Financial Planning and Capital Structure Decision

CHAPTER-I

1.1 INTRODUCTION OF THE STUDY

Introduction

The term capital structure is used to represent the proportionate relationship

between debt and equity. Equity includes paid up share capital, share premium, reserves

and surplus (retained earnings). Debt includes debenture and long-term loans. The

estimation of capital requirements for current and future needs is important for a firm and

equally important is the determining of the capital mix. Equity and debt are the two

principal sources of finance for a business.

“The financing decisions have two components. First, to decide how much total

funds are needed and, second, to decide the source or their combinations to raise such

funds. The total quantity of fund needed, however, depends upon the investment decision

of the firm.

Given that the firm has good estimates of how much capital funds are needed, the

problem then remains one of determining the best mix of different sources to be used in

raising the required funds. The process that leads to the final choice of the capital

structure is referred to as the capital structure planning.” Rustagi (2000) the financing of

a capital structure decision is a significant managerial decision.

“In order to run and manage a company funds are needed right from the

promotional stage up to the end, finances play an important role in a company’s life. If

funds are inadequate, the business suffers and if the funds are not properly managed, the

entire organization suffers.

1

It is, therefore, necessary that a correct estimate of the current and future need of

capital be made to have an optimum capital structure, which will help an organization to

run its work smoothly and without any stress.” Sharma and Rai (2000) Estimation of

capital requirement is necessary, but the formation of a capital structure is important.

According to Gerstenbeg(1988).

Capital structure analysis of the Everonn Systems India Limited

The capital structure is made up of debt and equity securities and refers to the

permanent financing of a firm. It is composed of long-term debt, preference share capital

and shareholders funds. Keeping this background in view, an attempt has been made by

the researchers to evaluate the ‘capital structure’ of Everonn Systems India Ltd.

1.2 INDUSTRY PROFILE

2

Education in India:

India is one of the largest markets for School Education in the World. India

currently has around 1.18 million schools in both Governments and private segment

providing education from K-12 (Kindergarten class 12) to over 200 million students.

There are over 5 million teachers across India who needs support in Information

Technology and other subjects.

The approved outlay for elementary education and literacy during the 10 th plan is

Rs. 30000 crores. The approved outlay for secondary education and higher (including

vocational training) in the central sector in the 10th plan is Rs. 13825 crores.

The government of India has spent over Rs. 10000 crores (USD 2.2 billion) on

Elementary Education in the country during 2005-2006 through its various schemes.

Besides this the Government has also around Rs. 2100 crores on higher secondary

Education during 2004-2005 and an outlay of Rs. 2563 crores for 2005-2006. Education

in the country is funded through a 2% education cess and other budgetary allocations.

The Education cess @2% p.a on direct and indirect central taxes has been

improved through the Finance (No.2) Act 2004 so as to fulfill the commitment of the

Government to provide and finance universalized quality basis education. The cess is

expected to yield Rs. 6000- Rs. 8000 crores p.a. The proceeds from the cess will be used

to implement two main programs related to Universal elementary Education Viz. Sarva

Shiksha Abhiyan and Mid-day-Meal. A separate dedicated non- lapsable fund called the

parambhik Sikh kosh has been created to receive the proceeds of the education cess.

1.3 COMPANY PROFILE

3

Everonn Systems India Limited was incorporated on 19th April 2000 as a public

Limited Company under the companies Act 1956. The registered office of the company

was shifted from Ooty to Chennai, Tamilnadu on December 30, 2005, and is situated at

No. 82, IV Avenue, Ashok Nagar, Chennai- 600083; vide a fresh certificate of

registration of the company Low Board under section 16(3) of the companies Act, 1956.

The organization initiative and expansion were founded by the promoters. In the

year 2000, net Equity venture (P) Ltd and Virmac Investments invested to found a part of

the computer Education Project in Tamilnadu and certain other places.

Origins- IT Education:

Mr. Kishore was closely involved in implementing computer literacy projects in

the Nilgiri District of Tamilnadu since 1987. The experience gained by Mr. Kishore

enabled him to recognize Computer’s growing power and relevance in enhancing and

adding the educational process right from the formative years of schooling. We first set

up computer centers in residential school of Ooty, in the Nilgiri hills of the Tamilnadu

under the BOOT model at a time when computer had just come into the market and

computer were taught only in state Engineering College. The success of the program

enabled us to take this educational model across Government schools in Tamilnadu and

other state in India. Since 1999, the State Governments have been offering state wide

tenders to companies to set up and impart computer education across Government school.

The state Government of Tamilnadu was a pioneer of this model and we received out first

Government contract in the year 2000 for 332 school. We have increased our presence to

nearly 1990 school across thirteen states by 30th April 2007.

Our Vision:

4

Everonn's vision is to take education delivery to the next dimension through an

innovative blend of content, pedagogy and technology and be a leading and distinctive

player in bringing education to students anywhere, preparing them to be productive

citizens of the future. We will support a culture of life long learning and aim to reach out

to 5 million students by 2010.

Board of directors:

The following the tables shows Board of Director of Everonn Systems India

Limited.

Sl.

NoName Designation Status

1 Mr. P. KishoreManaging

DirectorExecutive Director

2 Mr. R. Kannan Director cum

Consultant Non Executive Director

3 Ms. Susha John Director Executive Director

4 Mr. R Sankaran Director Non Executive and Independent Director

5 Dr. V. K Vijayaraghavan Director Non Executive and Independent Director

6 Mr. Joe Thomas Director Non Executive and Independent Director

7 Dr. K M Mari Muthu Director Non Executive and Independent Director-

5

Organizational Chart:

Auditing Planning & Budgeting Manager Accounting

6

Managing DirectorP. Kishore

DirectorR. Kannan & Susha John

Marketing

Board of Director

G.M FinanceHuman Resource

General Manager

PDD

A.G.M Finance

CHAPTER-II

2.1 OBJECTIVES OF THE STUDY

From a firm’s point of view the objectives of financial management is the

maximization of the shareholder wealth as reflected in the market price of its shares. A

firm will be able to achieve these objectives only if it has a capital structure consisting of

debt and equity in the right mix.

It is the objectives of the study to analysis the existing capital structure of the firm

under study vis. Everonn Systems India Limited and to recommend the appropriate mix

of debt and equity.

This research study fulfils the following objectives.

To evaluate the growth of Everonn System India Limited.

To analysis the trend in its component of capital structure.

To assess the profitability, liquidity and solvency of Everonn System India

Limited.

To identify the future financial requirement of Everonn System India Limited.

To examine the capital structure pattern and policy of Everonn Systems India Ltd.

