1

PROJECT REPORT ON COST OF CAPITAL

ON

LIBERTY SHOES

PREPARED BY:
DIVIYESH GOHEL
ROLL NO: 19

CLASS
INSTITUTE: PIET (MBA) SEM I ACADEMIC YR:2012-2013

SUBMITTED TO:

PROF.(Dr) RAJKUMARI SONI

S.no 1. 2. 3. 4. 5.

Particulars Introduction Components Annextures: Financial Statements Findings & conclusions bibliography

Pg. no 3

INRODUCTION

Liberty Shoes have been fashioning footwear, for well over 50 years now, for the styleconscious people around the globe. Currently with an annual turnover exceeding U.S. $150 million, they are amongst the top 5 manufacturers of leather footwear of the world producing more than 50,000 pairs a day using a capacity of more than 3 lacs square feet of leather per month. Helping us dress up the feet of the fashion-driven and quality-seeking customers in more than 25 countries, which includes major international fashion destinations like France, Italy and Germany, is our worldwide distribution network of 150 distributors, 350 exclusive showrooms and more than 6000 multi-brand outlets. Our 3nnualized to quality is also evidenced by our ISO 9001: 2000 certification.

Product info. Liberty has developed a spectrum of exclusive brands for all age groups and both males & females, each of which has been given that extra edge to cater to a specific target requirement. Today the new range from Liberty is all about style, design, and comfort. The range imbibes the spirit of fun and is trendy to the core

HISTORY OF THE COMPANY The company was incorporated on the 3rd September ,1986 as a Public Limited Company and obtained the Certificate of Commencement of Business on 11th March 1988. The company has been set up to manufacture and sell leather and non leather shoes ,leather shoe uppers and leather garments Presently the company is engaged in the manufacturing of leather and non leather shoes. It has also set up a joint venture in Russia to manufacture shoes in 1991 under the name of M/S Liberty &Go ,with M/S Gorky Production & shoes Unit,Gorky. The Company is marketing its product nationally and internationally under the brand name LIBERTY and is well established in the national and international market. The company has entered into an agreement with one of the group firms M/S Liberty Enterprise for using the established brand name LIBERTY. The company has commenced its commercial production for non leather shoes on 25th December 1993.Intially one direct injection soiling machine was installed with a capacity of 240000 pairs per annum on single shift basis .The second direct injection soiling machine was installed in March 94.From the commencement of commercial production till 31st March 1994,the company has been operating on full capacity.As the promoters ar in this line for the last five decades ,the company is confident of maintaining this level of operations in the future.The company has been promoted by P.D.Gupta and R.K.Bansal and belongs to the LIBERTY Group .Liberty Group has completed Five decades of its existence in the shoe industry in 1994. 2000 The Company is to enter into an agreement for sale/purchase of goods and/or taking on franchise basis the production on franchise basis the production facilities and/or acquire movable and immovable property including plant and machinery, building etc. with Liberty Group Marketing Division and/or Liberty Enterprises, partnership firms - The Company is all set to venture into the e-commerce activitie which will cater to the B2B and B2C requirements. 2003 Liberty Footwear has introduced its innovative Liberty Footstylers collection. It is also unveiling a slew of shoes whose price will range between Rs 1,500 and Rs 2,500, higher than its other products such as Gliders, Windsor and Senorita. Pearl Academy inks pact with Liberty Shoes. 2004 Liberty Shoes Board approves setting up of Subsidiary Company Mr. Adesh Gupta presently working as Executive Director of the Company since July 16, 2001, has been elevated as Chief Executive Officer (CEO) of the Company. Liberty Shoes Ltd launched its retail format, Revolution Liberty Footwear Company Ltds claim to use brand name Revolution for its new footwear retail chain has

5 been challenged by a Delhi-based womens wear chain Revolution Clothings, which too, has claimed ownership of the same brand name. 2005 Liberty unveils new range of footwear 2006 Liberty Shoes joins hand with Pantaloon.

Management Liberty Shoes

Name Adesh Kumar Gupta Shammi Bansal Sunil Bansal Surendra Kumar Arya Amitabh Taneja Vivek Bansal Name Adarsh Gupta Satish Kumar Goel Adeesh Kumar Gupta Raghubar Dayal Prem Chand Garg Siddharth Sanghi Designation Executive Director & CEO Executive Director Executive Director Independent Director Independent Director Independent Director Designation Executive Director Director Additional Director Independent Director Independent Director Independent Director

PROFILE

Name of the Company Business type Year of Establishment Annual turnover

NETWORK

: LIBERTY : Manufacturer : 1986

: U.S. $150 MILLION : 150 distributors, 350 exclusive showrooms and more than 6000 multi-brand outlets.

