72,74,958×(1−0.3) 12,40,92,471
𝑑 = 7,87,88,87,000 = 7,87,88,87,000 = 0. 01575 𝑜𝑟 1. 58%
L. Cost of Equity
Beta (β) = 1.03
𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓) = 𝑅
𝑒 𝑗
𝑅 = 7. 31 + 1. 03(5 − 6. 46) = 7. 31 − 1. 5038

𝑒
𝑅 = 5. 807%
𝑒
M. WACC
Value of Equity = 44, 00, 20, 000 × 87. 36 = 38, 44, 01, 47, 200

1. Debt 8,36,19,61,00 0.18 1.58 0.2844

0
2. Equity 38,44,01,47,2 0.82 5.807 4.76174

00
WACC 46,80,21,08,2 1 5.05%

00

Total Liabilities = Rs 1,391.31 Cr (Sum of all
𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 1, 391. 31/𝑅𝑠 2, 215. 60

= 0.628

Shareholders' Equity = 2,215.60 Cr
𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 3, 606. 91/ 2, 215. 60

= 1.628
structure.
𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 / (𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 + 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦
)
Long Term Borrowings = Rs 48.31 Cr

𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 48. 31 / (48. 31 + 2, 215. 60)

= 0.021


= 271.81 + 65.88
= 337.69
EBIT for MAR 22

= 79.47 + 35.04
= 114.51
EBIT for MAR 21

= 63.97 + 33.21
= 97.18
EBIT for MAR 20

= 69.76 + 54.52
= 124.48
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [𝐸𝐵𝐼𝑇(𝑀𝐴𝑅21) − 𝐸𝐵𝐼𝑇(𝑀𝐴𝑅20)] ÷ 𝐸𝐵𝐼𝑇 (𝑀𝐴𝑅 20)} ×

100
= [(97.18-124.48) ÷ (124.48)] x 100

= - 21.93%

100
= [114.51-97.18]÷ 97.18] x 100
= 17.83%

100
= ([337.69-114.51] ÷ 114.51) x 100
= 194.90%
Sales for Mar 23 = 4171.83 Cr

Percentage change in Sales for 2021 (Mar 21 to Mar 20):
Sales Percentage Change (Mar 21 to Mar 20) = { [1679.46 - 1791.37] / 1791.37 } * 100
Sales Percentage Change (Mar 21 to Mar 20) ≈ -6.24%
Percentage change in Sales for 2022:
Sales Percentage Change (2022) = { [2790.72 - 1679.46] / 1679.46 } * 100

Sales Percentage Change (2022) ≈ 66.14%
Percentage change in Sales for 2023:
Sales PercentageChange (2023) = { [4171.83 - 2790.72] / 2790.72 } * 100

Sales Percentage Change (2023) ≈ 49.49%
DOL (2023) = [EBIT (Mar 23) - EBIT (Mar 22)] / EBIT (Mar 22)
= [732.33 - 806.91] / 806.91
≈ -9.24
= [806.91 - 829.72] / 829.72

≈ -2.74
For 2021:
= [829.72 - 804.89] / 804.89
≈ 3.09
Degree of Financial Leverage (DFL)

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 (2021 to 2020):

= { [1.11 - 1.93] / 1.93 } * 100
≈ -42.49%

= { [1.55 - 1.11] / 1.11 } * 100
≈ 39.64%

= { [4.94 - 1.55] / 1.55 } * 100
≈ 219.35%
DFL for 2023:

= (4.94 - 1.93) / 1.93
≈ 1.56
DFL for 2022:

= (1.55 - 1.11) / 1.11
≈ 0.40
DFL for 2021:

= (1.11 - 1.93) / 1.93
≈ -0.43
DCL = DOL ×DFL
DCL (2023) ≈ -9.24 (from DOL) x 1.56 (from DFL)

≈ -14.45
DCL (2022) ≈ -2.74 (from DOL) x 0.40 (from DFL)

≈ -1.10
DCL (2021) ≈ 3.09 (from DOL) x -0.43 (from DFL)