To give some suggestions for improvement of the capital structure position of

Everonn Systems companies.

7

2.2 REVIEW OF LITERATURE

Capital structure Decision

The financing or capital structure decision is a significant managerial decision. It

influences the shareholder’s return and risk. Consequently, the market value of the share

may be affected by the capital structure decision. The company will have to plan its

capital structure initially at the time of its promotion. Subsequently, whenever funds have

to be raised to financing investments, a capital structure decision is involved.

The new financing decision of the company may affect its debt-equity mix. The

debt-equity mix has implication for shareholder’s earnings and risk, which is turn, will

affect the cost of capital and market value of the firm.

Capital Structure:

Capital Structure is the combination of debt and equity securities that comprise a

firm’s financing of its assets. In other words the kind and proportion of securities for

rising long –term funds. It implies the determination of form or make-up of a company’s

capitalization. The capital structure of a company consists of debt and equity securities,

which provide finance for a firm. An optimum capital structure is one that maximizes the

market valuation of the firm’s securities in order to minimize the cost of its capital

Capital structure refers to the kind of securities that make up the capitalization

that is debt and equity securities that comprise a firm’s financing of its assets.

-W. Gerstenberg.

Optimal Capital Structure:

An optimal capital structure is the ideal combination of debt and equity that

attained the stated managerial goals in the most relevant manner. That is maximizing of

market value per share or minimization of cost of capital.

8

Capital Structure Decision Process

9

Capital Budgeting Decision Modernization Expansion Diversification Replacement

Existing Capital Structure

Payout Policy

Need to Risk Funds / Sources of financing

General Funds Debt External Equity

Capital Structure Decision

Effect on Return and Risk

Effect on coat of capital

Desired Debt-Equity Mix

Value of the firm

Factors determining the capital structure decisions:

1. Internal factor:

1. Nature of business:

Nature of business is an important factor which affects the capital structure of the

company. Business enterprises which have stability in their earnings or enjoy monopoly

regarding their products can afford to raise fund through debentures or preference shares.

2. Size of the company:

Companies which are of small size fund it difficult to obtain long term debt;

hence such companies have to rely considerably upon the owner funds for financing.

Large companies generally considered being less risky by the investor and therefore, they

can issue different types of securities and collection of their funds from different sources.

3. Regularity of Income:

If a company expects regular income in future, debenture and bonds may be

issued. Preference share may be issued if a company does not expects regular income but

it is hopeful that its average earning for a few years may be equal to or in excess of the

amount of dividend to be paid on such shares.

4. Purpose of financing:

The purpose of financing also affected the capital structure of the company. If

funds are needed for some productive purpose (eg. Purchase of machinery etc) the

company can afford to raise the fund by issue of debentures. On other hand, If the funds

are required for non productive purposes, the company should raise the funds by issue of

equity shares.

10

5. Period of finance:

The period of finance is required also affects the determination of capital structure

of companies. If the funds are required for 3 to 10 years, it will be appropriate to raise

them by issue of debentures. If the funds required more or less permanently, it will be

appropriate to raise them by issue of equity shares.

6. Development and expansion plan:

Capital Structure of a company is affected by its development and expansion

programmers in future. While planning capital structure the provision for future should

also be kept in view.

7. Attitude of management:

Varying skill, judgment, experience, temperament and motivation, management

evaluate the same risks differently and it willingness to employ debt-capital also differ.

8. Trading on equity:

A company earns the profit on its total capital both owned and borrowed. But on

the borrowed capital including preference share capital company pay interest or dividend

at fixed rate. If the fixed rate is lower than the general rate of earning of the company, the

ordinary shareholder will have an advantage in the form of additional profit.

II. External Factor:

1. Requirements of investment:

In order to collect funds from different categories of investors, it will be

appropriate for the companies to issue different categories of securities. Because some

investor prefers security of investment and stability of income, others prefer higher

income and capital appropriation.

11

2. Condition of capital market:

Conditions of the capital market have an important bearing on the capital structure

of the company, because investor is very often influenced by general mood or sentiment

of the capital market.

3. Cost of capital:

Cost of capital is an important factor in planning the company’s capital structure.

It influence the profitability and general rate of earnings, a company must raise capital

funds by borrowing when rate of interest is low and by issuing equity shares when rate of

earnings and share price are high.

4. Government Policy:

Government policy is also important factor in planning the company’s capital

structure. A change is the lending policy of financial institution may need a complete

change in financial pattern. Besides this, the monetary and fiscal policies of the

government also affected the capital structure decision.

5. Legal Requirements:

Every company has to comply the law of the country regarding the issue of

different types of securities. Therefore, hands of the management are tied by these legal

restrictions.

12

2.3 Limitations of the study:

The study is subject to the following limitation

1. The predicted ratios are calculated on the basis of assumption of procure state

affairs of company to continue in future. Hence any change in management policy

or other internal or external environment strategies would reveal a different state

of affairs.

2. The study is based on the published data obtained from the annual report of the

company and hence it is subject to inherent limitation of the all secondary data.

3. The Financial forecast is not always possible to make future estimates on the basis

of the past, as it always does not come true. It may be varying as upgrade or

undergrad, because the competitive factor may be affect.

For the analysis of capital structure, only secondary data derived from the

annual

reports of company.

13

2.3 RESEARCH METHODOLOGY

A study of the company’s past performance in terms of the various parameters has

been earned out. This has been followed up with a study and analysis of the company

projected performance for next five years.

Research methodology

To analyze the capital structure of Everonn Systems India Ltd., secondary data, collected

from the annual reports of both companies, was used along with other published material

of the companies. For the analysis of capital structure, the annual reports of the years

2007–2008, 2008–2009, 2009–2010, 2010–2011, 2011–2012 and 2012-2013 are

considered. For an analysis of the capital structure of companies, the ratios of capital

structure, techniques are used. Statistical techniques, such as mean Compound Average

growth Rate both Organic & Inorganic and are also used in relevant areas. To make

calculation much easier and logical, the data are approximated in the relevant places. For

the analysis of the capital structure of Everonn Systems India Ltd.

Data Period:

The study covered a period of five years from 2003-2007. The financial

year start from first April to 31st March.

Sources of Data:

The study based on the secondary data. The data were collected from the annual

report of Everonn System India Limited. The supplementary details have been collected

from the various published book and journals.

Tools of Analysis:

The trend it have been calculated to analysis trend in Capital Structure,

Component Growth Rate have been employed to assess the growth of the concern

14

in various aspect ratio technique have been employed to carry out profitability,

liquidity and determine the future finance requirement ect.