Standard Certification : ISO 9001-2000 Address : Humantech Centre I

Liberty Puram,13th Mile

GT Karnal Road Karnal Dist. Haryana 132114

Phone No.

: 91-22-28325028/28324837/28380080

Fax

: 91-22-28380947

CAPITAL COMPONENTS : A firms Capital Components are Debt Borrowed money, either loans or bonds

Common equity Ownership interest

Preferred stock A hybrid security, a cross between debt and equity Capital structure is the mix of the three capital components generally expressed in percentages.

The Weighted Average CalculationThe WACC A firms cost of capital is a weighted average of the costs of the three capital components where the weights reflect the $ amounts of each component in use Referred to in two ways k, the cost of capital WACC, for weighted average cost of capital

8 Calculating the WACC Step 1: Develop a market-based capital structure Step 2: Adjust market returns on the underlying securities to reflect the costs of the three capital component Step 3: Combine in calculating the WACC

Capital Structure and CostBook Value Versus Market Value We can think of the WACC in terms of either book or market values of capital components For both structure and component costs Which is the correct focus?

WACC used to evaluate next years capital projects Must be supported by capital raised next year Book values reflect capital raised and spent years ago Current market values represent our best estimate of next years capital market conditions

Market values are the appropriate basis for WACC For capital structure For component costs

COMPUTATION OF COST OF CAPITAL COST OF EQUITY : a) Dividend Based : - Constant - Growth

- At a Constant Rate - At a Variable Rate b) Earning Based c) Realized Yield Method d) CAPM (Capital Asset Pricing Model)

Constant Dividend Model : - For Existing Equity Shares : Ke = D1 Po Where as, D1 = Expected Dividend Po = Current Market Price - For New Equity Shares: Ke = D1 Net Proceeds - Dividend Growth Model : - At Constant (fixed) rate Ke = D1 + g Po

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1) CALCULATION OF RETENTION RATIO

YEAR 2009 2010 2011 CALCULATION OF RETENTION RATIO EPS DPS B 0 0 1 0 0 1 0 0 1

B=EPS/DPS

2) CALCULATION OF GROWTH RATE CALCULATION OF GROWTH RATE ROE B GROWTH 6.33 1 6.33 7.1 1 7.1 5.07 1 5.07

YEAR 2009 2010 2011

GROWTH= ROE*B

3) CALCULATION OF COST OF EQUITY

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Ke = DIV/BV+G

4) CALCULATION OF COST OF DEBT CALCULATION OF COST OF DEBT INT BO INT% TAX RATE 8.22 95.56 8.6 0.3 9 75.04 11.99 0.3 12.59 82.65 15.23 0.3

YEAR 2009 2010 2011

Kd 6.02 8.393 10.661

Kd = INT RATE * (1-TAX RATE)

5) WACC FOR THE YEAR 2009

WACC FOR THE YEAR 2009 SOURCE AMOUNT WEIGHT COST W.COST EQUITY 17.04 0.083126 6.33 0.526188 RETAINED 105.3 0.513684 6.33 2.552195 DEBT 82.65 0.40319 6.02 2.427206 TOTAL 204.99 CALCULATION OF COST OF 5.505589 EQUITY YEAR DIV BV G KE 2009 0 0 6.33 6.33 2010 0 0 7.1 7.1 WEIGHTED 2011 0 0 5.07 5.07 COST =

WEIGHT * COST

12 6) WACC FOR THE YEAR 2010

WACC FOR THE YEAR 2010 AMOUNT WEIGHT COST 17.04 0.082486 7.1 114.5 0.554265 7.1 75.04 0.363249 8.393 206.58

SOURCE EQUITY RETAINED DEBT TOTAL

W. COST 0.585652 3.935279 3.04875 7.569681

WEIGHTED COST = WEIGHT * COST

7) WACC FOR THE YEAR 2011

WACC FOR THE YEAR 2011 AMOUNT WEIGHT COST 17.04 0.071841 5.07 124.59 0.525275 5.07 95.56 0.402884 10.661 237.19

SOURCE EQUITY RETAINED DEBT TOTAL

W. COST 0.364235 2.663145 4.295144 7.322523

WEIGHTED COST = WEIGHT * COST

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CONCLUSION As per the above date we came up with the following conclusions: In the year 2009 the retained earning of the company was almost 51.45% and debt weight was 40% approx. but in the next year the company increased their retained earning capital to 55% and decreased the debt in the company to 36%.but in the next year 2011 the company preferred same ratio of retained earnings and of debt . But I think that the the year 2010 had the best combination as its showed the maximum growth rate with will boost the companys profit as well as goodwill

