Comperative Study Between the Capital Structures Of

8/6/2019 Comperative Study Between the Capital Structures Of

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COMPARATIVE STUDY

BETWEEN THE CAPITAL

STRUCTURES OF

TATA MOTORS AND

MARUTI SUZUKI

SUBMITTED BY:-SANDEEP YADAV

SWATI TANEJA

SWEETY SAPRA

TANVI CHOPRA


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MARUTI SUZUKI INDIA LIMITED

INTRODUCTION

Maruti Suzuki India Limited, a partial subsidiary of Suzuki Motor Corporation of

Japan, is India's largest passenger car company, accounting for over 45% of the

domestic car market. The company offers a complete range of cars from entry

level Maruti 800 and Alto, to hatchback Ritz, A star, Swift, Wagon-R, Estillo and

sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. On 17 September 2007,

Maruti Udyog Limited was renamed Maruti Suzuki India Limited. The company's

headquarters are located in New Delhi.

To promote its bottom line growth, Maruti Suzuki launched Maruti Finance in

January 2002. Prior to the start of this service Maruti Suzuki had started two joint

ventures Citicorp Maruti and Maruti Countrywide with Citi Group and GE

Countrywide respectively to assist its client in securing loan. Maruti Suzuki tied up

with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard

Chartered Bank, and Sundaram to start this venture including its strategic

partners in car finance. Again the company entered into a strategic partnershipwith SBI in March 2003

.Since March 2003, Maruti has sold over 12,000 vehicles

through SBI-Maruti Finance. SBI-Maruti Finance is currently available in 166 cities

across India.


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Balance Sheet of Maruti Suzuki

India

------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

urces Of Funds

tal Share Capital 144.50 144.50 144.50 144.50 144.50

uity Share Capital 144.50 144.50 144.50 144.50 144.50

are Application Money 0.00 0.00 0.00 0.00 0.00

eference Share Capital 0.00 0.00 0.00 0.00 0.00

serves 5,308.10 6,709.40 8,270.90 9,200.40 11,690.60

valuation Reserves 0.00 0.00 0.00 0.00 0.00

t worth 5,452.60 6,853.90 8,415.40 9,344.90 11,835.10

cured Loans 71.70 63.50 0.10 0.10 26.50

secured Loans 0.00 567.30 900.10 698.80 794.90

tal Debt 71.70 630.80 900.20 698.90 821.40

tal Liabilities 5,524.30 7,484.70 9,315.60 10,043.80 12,656.50

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths


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plication Of Funds

oss Block 4,954.60 6,146.80 7,285.30 8,720.60 10,406.70

ss: Accum. Depreciation 3,259.40 3,487.10 3,988.80 4,649.80 5,382.00

t Block 1,695.20 2,659.70 3,296.50 4,070.80 5,024.70

pital Work in Progress 92.00 238.90 736.30 861.30 387.60

vestments 2,051.20 3,409.20 5,180.70 3,173.30 7,176.60

entories 881.20 713.20 1,038.00 902.30 1,208.80

ndry Debtors 654.80 747.40 655.50 918.90 809.90

sh and Bank Balance 51.60 114.80 324.00 239.00 98.20

tal Current Assets 1,587.60 1,575.40 2,017.50 2,060.20 2,116.90

ans and Advances 933.10 1,072.60 1,173.00 1,809.80 1,739.10

ed Deposits 1,350.00 1,308.00 0.00 1,700.00 0.00

tal CA, Loans & Advances 3,870.70 3,956.00 3,190.50 5,570.00 3,856.00

ferred Credit 0.00 0.00 0.00 0.00 0.00

rrent Liabilities 1,704.80 2,288.60 2,718.90 3,250.90 3,160.00

ovisions 480.00 490.50 369.50 380.70 628.40

tal CL & Provisions 2,184.80 2,779.10 3,088.40 3,631.60 3,788.40

t Current Assets 1,685.90 1,176.90 102.10 1,938.40 67.60

scellaneous Expenses 0.00 0.00 0.00 0.00 0.00

tal Assets 5,524.30 7,484.70 9,315.60 10,043.80 12,656.50

ntingent Liabilities 1,289.70 2,094.60 2,734.20 1,901.70 3,657.20

ok Value (Rs) 188.73 237.23 291.28 323.45 409.65


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TATA MOTORS

INTRODUCTION

Tata Motors Ltd is a multinational automotive corporation headquartered

in Mumbai, India. Part of the Tata Group, it was formerly known as TELCO (TATA

Engineering and Locomotive Company).

Tata Motors is Indias largest automobile company, with consolidated revenues of

USD 20 billion in 2009-10. It is the leader in commercial vehicles and among the

top three in passenger vehicles. Tata Motors has products in the compact, midsize

car and utility vehicle segments. The company is the world's fourth largest truck

manufacturer, the world's second largest bus manufacturer, and employs 24,000

workers. Since first rolled out in 1954, Tata Motors has produced and sold over 4

million vehicles in India.

Established in 1945, when the company began manufacturing locomotives, the

company manufactured its first commercial vehicle in 1954 in collaboration

with Daimler-Benz AG, which ended in 1969.Tata Motors is a dual-listedcompany traded on both the Bombay Stock Exchange, as well as on the New York

Stock Exchange. Tata Motors in 2005, was ranked among the top 10 corporations

in India with an annual revenue exceeding INR320 billion. In 2010, Tata Motors

surpassed Reliance to win the coveted title of 'India's most valuable brand' in a

annual survey conducted by Brand Finance and The Economic Times.