1. Compound Average Growth Rate with Organic financial forecasting is calculated by

CAGR = (Y5/Y1) ^ (1/Y-1)-1

Where,

CAGR = Compound Average Growth Rate

Y5 = Current Year

Y1 = Initial Year

Y = Number of year

2 Inorganic Financial Planning and Forecasting

3. Average Growth Rate

Where,

AGR = Previous year figure * Average Growth Percentage

4. EBIT- EPS Analysis

5. Net Income Approach

Ko = EBIT / Value of the firm

Where,

Ko= Over All cost of capital

EBIT = Earning Before Interest and Tax

V = Value of the firm

V = Market value of equity(S) + Market Value of debt (B)

S= Net Income/ Cost of equity

15

2.5.1.1 Financial Planning and Forecasting: Organic

ParticularsFinancial Forecasts

2007 2008 2009 2010 2011 2012 2013

Profit & Loss Account

Net Income 4304.5 9277.5 11875.1 15200.2 19456.2 24904.0 31877.1

Expenditure 2541.2 5779.4 7397.6 9468.9 12120.2 15513.8 19857.7

Gross Profit 1763.3 3498.1 4477.6 5731.3 7336.1 9390.2 12019.4

Depreciation 961.8 972.8 1245.1 1593.8 2040.0 2611.2 3342.4

PBIT 801.5 2525.4 3232.4 4137.5 5296.0 6778.9 8677.0

Interest 234.0 332.0 415.1 518.8 648.5 810.6 1013.3

PBT 567.5 2193.3 2817.4 3618.7 4647.5 5968.3 7663.7

Tax 183.3 788.0 957.6 1230.0 1579.7 2028.6 2604.9

PAT 384.2 1405.4 1859.8 2388.7 3067.8 3939.7 5058.8

Dividend 0.0 138.5 138.5 138.5 138.5 138.5 138.5

Retained Earning 384.2 1266.8 1721.3 2250.2 2929.3 3801.2 4920.3

Balance Sheet

Share Capital 1027.8 1385.1 1385.1 1385.1 1385.1 1385.1 1385.1

Reserves 2631.1 8107.0 9828.3 12078.5 15007.8 18808.9 23729.3

Net Worth 3658.9 9492.1 11213.4 13463.6 16392.9 20194.1 25114.4

Borrowings 2354.2 3382.0 5265.5 7629.4 10606.1 14364.7 19120.9

Capital Employed 6013.1 12874.2 16478.9 21093.0 26999.0 34558.8 44235.2

Net Fixed Assets 3652.1 5022.7 6429.0 8229.2 10533.3 13482.7 17257.8

Net Current Assets 2361.4 7851.5 10049.9 12863.8 16465.7 21076.1 26977.4

Net Assets 6013.5 12874.1 16478.9 21093.0 26999.0 34558.8 44235.2

Fund Flow Statement

Increased in Capital 0.0 357.3 0.0 0.0 0.0 0.0 0.0

Increased in Sh. Prem 4208.7


Fund Needed 1159.8 1027.8 1883.5 2363.9 2976.7 3758.6 4756.1

Sources 1544.0 6860.7 3604.8 4614.1 5906.0 7559.7 9676.5

Net Fixed Assets 448.3 1370.5 1406.4 1800.1 2304.2 2949.3 3775.1


16

Uses 1544.0 6860.7 3604.8 4614.1 5906.0 7559.7 9676.52.5.1.1.1 Net Income:

Statement showing the organic method based on estimated Net income of

Everonn Systems India Limited,

Year 2007 2008 2009 2010 2011 2012 2013

Net Income 4304.5 9277.5 11875.1 15200.2 19456.2 24904.0 31877.1

Table 2.5.1.1.1

Net Income

4304.59277.5 11875.1 15200.2

19456.224904.0

31877.1

0.0

20000.0

40000.0

YEAR

AM

OU

NT

IN

LA

KH

S

Net Income

Net Income 4304.5 9277.5 11875.1 15200.2 19456.2 24904.0 31877.1

2007 2008 2009 2010 2011 2012 1013

Chart- 2.5.1.1.1

Interpretation:

The Net Incomes are estimated for future six year is below the standard norms

that organic financial planning and forecasting. The Net Income of the Everonn Company

has been estimated at 9277.5 Lakhs in the year of 2007-2008. It has generally improved

in the subsequent years and it reaches the level of 11875.1 Lakhs in the year of 2008-

2009. In the year 2009-2010 net income has come up slightly by 15200.2 Lakhs. In the

year 2010-2011 the net income has been estimated 19456.2 Lakhs. In the year 2011-2012

net income has been forecasted at 24904 Lakhs and in the year 2012-2013 has been

estimated at rupees 31877.1 Lakhs. The growth of the company is more satisfactory.

17

2.5.1.1.2 Expenditure:

Statement showing the organic method based on estimated expenditure of Everonn

Systems India Limited,

Year 2007 2008 2009 2010 2011 2012 2013

Expenditure 2541.2 5779.4 7397.6 9468.9 12120.2 15513.8 19857.7

Table 2.5.1.1.2

Expenditure

2541.25779.4 7397.6

9468.912120.2

15513.8

19857.7

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

YEAR

AM

OU

NT

IN

LA

KH

S

Expenditure

Expenditure 2541.2 5779.4 7397.6 9468.9 12120.215513.8 19857.7

2007 2008 2009 2010 2011 2012 2013

Chart- 2.5.1.1.2

Interpretation:

The expenditure is estimated for future six year is below the standard norms. The

expenditure of the Everonn Company has been estimated at 5779.4 Lakhs in the year of

2007-2008. It has generally improved in the subsequent years and it reaches the level of

7397.6 Lakhs in the year of 2008-2009. In the year 2009-2010 expenditure has come up

slightly by 9468.9 Lakhs. In the year 2010-2011 the expenditure has been estimated

12120.2 Lakhs. In the year 2011-2012 expenditure has been forecasted at 15513.8 Lakhs

and in the year 2012-2013 has been estimated expenditure at rupees 19857.7 Lakhs.

18

2.5.1.1.3. Gross Profit:

Statement showing the organic method based on estimated gross profit of


Year 2007 2008 2009 2010 2011 2012 2013

Net Income 4304.47 9277.46 11875.15 15200.19 19456.24 24903.99 31877.11

Expenditure 2541.17 5779.35 7397.57 9468.89 12120.18 15513.82 19857.70

Gross Profit 1763.30 3498.11 4477.58 5731.30 7336.07 9390.17 12019.41

Table-2.5.1.1.3

GROSS PROFIT

1763.303498.11 4477.58 5731.30 7336.07

9390.1712019.41

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

2007 2008 2009 2010 2011 2012 2013YEAR

AM

OU

NT

IN

LA

KH

S

Net Income Expenditure Gross Profit

Chart- 2.5.1.1.3

Interpretation:

The gross profit is estimated for future six year. The gross profit of the Everonn

Company has been estimated at 3498.11 Lakhs in the year of 2007-2008. It has generally

improved in the subsequent years and its estimated level of 4477.58 Lakhs in the year of

2008-2009. In the year 2009-2010 gross profit has come up slightly by 5731.30 Lakhs.