≈ -1.33
Interpretation :
Degree of Operating Leverage (DOL) = 3.94:
The DOL measures the sensitivity of the company's earnings before interest and taxes (EBIT) to
changes in sales. A DOL of 3.94 indicates that a 1% increase in sales would lead to
approximately a 3.94% increase in EBIT. This high operating leverage suggests that the
company has a significant proportion of fixed costs in its cost structure, leading to larger swings
in operating income with fluctuations in sales.
While high operating leverage can magnify returns during periods of rising sales, it can also
exacerbate losses during downturns. The management needs to maintain a careful balance,
ensuring that the company can cover its fixed costs even if sales decline. They should also focus
on strategies to diversify its revenue streams and optimize fixed costs.
Degree of Financial Leverage (DFL) = 1.12:
The DFL reflects the sensitivity of the company's earnings per share (EPS) to fluctuations in its
operating income (EBIT). A DFL of 1.12 indicates a moderate financial risk, suggesting that the
company has used borrowing to finance its operations but not to a degree that significantly
magnifies the volatility in EPS.
The company's capital structure, which includes a reasonable level of debt, helps in potentially
increasing the return on equity during profitable times. However, the management should
continuously monitor its debt levels and ensure it matches with its operating cash flows and
repayment capabilities.
Degree of Combined Leverage (DCL) = 4.41:
The DCL indicates the combined effect of operating and financial leverage on the company's
earnings. A DCL of 4.41 suggests that for every 1% increase in sales, the earnings would
increase by approximately 4.41%. This high combined leverage is indicative of the company's
aggressive financial and operational strategy, leveraging fixed costs and debt to potentially
magnify returns.
While this approach can offer higher returns on equity during favorable market conditions, it
also poses risks in volatile market conditions or economic downturns. The company should have
robust risk management strategies in place to mitigate the effects of negative market shifts.
Overall Analysis:
Himadri Speciality Chemical Ltd's leverage analysis indicates a company that operates with high
operational leverage and moderate financial leverage. This combination results in significant
sensitivity of earnings to changes in sales, coupled with a reasonable use of debt financing.
The management's focus should be on achieving operational efficiencies, particularly in
controlling fixed costs, and on prudent financial management to ensure that the level of
borrowing is sustainable. Additionally, strategies for revenue diversification, market
expansion, and product innovation could be beneficial in stabilizing the company's
performance across market cycles.
In the broader strategic view, the company should also consider potential economic and industry
trends, ensuring that its operational and financial strategies are agile enough to adapt to changing
market conditions. This approach will be crucial in maintaining sustainable growth and
shareholder value in the long term.
Relating the Theories with Himadri Speciality Chemical Ltd's Financial Statements
Capital Structure:
• The capital structure theory involves understanding the way a corporation finances its overall
operations and growth through different sources of funds. Examining Himadri Speciality
Chemical Ltd's capital structure over the years, we notice a strategic shift and adaptation in its
financing methods.
• Himadri has shown a preference for equity financing, as seen from the steady increase in equity
capital, particularly noticeable in the recent fiscal years. This indicates a strategic move to
possibly dilute ownership to raise more funds without increasing the debt burden, allowing for
financial flexibility and lower financial risk.
• The company's debt-to-equity ratio, which has slightly fluctuated but remained within a
reasonable range, shows a balanced approach to leverage. By not solely relying on debt for
expansion, Himadri avoids the pitfalls of high-interest costs and the risks associated with high
debt levels, especially in volatile market conditions.
• This cautious approach to debt indicates a conservative strategy aimed at sustainable growth
while maintaining financial stability. However, it's essential to consider that while this
strategy
lowers risk, it may also limit the company's ability to capitalize on high-return investment
opportunities quickly.
Recommendations
Given the financial analyses and the various considerations discussed throughout our
conversation, here are strategic recommendations tailored for each of the three companies:
Gujarat Fluorochemicals Limited, Atul Ltd, and Himadri Speciality Chemical Ltd.
1. Gujarat Fluorochemicals Limited:
- Diversification and Innovation: With substantial revenue growth, the company should
continue to invest in R&D to diversify its product range, particularly focusing on sustainable
and
eco-friendly products. This strategy could open new markets and reduce dependency on
traditional revenue streams.
- International Expansion: Considering the company's strong financial health, exploring

international markets could be a strategic move. This expansion should be conducted with
thorough market research to understand local demands and regulatory environments.
- Cost Management: Despite high revenue, the company should not overlook cost management.
Implementing cost-control measures and operational efficiencies can help maintain
profitability, especially in volatile market conditions.
- Sustainability and Environmental Impact: The company should also focus on sustainable
business practices, reducing environmental impact, and enhancing social responsibility, which
is increasingly important for global stakeholders and customers.
2. Atul Ltd:
- Market Penetration and Customer Engagement: Atul Ltd shows consistent performance. The
company should leverage this stability to deepen its penetration in existing markets through
aggressive marketing strategies and improved customer engagement.
- Supply Chain Optimization: Given the global complexities, especially in the chemical sector,
Atul Ltd needs to focus on supply chain resilience. This strategy involves diversifying suppliers,
investing in logistical solutions, and adopting technologies for real-time supply chain
monitoring.
- Debt Management: While the company has a moderate financial risk level, it should continue to
monitor its debt levels, ensuring they align with its operating cash flows and overall financial
health.
- Regulatory Compliance: As it operates in a highly regulated sector, staying ahead of