Tata Motors has auto manufacturing and assembly plants

in Jamshedpur, Pantnagar, Lucknow, Ahmedabad, Sanand, Dharwad and Pune in

India, as well as in Argentina, South Africa and Thailand.


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Balance sheet

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of funds

Owner's fund

Equity share capital 570.60 514.05 385.54 385.41 382.87

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 14,208.55 11,855.15 7,428.45 6,458.39 5,127.81

Loan funds

Secured loans 7,742.60 5,251.65 2,461.99 2,022.04 822.76

Unsecured loans 8,883.31 7,913.91 3,818.53 1,987.10 2,114.08

Total 31,405.06 25,534.76 14,094.51 10,852.94 8,447.52

Uses of funds

Fixed assets

Gross block 18,416.81 13,905.17 10,830.83 8,775.80 7,971.55

Less : revaluation reserve 24.63 25.07 25.51 25.95 26.39

Less : accumulated depreciation 7,212.92 6,259.90 5,443.52 4,894.54 4,401.51

Net block 11,179.26 7,620.20 5,361.80 3,855.31 3,543.65

Capital work-in-progress 5,232.15 6,954.04 5,064.96 2,513.32 951.19


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Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Investments 22,336.90 12,968.13 4,910.27 2,477.00 2,015.15

Net current assets

Current assets, loans & advances 12,329.48 10,836.58 10,781.23 10,318.42 9,812.06

Less : current liabilities & provisions 19,672.73 12,846.21 12,029.80 8,321.20 7,888.65

Total net current assets -7,343.25 -2,009.63 -1,248.57 1,997.22 1,923.41

Miscellaneous expenses not written - 2.02 6.05 10.09 14.12

Total 31,405.06 25,534.76 14,094.51 10,852.94 8,447.52

Notes:

Book value of unquoted investments 21,991.93 12,358.84 4,145.82 2,117.86 1,648.57

Market value of quoted investments 345.53 558.32 2,530.55 1,323.08 1,550.00

Contingent liabilities 3,708.33 5,433.07 5,590.83 5,196.07 2,185.63

Number of equity shares outstanding (Lacs) 5705.58 5140.08 3855.04 3853.74 3828.34


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MEANING OF FINANCIAL LEVERAGE

A company can finance its investment by debt and equity. The company may also

use preference capital. The rate of interest on debt is fixed irrespective of the

companys rate of interest on asset. The company has a legal binding to pay

interest on debt. The rate of preference dividend is also fixed , but preference

dividend are paid when the company earns profit. The rte of equity dividend is not

fixed and depends on the dividend policy of a company.

The use of fixed charges sources of funds, such as debt and preference capital

along with the owners equity in the capital structure, is described as financial

leverage or gearing ratio or trading on equity.

The financial leverage employed by a company is intended to earn more return on

fixed- charge funds than their cost. The surplus will increase or decrease the return

on owners equity.

MEASURES OF FINANCIAL LEVERAGE

The most commonly used measures of financial leverage are:

1. Debt ratio: The ratio of debt to total capital

D/D+E

2. Debt equity ratio: the ratio of debt to equity..

D/E

3. Interest coverage:- the ratio of net operating income (EBIT) to interestcharges

EBIT/Interest


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MARUTI SUZUKI TATA MOTORSSales of 2010- 32174 Sales of 2010- 38364

Variable cost-Raw material- 22636

Power - 216

Other exp. 1061

Selling exp. 1032

Total -24945

Variable cost-Raw material- 29578

Total- 29578

Fixed cost:-Interest -33.5

Depreciation -825

TOTAL 858.5

Fixed cost-Interest- 1103

Depreciation 1033

TOTAL-2136

Contribution = Sales Variable cost= 32174 -24945

= 7229

Contribution = Sales Variable cost= 38364 29378

=8786

P/V Ratio = Contribution/sales*100

=7229/32174*100

= 22.47%

P/V Ratio = Contribution/sales*100

= 8786/38364*100= 23%

Operating Ratio = Change incontribution/Change in sales:-

Change in contribution = 7229-5670

=1559

Change in sales = 32174-23381

= 8793

Operating Ratio = 1559/8793

=0.177

Operating Ratio = Change incontribution/Change in sales:-

Change in contribution = 8786-6242

=2544

Change in sales = 38364 28568

=9796

Operating Ratio = 2544/9796

=0.26


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MARUTI SUZUKI

Total debt ratio :-

Debt = 821.4Equity = 144.5

Debt ratio = D/D+E

821.4/144.5+821.4 =o.850 or 85%

Debt equity ratio :-

D/E

821.4/144.5 = 5.68 or

56.8 %EPS of maruti Suzuki = 86.45

TATA MOTORS

EPS of tata motors = 92.18

It does not have debts


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We can observe that MARUTI SUZUKI is a leverage company and

TATA MOTORS is a non-leverage company.

And EPS ratio of TATA MOTORS is more than MARUTI SUZUKI so

they earn their sources of funds from their equity they enough to arrangethe funds so that they do not use debts for their funds and maruti use

both equity and debt for their funds.

MARUTI SUZUKI uses lots of debt so they are in risk and they uses

less equity and comparison to TATA MOTORS they uses their own

equity they are in less risk.

By having a good EPS means the company is able half of its fundsrequirements at a cost lower than its rate of return on total investment.

We can conclude that TATA MOTORS may better than Maruti Suzuki

because it has more equity and more EPS.

Documents

Comperative Study Between the Capital Structures Of