In the year 2010-2011 the gross profit has been expected at 7336.07 Lakhs. In the year

2011-2012 grass profit has been forecasted at 9390.17 Lakhs and in the year 2012-2013

has been expected gross profit at rupees 12019.41 Lakhs.

19

2.5.1.1.4. PBIT-PAT:

Statement showing the organic method based on estimated Profit Before Interest

& Tax and Profit After tax of Everonn Systems India Limited,

Year 2007 2008 2009 2010 2011 2012 2013

PBIT 801.52 2525.35 3232.45 4137.53 5296.04 6778.93 8677.04

PAT 384.2 1405.4 1859.8 2388.7 3067.8 3939.7 5058.8

Table-2.5.1.1.4

EBIT-PAT

801.52

2525.353232.45

4137.53

5296.04

6778.93

8677.04

384.21405.4 1859.8

2388.73067.8

3939.75058.8

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

2007 2008 2009 2010 2011 2012 2013YEAR

AM

OU

NT

IN L

AK

HS

PBIT PAT

Chart-2.5.1.1.4

Interpretation:

The above table shows profit before interest and tax viz profit after tax for next

six year. The EBIT and PAT of the Everonn Company have been expected at 2525.35

and 1405.4 Lakhs in the year of 2007-2008. It has generally improved in the subsequent

years and its expected level of 3232.45 and 1859.9 Lakhs in the year of 2008-2009. In the

year 2009-2010 EBIT and PAT has come up slightly by 4137.53 and 2388.7 Lakhs. In

the year 2010-2011 the EBIT and PAT has been expected at 5296.04 and 3067.8 Lakhs

respectively. In the year 2011-2012 has been forecasted EBIT and PAT at 6778.93 and

20

3939.7 Lakhs are respectively and in the year 2012-2013 has been expected EBIT and

PAT at rupees 8677.04 and 5058.8 Lakhs respectively.

2.5.1.1.5. DIVIDEND:

Statement showing organic method based estimated dividend allocation of


YEAR 2007 2008 2009 2010 2011 2012 2013

Dividend 0.00 138.512 138.512 138.512 138.512 138.512 138.512

Table-2.5.1.1.5

DIVIDEND

0.00 138.512

138.512

138.512138.512

138.512

138.512

2007 2008 2009 2010 2011 2012 2013

Chart- 2.5.1.1.5

Interpretation:

The above table shows dividend allocations for next six year. The Everonn

Company had not provided dividend in the year of 2007-2008, because they had planned

to reinvest that money for organizational growth. It has generally provide the dividend at

10% for the subsequent years and its expected level rupees 138.512 Lakhs for next

subsequent year of 2008-2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013.

21

2.5.1.1.6. Reserves:

Statement showing the organic method estimated total reserves of Everonn


Reserves 2007 2008 2009 2010 2011 2012 1013

Previous Year Balance 2146.0 2631.6 3898.4 5619.7 7869.9 10799.2 14600.4

Retained earnings 384.2 1266.8 1721.3 2250.2 2929.3 3801.2 4920.3

Total Reserve 2631.6 3898.4 5619.7 7869.9 10799.2 14600.4 19520.7

Table- 2.5.1.1.6

TOTAL RESERVES

2631.63898.4

5619.77869.9

10799.2

14600.4

19520.7

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

2007 2008 2009 2010 2011 2012 2013

YEAR

AM

OU

NT

IN

LA

KH

S

PreviousYearBalanceRetainedearnings

TotalReserve

Chart-2.5.1.1.6

Interpretation:

The total reserves are estimated based on retained earnings of company, for next

six year. The total reserve has been estimated at 3898.4 Lakhs in the year of 2007-2008.

The next years the reserves are estimated level of 5619.7 Lakhs in the year of 2008-2009.

In the year 2009-2010 of reserves has come up slightly by 7869.9 Lakhs. In the year

2010-2011 total reserves has been expected at 10799.2 Lakhs. In the year 2011-2012 total

reserve forecasted at 14600.4 Lakhs and in the year 2012-2013 has been expected

reserves at rupees 19520.7 Lakhs.