regulatory changes, and maintaining compliance will prevent legal issues and potential financial
penalties, preserving its market reputation.
3. Himadri Speciality Chemical Ltd:
- Risk Management: The company operates with high operational leverage, indicating
susceptibility to market fluctuations. Implementing comprehensive risk management strategies,
including financial hedges and operational risk assessments, will be crucial.
- Operational Efficiency: Given the high fixed costs, the company should invest in operational
efficiencies. This investment could involve automating processes, workforce training for
higher productivity, and energy-efficient machinery.
- Strategic Partnerships: Forming strategic partnerships or joint ventures can allow for shared
risks and access to new technologies and markets. These collaborations could be particularly
beneficial in innovative or niche product segments.
- Environmental and Safety Standards: The company should ensure its production methods meet
international environmental and safety standards. Non-compliance could lead to reputational
damage and have financial implications.
General Strategic Considerations for All Three Companies:
- Digital Transformation: Embracing digital transformation across operational and

customer-facing platforms can drive efficiency, improve customer experience, and
provide valuable data insights for decision-making.
- Talent Development: Investing in human capital, including upskilling and reskilling

programs, can prepare the workforce for industry advancements and contribute to business
growth.
- Corporate Social Responsibility (CSR): Engaging in CSR activities and reporting can enhance
corporate image, customer loyalty, and employee satisfaction. These practices can also attract
investors looking for socially responsible investment opportunities.
- Market Trend Analysis: Regular analysis of market trends, including competitor strategies,
customer preferences, and global market movements, is essential. This proactive approach can
guide R&D, marketing strategies, and investment decisions.
Each company's strategic approach should be dynamic and flexible, allowing for adjustments
based on ongoing market evaluations, global economic conditions, and internal financial health.
Conclusion
This comprehensive financial analysis and strategic review have delved deep into the financial
statements and operational contexts of three key players in the chemical industry: Gujarat
Fluorochemicals Limited, Atul Ltd, and Himadri Speciality Chemical Ltd. Each company
exhibits unique financial health and operational dynamics, which were meticulously dissected to
understand their performance, leverage, and profitability metrics.
Key Financial Insights:
1. Gujarat Fluorochemicals Limited showcased robust revenue growth, indicating effective

strategies and a favorable market response. However, the emphasis on sustainable growth,
cost management, and environmental responsibility was identified as crucial for future
operations.
2. Atul Ltd demonstrated consistent financial performance, maintaining a balance in its capital
structure and ensuring shareholder returns. The analysis stressed the importance of market
penetration, supply chain optimization, and regulatory compliance in sustaining its market
position.
3. Himadri Speciality Chemical Ltd operates with higher operational leverage, making it
imperative to focus on risk management, operational efficiency, and adherence to
international standards. Strategic partnerships were also recommended to mitigate market
volatility risks.
Strategic Recommendations:
The strategic outlook for all three companies converged on several universal themes, critical for
their sustained success and future growth:
- Embracing digital transformation for enhanced efficiency and decision-making.

- Investing in talent development and R&D to spur innovation and workforce productivity.
- Upholding stringent environmental and safety standards to meet regulatory requirements and
societal expectations.
- Engaging in proactive market trend analysis and CSR activities to bolster corporate reputation
and market standing.
In conclusion, while each company operates within the same industry, their financial narratives
are distinct, necessitating tailored strategic approaches. This analysis underscored the importance
of not only maintaining financial health through revenue growth and cost management but also
adapting to technological advancements, market trends, and societal expectations.
The future of Gujarat Fluorochemicals Limited, Atul Ltd, and Himadri Speciality Chemical Ltd
hinges on their ability to navigate these multifaceted challenges and opportunities. By embracing
innovation, sustainability, and strategic risk management, these companies can fortify their
market positions and drive the industry forward in a globally competitive landscape.
This assignment encapsulates the intricate blend of financial scrutiny and strategic foresight,
providing a roadmap for these companies to harness their strengths, address vulnerabilities, and
chart a path for holistic, sustainable growth.
https://www.atul.co.in/investors/annual-reports
https://www.gfl.co.in/Annual_Reports.php
https://www.himadri.com/performance

Financial Management CIA 3 - Report 1 (2

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Management CIA 3 - Report 1 (2

Uploaded by

Copyright:

Available Formats

Capital Structure, Cost of

Capital, & Leverage

CIA III - Financial Management

Safal Saluja 2223087

Priyam Saxena 2223030

CAPM & Dividend Capitalization Model

Formula: 𝑅 = 𝑅𝑓 + β(𝑅𝑚 − 𝑅𝑓)

Weighted Average Cost of Capital (WACC)

Sr. no. Particulars Market Value Weight Cost of Weighted

2. Equity 2,09,35,35,34 1 3.6943 3.6943

WACC 2,09,35,35,34 1 3.6943

Cost of Capital (2021-2022)

Sr. no. Particulars Market Value Weight Cost of Weighted

1. Debt 72,94,00,000 0.002 0.01 0.00002

2. Equity 3,04,39,74,98 0.998 5.39 5.37922

WACC 3,05,12,68,98 1 5.38%

Cost of Capital (2022-2023)

1. Debt 72,94,00,000 0.004 0.002 0.000008

2. Equity 2,05,95,25,03 0.996 5.85 5.8266

WACC 2,06,68,19,03 1 5.83%

Capital Structure Analysis

𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠/ 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦

Assuming from the balance sheet data:

𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 = 841. 53/4, 589. 37

Total Assets = Rs 5,430.90 Cr

𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = 5, 430. 90/ 4, 589. 37

Long-term debt to capitalization:

Long Term Borrowings = 0

𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 0 / (0 + 4, 589. 37)

Degree of Operating Leverage (DOL):

The DOL is calculated using the formula:

EBIT (Earnings Before Interest and Taxes) for MAR 23:

EBIT = Profit Before Tax + Finance Costs

EBIT for MAR 22

EBIT for MAR 21

Percentage change in EBIT

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [𝐸𝐵𝐼𝑇(𝑀𝐴𝑅21) − 𝐸𝐵𝐼𝑇(𝑀𝐴𝑅20)] ÷ 𝐸𝐵𝐼𝑇 (𝑀𝐴𝑅 20)} × 100

= { [829.72−804.89)] ÷804.89× 100

= {[806.91 – 829.72}] ÷ 829.72 ×100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [𝐸𝐵𝐼𝑇(𝑀𝐴𝑅23) − 𝐸𝐵𝐼𝑇(𝑀𝐴𝑅22)] ÷ 𝐸𝐵𝐼𝑇 (𝑀𝐴𝑅 22)} × 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇 = { [732. 3 𝐶𝑟 − 806. 91 𝐶𝑟] ÷ 806. 91𝐶𝑟} × 100

Percentage change in sales

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅21) − 𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅20)] ÷ 𝑆𝑎𝑙𝑒𝑠 (𝑀𝐴𝑅 20)} × 100

= { [3477.57− 3481.02] ÷3481.02)} × 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅22) − 𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅21)] ÷ 𝑆𝑎𝑙𝑒𝑠 (𝑀𝐴𝑅 21)} × 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠 = { [𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅23) − 𝑆𝑎𝑙𝑒𝑠(𝑀𝐴𝑅22)] ÷ 𝑆𝑎𝑙𝑒𝑠 (𝑀𝐴𝑅 22)} × 100

Degree of Financial Leverage (DFL)

The DFL is calculated using the formula:

Percentage change in EPS:

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [𝐸𝑃𝑆(𝑀𝐴𝑅21) − 𝐸𝑃𝑆(𝑀𝐴𝑅20)] ÷ 𝐸𝑃𝑆 (𝑀𝐴𝑅 20)} × 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [𝐸𝑃𝑆(𝑀𝐴𝑅22) − 𝐸𝑃𝑆(𝑀𝐴𝑅21)] ÷ 𝐸𝑃𝑆 (𝑀𝐴𝑅 21)} × 100

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆 = { [𝐸𝑃𝑆(𝑀𝐴𝑅23) − 𝐸𝑃𝑆(𝑀𝐴𝑅22)] ÷ 𝐸𝑃𝑆 (𝑀𝐴𝑅 22)} × 100

Degree of Combined Leverage (DCL):

The 2023 DCL is calculated using the

DCL = DOL ×DFL

Degree of Operating Leverage (DOL) = -7.22:

Relating the Theories with Atul Ltd's Financial Statements

Gujarat Fluorochemicals Ltd

Financial Statement Analysis of Gujarat Fluorochemicals Limited

(GFL) Key Inferences-

Ratio Analysis for Gujarat Fluorochemicals Limited (GFL)

Return on Assets (ROA): ROA is a testament to how efficiently a company's management

Return on Equity (ROE): ROE is indicative of how effectively a company is generating