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Bibliography:

www.indiainfoline.com

www.moneycontrol.com

www.wikipedia.com

www.libertyshoes.com/india
FINANCIAL MANAGEMENT I M PANDEY

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FINANCIAL STATEMENTS

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Balance Sheet of Liberty Shoes

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities

------------------- in Rs. Cr. ------------------Mar 11 12 mths Mar 10 12 mths Mar 09 12 mths

17.04 17.04 0.00 0.00 124.59 0.00 141.63 95.56 4.45 100.01 241.64 Mar 11 12 mths Application Of Funds

17.04 17.04 0.00 0.00 114.50 0.00 131.54 75.04 10.00 85.04 216.58 Mar 10 12 mths

17.04 17.04 0.00 0.00 105.30 0.00 122.34 82.65 16.44 99.09 221.43 Mar 09 12 mths

Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors

145.95 59.47 86.48 1.05 17.94 81.28 77.67

136.53 53.25 83.28 0.00 17.50 69.71 68.45

131.73 47.08 84.65 0.13 20.34 67.27 70.43

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Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions 0.96 159.91 36.00 1.83 197.74 0.00 60.10 1.48 1.06 139.22 29.69 3.07 171.98 0.00 54.75 1.44 1.11 138.81 28.17 4.04 171.02 0.00 53.37 1.33

Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)

61.58 136.16 0.00 241.63 27.35 83.11

56.19 115.79 0.00 216.57 25.26 77.20

54.70 116.32 0.00 221.44 9.58 71.80

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PROFIT AND LOSS A/C

Consolidated Profit & Loss account PARTICULARS ------------------- in Rs. Cr. -------------------

Mar 11 12 mths

Mar 10 12 mths

Mar 09 12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 169.99 6.45 41.70 26.50 46.16 5.35 0.00 296.15 151.86 5.44 31.06 22.95 35.56 4.91 0.00 251.78 146.71 4.39 25.03 21.65 36.56 5.59 0.00 239.93 318.68 8.40 310.28 1.18 9.00 320.46 274.29 5.65 268.64 -0.15 5.88 274.37 266.89 6.16 260.73 -0.32 -2.91 257.50

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MAR 09 Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (19nnualized) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 170.40 3.56 0.00 74.52 23.13 24.31 9.59 14.72 8.59 0.00 6.13 -0.29 5.84 -0.21 6.06 -0.12 0.00 6.47 126.16 0.00 0.00 0.00

MAR 10 22.74 22.59 10.26 12.33 8.05 0.00 4.28 -0.52 3.76 -0.35 4.12 -0.22 0.00 4.86 99.92 0.00 0.00 0.00

MAR 11 17.89 17.57 14.99 2.58 8.04 0.00 -5.46 -0.35 -5.81 -0.22 -5.60 -0.33 0.00 -4.92 93.22 0.00 0.00 0.00

170.40 2.42 0.00 70.92

170.40 -3.29 0.00 60.43

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FINANCIAL RATIOS
------------------- in Rs. Cr. -------------------

Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios 1.82 0.91 2.53 2.54 1.60 0.79 2.28 2.21 0.78 1.15 1.28 1.19 0.82 1.83 0.91 0.10 0.82 1.68 0.79 0.02 0.74 1.36 1.15 0.10 7.45 4.67 4.68 4.78 4.78 1.98 1.98 6.33 4.86 4.97 74.52 74.52 11.24 8.46 5.45 5.46 5.01 5.01 1.61 1.61 7.10 3.59 4.50 70.92 70.92 12.46 6.85 3.75 3.77 1.71 1.71 -2.00 -2.00 5.07 -5.11 -3.45 60.43 60.43 9.88 10.00 -13.58 182.09 64.49 50.00 10.00 -13.35 157.66 60.89 50.00 10.00 -10.50 153.01 50.41 50.00

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Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio 3.26 4.70 3.26 1.86 1.22 1.86 3.37 3.67 3.37 1.78 1.21 1.78 3.05 3.42 3.05 1.77 1.19 1.77

Average Raw Material Holding Average Finished Goods Held

62.01 77.78

53.09 71.25

61.64 82.68