22

2.5.1.2 INORGANIC FINANCIAL FORECASTING


2007 2008 2009 2010 2011 2012 2013

Profit And Loss Account

Net Income 4304.5 9277.5 18554.9 37109.8 74219.7 148439.4 296878.7

Expenditure 2541.2 5779.4 11558.7 23117.4 46234.8 92469.6 184939.2

Gross Profit 1763.3 3498.1 6996.2 13992.4 27984.9 55969.8 111939.5

Depreciation 820.8 972.8 1945.5 3891.0 7782.1 15564.2 31128.3

PBIT 942.5 2525.4 5050.7 10101.4 20202.8 40405.6 80811.2

Interest 234.0 332.0 415.1 518.8 648.5 810.6 1013.3

PBT 708.5 2193.3 4635.7 9582.6 19554.3 39595.0 79797.9

Tax 222.8 788.0 1622.5 3353.9 6844.0 13858.2 27929.3

PAT 485.6 1405.4 3013.2 6228.7 12710.3 25736.7 51868.6

Dividend 0.0 138.5 138.5 138.5 138.5 138.5 138.5


Balance Sheet

Share Capital 1027.8 1385.1 1385.1 1385.1 1385.1 1385.1 1385.1

Reserves 2631.6 3897.9 6772.6 12862.8 25434.5 51032.8 102762.9

Net Worth 3659.4 5283.1 8157.7 14247.9 26819.7 52417.9 104148.0

Borrowings 2354.2 3382.0 13381.5 33039.6 71964.4 149359.3 303615.4


Net Fixed Assets 3652.1 5022.7 10045.4 20090.7 40181.4 80362.9 160725.8


Net Assets 6013.5 12874.1 25748.3 51496.6 102993.1 205986.2 411972.5

Fund Flow Statement

Increases in share capital 0.0 357.3 0.0 0.0 0.0 0.0 0.0

Increased in Sh. Premium 4208.7


Loan Borrowings 1058.4 1027.8 9999.5 19658.1 38924.8 77394.9 154256.1

Sources 1544.0 6860.7 12874.1 25748.3 51496.6 102993.1 205986.2

Net Fixed Assets 448.3 1370.5 5022.7 10045.4 20090.7 40181.4 80362.9


23

2.5.1.2.1 Gross Profit:

Statement showing the inorganic method based estimated gross profit of Everonn


Year 2007 2008 2009 2010 2011 2012 2013

Net Income 4304.5 9277.5 18554.9 37109.8 74219.7 148439.4 296878.7

Expenditure 2541.2 5779.4 11558.7 23117.4 46234.8 92469.6 184939.2

Gross Profit 1763.3 3498.1 6996.2 13992.4 27984.9 55969.8 111939.5

Table 2.5.1.2.1

GROSS PROFIT

1763.3 3498.1 6996.2 13992.4 27984.955969.8

111939.5

0.0

50000.0

100000.0

150000.0

200000.0

250000.0

300000.0

350000.0

2007 2008 2009 2010 2011 2012 2013

YEAR

RU

PE

ES

IN

LA

KH

S


Chart-2.5.1.2.1

Interpretation:

The gross profit is estimated for next six year is below the standard norms that

inorganic financial planning and forecasting. The gross profit of the Everonn Company

has been estimated at 3498.11 Lakhs in the year of 2007-2008. It has generally improved

in the subsequent years and its estimated level of 6996.2 Lakhs in the year of 2008-2009.

In the year 2009-2010 gross profit has come up slightly by 13992.4 Lakhs. In the year

2010-2011 the gross profit has been expected at 27984.9 Lakhs. In the year 2011-2012

grass profit has been forecasted at 55969.8 Lakhs and in the year 2012-2013 has been

expected gross profit at rupees 111939.5 Lakhs.

24

2.5.1.2.2. EBIT-PAT:

Statement showing the inorganic based estimated Profit Before Interest & Tax

and Profit After tax under inorganic method for Everonn Systems India Limited,

YEAR 2007 2008 2009 2010 2011 2012 2013

EBIT 942.47 2525.35 5050.70 10101.40 20202.80 40405.60 80811.20

PAT 485.6 1405.4 3013.2 6228.7 12710.3 25736.7 51868.6

Table-2.5.1.2.2

EBIT-PAT

485.6 1405.4 3013.2 6228.712710.3

25736.7

51868.6

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

YEAR

AM

OU

NT

IN

LA

KH

S

EBIT PAT

EBIT 942.47 2525.35 5050.70 10101.40 20202.80 40405.60 80811.20

PAT 485.6 1405.4 3013.2 6228.7 12710.3 25736.7 51868.6

2007 2008 2009 2010 2011 2012 2013

Chart-2.5.1.2.2Interpretation:


six year. The EBIT and PAT of the Everonn Company have been expected at 2525.35

and 1405.4 Lakhs in the year of 2007-2008. It has generally improved in the subsequent

years and its expected level of 5050.70 and 3013.2 Lakhs in the year of 2008-2009. In the

year 2009-2010 EBIT and PAT has come up slightly by 10101.40 and 6228.7 Lakhs. In

the year 2010-2011 the EBIT and PAT has been expected at 20202.80 and 12710.3 Lakhs

respectively. In the year 2011-2012 has been forecasted EBIT and PAT at 40405.60 and

25736.7 Lakhs are respectively and in the year 2012-2013 has been expected EBIT and

PAT at rupees 80811 and 51868.6 Lakhs respectively.

25

2.5.1.2.3. RESERVES:

Statement showing the inorganic method based estimated total reserves of


Reserves 2007 2008 2009 2010 2011 2012 2013



Total Reserve 2631.6 3898.4 6773.1 12863.3 25435.0 51033.2 102763.4Table-2.5.1.2.3

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

120000.0

AMOUNT IN LAKHS

YEAR

TOTAL RESERVES

Previous Year Balance 2146. 2631. 3898. 6773. 12863 25435 51033

Retained earnings 485.6 1266. 2874. 6090. 12571 25598 51730

Total Reserve 2631. 3898. 6773. 12863 25435 51033 10276

2007 2008 2009 2010 2011 2012 2013

Chart-2.5.1.2.3

Interpretation:


six year. The total reserve has been estimated at 3898 Lakhs in the year of 2007-2008.

The next years the reserves are estimated level of 6773 Lakhs in the year of 2008-2009.

In the year 2009-2010 of reserves has come up slightly by 12863 Lakhs. In the year

2010-2011 total reserves has been expected at 25435 Lakhs. In the year 2011-2012 total

reserve forecasted at 51033 Lakhs and in the year 2012-2013 has been expected reserves

at rupees 102763 Lakhs

26

2.5.1.2.4. DIVIDEND:

Statement showing the inorganic method based estimated dividend allocation of


YEAR 2007 2008 2009 2010 2011 2012 2013

DIVIDEND 0.00 138.5 138.5 138.5 138.5 138.5 138.5

Table 2.5.1.2.4

DIVIDEND

0.00 138.5

138.5

138.5138.5

138.5

138.5

2007 2008 2009 2010 2011 2012 2013

Chart-2.5.1.2.4

Interpretation:

The above table shows dividend allocations estimated for next six year is below

the standard norms that 10% paid of capital in inorganic financial planning and

forecasting for next six year. The Everonn Company had not provided dividend in the

year of 2007-2008, because they had planned to reinvest that money for organizational

growth. It has generally provided the dividend at 10% for the subsequent years and its

expected level rupees 138.512 Lakhs for next subsequent year of 2008-2013 respectively.

27

2.5.1.3 Average Growth Rate:


2007 2008 2009 2010 2011 2012 2013

Profit And Loss Account

Net Income 4304.5 9277.5 12048.6 15647.6 20321.5 26391.5 34274.7

Expenditure 2541.2 5779.4 7505.6 9747.6 12659.2 16440.5 21351.2

Gross Profit 1763.3 3498.1 4543.0 5900.0 7662.3 9951.0 12923.4

Other Expenses 820.8 972.8 1384.4 1798.0 2335.0 3032.5 3032.5

PBIT 942.5 2525.4 3158.6 4102.0 5327.3 6918.6 9890.9

Interest 234.0 332.0 431.2 560.0 727.3 944.6 1226.7

PBT 708.5 2193.3 2727.3 3542.0 4600.0 5974.0 8664.3

Tax 222.8 788.0 954.6 1239.7 1610.0 2090.9 3032.5

PAT 485.6 1405.4 1772.8 2302.3 2990.0 3883.1 5631.8

Dividend 0.0 138.5 138.5 138.5 138.5 138.5 138.5


Balance Sheet

Share Capital 1027.8 1385.1 1385.1 1385.1 1385.1 1385.1 1385.1

Reserves 2631.6 3897.9 5532.2 7696.0 10547.5 14292.1 19785.3

Net Worth 3659.4 5283.1 6917.3 9081.1 11932.6 15677.2 21170.5

Borrowings 2354.2 3382.0 5593.3 8423.7 12058.1 16736.7 22182.8


Net Fixed Assets 3652.1 5022.7 6523.0 8471.4 11001.8 14288.0 18555.8


Net Assets 6013.5 12874.1 16719.6 21713.8 28199.7 36623.0 47562.3

Fund Flow Statement

Increases In Share Capital 0.0 357.3 0.0 0.0 0.0 0.0 0.0

Increases In Share Premium 4208.7


Fund Needed 1058.4 1027.8 2211.2 2830.4 3634.4 4678.7 5446.0

Sources 1544.0 6860.7 3845.5 4994.2 6485.9 8423.3 10939.3

Net Fixed Assets 448.3 1370.5 1500.3 1948.4 2530.4 3286.2 4267.8


Uses 1544.0 6860.7 3845.5 4994.2 6485.9 8423.3 10939.3

2.5.1.3.1. Gross Profit:

28

Statement showing the Average Growth Rate based on estimated gross profit of


Gross Profit 2007 2008 2009 2010 2011 2012 2013

Net Income 4304.5 9277.5 12048.6 15647.6 20321.5 26391.5 34274.7

Expenditure 2541.2 5779.4 7505.6 9747.6 12659.2 16440.5 21351.2

Gross Profit 1763.3 3498.1 4543.0 5900.0 7662.3 9951.0 12923.4

Table 2.5.1.3.1

GROSS PROFIT

1763.3 3498.1 4543.0 5900.0 7662.39951.0

12923.4

0.05000.0

10000.015000.020000.025000.030000.035000.040000.0

2007 2008 2009 2010 2011 2012 2013

YEAR

AM

OU

NT

IN

LA

KH

S


Chart- 2.5.1.3.1

Interpretation:

The gross profit is estimated for next six year is below the standard norms that

Average Growth Rate in financial planning and forecasting. The gross profit of the

Everonn Company has been estimated at 3498.1 Lakhs in the year of 2007-2008. It has

generally improved in the subsequent years and its estimated level of 4543 Lakhs in the

year of 2008-2009. In the year 2009-2010 gross profit has come up slightly by 5900

Lakhs. In the year 2010-2011 the gross profit has been expected at 7662.3 Lakhs. In the

year 2011-2012 grass profit has been forecasted at 9951 Lakhs and in the year 2012-2013

has been expected gross profit at rupees 12923.4 Lakhs.

2.5.1.3.2 EBIT-PAT:

29

Statement showing the Average Growth Rate method based on estimated Profit

Before Interest & Tax and Profit After tax for Everonn Systems India Limited,

YEAR 2007 2008 2009 2010 2011 2012 2013

PBIT 942.5 2525.4 3158.6 4102.0 5327.3 6918.6 9890.9

PAT 485.6 1405.4 1772.8 2302.3 2990.0 3883.1 5631.8

Table 2.5.1.3.2

EBIT- PAT

2525.4 3158.64102.0

5327.36918.6

9890.9

485.61405.41772.82302.32990.0

3883.1

5631.8

942.5

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

2007 2008 2009 2010 2011 2012 2013

YEAR

AM

OU

NT

IN

LA

KH

S

PBIT

PAT

Chart 2.5.1.3.2

Interpretation:


six year. The EBIT and PAT of the Everonn Company have been expected at 2525.4 and

1405.4 Lakhs in the year of 2007-2008. It has generally improved in the subsequent years

and its expected level of 3158.6 and 1772.8 Lakhs in the year of 2008-2009. In the year

2009-2010 EBIT and PAT has come up slightly by 14020 and 2302.3 Lakhs. In the year

2010-2011 the EBIT and PAT has been expected at 5327.3 and 2990 Lakhs respectively.

In the year 2011-2012 has been forecasted EBIT and PAT at 6918.6 and 3883.1 Lakhs

are respectively and in the year 2012-2013 has been expected EBIT and PAT at rupees

9890.9 and 5631.8 Lakhs respectively.

30

2.54.1.3.3 Reserves:

Statement showing the Average Growth Rate based on estimated total reserves of Everonn Systems India Limited,

Reserves 2007 2008 2009 2010 2011 2012 2013



Total Reserve 2631.6 3898.4 5532.7 7696.5 10548.0 14292.6 19785.8

Table 2.5.1.3.2

TOTAL RESERVES

2631.6 3898.45532.7

7696.510548.0

14292.6

19785.8

0.0

5000.0

10000.0

15000.0

20000.0

2007 2008 2009 2010 2011 2012 2013

YEAR

AM

OU

NT

IN

LA

KH

S

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

Previous Year Balance Retained earnings Total Reserve

Chart 2.5.1.3.2

Interpretation:


six year. The total reserve has been estimated at 3898.4 Lakhs in the year of 2007-2008.

The next years the reserves are estimated level of 5532.7 Lakhs in the year of 2008-2009.

In the year 2009-2010 of reserves has come up slightly by 7696.5 Lakhs. In the year

2010-2011 total reserves has been expected at 10548 Lakhs. In the year 2011-2012 total

reserve forecasted at 14292.6 Lakhs and in the year 2012-2013 has been expected

reserves at rupees 19785.8 Lakhs

31

2.5.1.3.4. Dividend:

Statement showing the estimated dividend allocation of Everonn Systems India Limited,

YEAR 2007 2008 2009 2010 2011 2012 2013

DIVIDEND 0.00 138.51 138.51 138.51 138.51 138.51 138.51

Table 2.5.1.3.3

DIVIDEND

0.00 138.51

138.51

138.51138.51

138.51

138.51

2007 2008 2009 2010 2011 2012 2013

Chart 2.5.1.3.3

Interpretation:

The above table shows dividend allocations estimated for next six year is below

the standard norms that 10% paid of capital in Average Growth Rate in financial planning

and forecasting for next six year. The Everonn Company had not provided dividend in

the year of 2007-2008, because they had planned to reinvest that money for

organizational growth. It has generally provide the dividend at 10% for the subsequent

years and its expected level rupees 138.512 Lakhs for next subsequent year of 2008-

2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013.

32

2.5.2 CAPITAL STRUCTURE DECISION

2.5.2.1. EBIT-EPS Analysis for 2008:

The EBIT-EPS analysis for 2008 has considered three plans like plan first refers

only Equity, Plan second refers to 50% equity & 50% debt and third plan refers only

equity.

CALCULATION OF EPS FOR 2008

PARTICULARSFINANCIAL PLANS

I II IIIEBIT 2,525 2,525 2,525 Interest 332 638 945 PBT 2,193 1,887 1,581 Tax 788 641.4 537.2EAT 1,405 1,246 1,043 No. of equity share 13,851,181 12,064,699 10,278,217 EPS 10.1 10.3 10.2

Table 2.5.2.1

EBIT-EPS ANALYSIS FOR 2008

2,525 2,525 2,525

10.15 10.32 10.15

2,520

2,525

2,530

2,535

2,540

PLAN-I PLAN-II PLAN-III

YEAR

AM

OU

NT

EBIT EPS

Chart 2.5.2.1Interpretation:

The above table shows Profit Before Interest and Tax (PBIT) viz Earning Per

Share (EPS) analysis for 2007-2008. The first plan infers that EBIT-EPS analysis has

been expected at 2525.35 and 10.1 rupees earning per shares. The second plan infers that

EBIT-EPS has been states that 2525.35 and 10.3 are respectively. Third plan infers that

EBIT-EPS has been state that 2525.35 and 10.15 respectively.

33


The EBIT-EPS analysis for 2009 has considered three plans like plan first

refers only Equity, Plan second refers to 50% equity & 50% debt and third plan

refers only equity.



I II IIIEBIT 3,232 3,232 3,232 Interest 415 566 716 PBT 2,817 2,667 2,516 Tax 958 906.4 855.2EAT 1,860 1,760 1,661 No. of equity share 14,792,934 14,322,058 13,851,181 EPS 12.6 12.3 12.0

Table 2.5.2.2


3232.45 3232.45 3232.45

12.57 12.29 11.99

3225.00

3230.00

3235.00

3240.00

3245.00

3250.00

YEAR

AM

OU

NT

EPS

EBIT

EPS 12.57 12.29 11.99

EBIT 3232.45 3232.45 3232.45





been expected at 3232.45 and 12.57 rupees earning per shares. The second plan infers

that EBIT-EPS has been states that 3232.45 and 12.29 are respectively. Third plan infers

that EBIT-EPS has been state that 3232.45 and 11.99 respectively.

34

2.5.2.3. EBIT- EPS Analysis for 2010:

The EBIT-EPS analysis for 2010 has considered three plans like plan first

refers only Equity, Plan second refers to 50% equity & 50% debt and third plan

refers only equity.


PARTICULARS

FINANCIAL PLANS

I II III

EBIT 4137.5 4137.5 4137.5

Interest 518.8 663.6 808.4

PBT 3618.7 3473.9 3329.1

Tax 1230.0 1180.8 1131.6

EAT ( Rupees) 2388.7 2293.1 2197.6

No. of equity share 15468330.4 14659755.7 13851181.0

EPS 15.4 15.6 15.9Table 2.5.2.3

EBIT-EPS ANALYSIS FRO2010

4137.53 4137.53 4137.53

15.44 15.64 15.87

4125.00

4130.00

4135.00

4140.00

4145.00

4150.00

4155.00

YEAR

AM

OU

NT

EPS

EBIT

EPS 15.44 15.64 15.87

EBIT 4137.53 4137.53 4137.53







that EBIT-EPS has been state that 4137.53 and 15.87 respectively.

35

2.5.2.4. EBIT-EPS for 2011:



equity.



I II IIIEBIT 5,296 5,296 5,296 Interest 649 831 1,013 PBT 4,648 4,465 4,283 Tax 1,580 1517.7 1455.8EAT 3,068 2,947 2,827 No. of equity share 15,964,450 14,907,815 13,851,181 EPS 19.2 19.8 20.4

Table 2.5.2.4


5296.04 5296.04 5296.04

19.22 19.77 20.41

5285.00

5290.00

5295.00

5300.00

5305.00

5310.00

5315.00

5320.00


YEAR

AM

OU

NT

EPS

EBIT

Chart 2.5.2.4

Interpretation:





that EBIT-EPS has been state that 5296 and 20.41 respectively.

36

2.5.2.5. EBIT- EPS for 2012:



equity.



I II IIIEBIT 6778.9 6778.9 6778.9Interest 810.6 1040.9 1271.1PBT 5968.3 5738.1 5507.9Tax 2028.6 1950.4 1872.1EAT 3939.7 3787.7 3635.7No. of equity share 16434271.3 15142726.2 13851181.0EPS 24.0 25.0 26.2

Table 2.5.2.5


6778.93 6778.93 6778.93

23.97 25.01 26.25

6765.00

6770.00

6775.00

6780.00

6785.00

6790.00

6795.00

6800.00

6805.00

6810.00


YEAR

AM

OU

NT

EPS

EBIT




been expected at 6778.9 and 24 rupees earning per shares. The second plan infers that

EBIT-EPS has been states that 6778.9 and 25 are respectively. Third plan infers that

EBIT-EPS has been state that 6778.9 and 26.2 respectively.


37



equity.



I II III EBIT 8,677 8,677 8,677 Interest 1,013 1,305 1,596 PBT 7,664 7,372 7,081 Tax 2,605 2,506 2,407 EAT 5,059 4,867 4,674 No. of equity share 16,909,885 15,380,533 13,851,181 EPS 29.9 31.6 33.7

Table 2.5.2.6

EBIT-EPS ANALYSIS

8,677 8,677 8,677

29.92 31.64 33.75

8,660

8,670

8,680

8,690

8,700

8,710

8,720


YEAR

AM

OU

NT

EPS

EBIT

Chart 2.5.2.6

Interpretation:



been expected at 8677 and 29.92 rupees earning per shares. The second plan infers that

EBIT-EPS has been states that 8677 and 31.64 are respectively. Third plan infers that

EBIT-EPS has been state that 8677 and 33.75 respectively.

2.5.2.7 Cost of Capital:

38

1. Cost of equity:

YEAR 2008 2009 2010 2011 2012 2013

Dividend per share 1 1 1 1 1 1

Market price per share 800 1,200 1,800 2,700 4,050 6,075

Ke 0.13% 0.08% 0.06% 0.04% 0.02% 0.02%

Table 2.5.2.7

Cost of equity

0.13%

0.08%

0.06%0.04%

0.02% 0.02%

0.00%

0.05%

0.10%

0.15%

year

Ke Ke

Ke 0.13% 0.08% 0.06% 0.04% 0.02% 0.02%

2008 2009 2010 2011 2012 2013

Chart 2.5.2.7

Interpretation:

The above table shows Cost of equity analysis estimated for next six year is below

the standard norms of cost of capital. The cost of equity of the Everonn Company has

been estimated at .13% in the year of 2007-2008. It has gradually reduced in the

subsequent years and its estimated level of .08% in the year of 2008-2009. In the year

2009-2010 Ke has come down slightly by .06%. In the year 2010-2011 the Ke has been

expected at .04%. In the year 2011-2012 forecasted at .02% and in the year 2012-2013

has been expected Ke at .02% respectively.

2.5.2.8. Cost of debt:

39

YEAR 2008 2009 2010 2011 2012 2013

Interest 332.04 415.05 518.81 648.52 810.64 1013.31

Par value of Debt 3382.04 5265.55 7629.43 10606.15 14364.72 19120.86

Kda 6% 5% 4% 4% 4% 3%

Table 2.5.2.8

Cost of debt

6%

5%4%

4%4% 3%

0%

1%

2%

3%

4%

5%

6%

7%

year

Kd

a

Kda

Kda 6% 5% 4% 4% 4% 3%

2008 2009 2010 2011 2012 2013

Chart 2.5.2.8

Interpretation:

The above table shows Cost of debt after tax analysis estimated for next six year

is below the standard norms of cost of capital. The cost of debt of the Everonn Company

has been estimated at 6% in the year of 2007-2008. It has gradually reduced in the

subsequent years and its estimated level of 5% in the year of 2008-2009. In the year

2009-2010 Kda has come down slightly by 4%. In the year 2010-2011 the Kda has been

expected at 4%. In the year 2011-2012 forecasted at 4% and in the year 2012-2013 has

been expected Kda at 3% respectively.

2.5.2.9 Cost of equity and cost of debt:

40

YEAR 2008 2009 2010 2011 2012 2013

Ke 0.13% 0.08% 0.06% 0.04% 0.02% 0.02%

Kda 6% 5% 4% 4% 4% 3%

Table 2.5.2.9

Ke-Kda

0.13%

0.08%

0.06%0.04%

0.02% 0.02%

6%

5%4% 4% 4% 3%

0.00%

0.05%

0.10%

0.15%

year

Ke-

Kd

a

0%1%2%3%4%5%6%7%

Ke

Kda

Ke 0.13% 0.08% 0.06% 0.04% 0.02% 0.02%

Kda 6% 5% 4% 4% 4% 3%

2008 2009 2010 2011 2012 2013

Chart 2.5.2.9

Interpretation:

The above table shows Cost of equity and Cost of debt after tax analysis estimated

for next six year is below the standard norms of cost of capital. The Ke-Kda of the

Everonn Company has been estimated at .13% and 6% respectively for the year of 2007-

2008. It has gradually reduced in the subsequent years and its estimated level of .08% and

5% in the year of 2008-2009. In the year 2009-2010 Ke-Kda has come down slightly

by .06% and 4%. In the year 2010-2011 the Ke-Kda has been expected at .04% and 4%.

In the year 2011-2012 forecasted at .02% and 4% and in the year 2012-2013 has been

expected Ke-Kda at .02% and 3% respectively.

2.5.2.10 Net Income Approach:

41

Over All cost of capital (Ko): EBIT/ Value of the firm

V = Market value of equity(S) + Market Value of debt (B)

S= Net Income/ Cost of equity

Table 2.5.2.10

YEAR 2008 2009 2010 2011 2012 2013

NI 1405.4 1859.8 2388.7 3067.8 3939.7 5058.8

Ke 0.13% 0.08% 0.06% 0.04% 0.02% 0.02%Market Value of equity (S) 1124280 2231717 4299691 8283148 15955657 30732384.6Market value of debt (B) 3382.0 5265.5 7629.4 10606.1 14364.7 19120.9

V=(S+B) 1127662 2236983 4307321 8293754 15970021 30751505

YEAR 2008 2009 2010 2011 2012 2013

EBIT 2525.4 3232.4 4137.5 5296.0 6778.9 8677.0

Value of the firm 1127662 2236983 4307321 8293754 15970021 30751505

Overall Cost of Capital

0.22% 0.14% 0.10% 0.06% 0.04% 0.03%

42

Overall Cost of Capital (Ko)

0.22%

0.14%

0.10%0.06%

0.04% 0.03%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

YEAR

Ko

Overall Cost of Capital (Ko)

Overall Cost of Capital(Ko)

0.22% 0.14% 0.10% 0.06% 0.04% 0.03%

2008 2009 2010 2011 2012 2013

Chart 2.5.2.10

Interpretation:

The above table shows over all cost of capital analysis estimated for next six year

is below the standard norms of Net Income Approach. The Ko of the Everonn Company

has been estimated at .22% in the year of 2007-2008. It has gradually reduced in the

subsequent years and its estimated level of .14% in the year of 2008-2009. In the year

2009-2010 Kda has come down slightly by .10%. In the year 2010-2011 the Kda has

been expected at .06%. In the year 2011-2012 forecasted at .04% and in the year 2012-

2013 has been expected Kda at .03% respectively.

CHAPTER-III

3.1 FINDINGS

43

This was an analysis of the financial planning &forecasting and capital structure

decision of Everonn System India Limited, which is leading companies in the educational

industry.

1. The Net Incomes are estimated for six year is below the standard norms that

organic financial planning and forecasting. The Net Income of the Everonn

Company has been estimated in the subsequent years and it reaches the level of

9277.5, 11875.1, 15200.2, 19456.2, 24904 and rupees 31877.1 Lakhs for 2009-

1013 respectively. The growth of the company is more satisfactory.

2. The gross profit is estimated for next six year. The gross profit of the Everonn

Company has been estimated at 3498.11 Lakhs in the year of 2007-2008. It has

generally improved in the subsequent years and its estimated level of 4477.58,

5731.30, 7336.07, 9390.17, and12019.41 Lakhs for 2009-1013 respectively.

Under the standard norms of Average Growth Rate method estimated gross profit

at 3498, 4543, 5900, 7662.3, 9951 and 12923.4 Lakhs for 2008-2013 are

respectively.

3. The EBIT-PAT of the Everonn Company have been expected under organic

method at 2525.35 and 1405.4 Lakhs to rupees 8677.04 and 5058.8 Lakhs from

2008 to 2013 respectively. Under the Inorganic financial forecasted at 2525.35

and 1405.4 to 80811 and 51868.6 Lakhs for 2008-2013 are respectively. And

under Average Growth Rate consider as expecting at 2525.4 and 1405.4 Lakhs to

9890.9 and 5631.8 Lakhs for next 2008 -1013 are respectively.

4. The total reserves are estimated based on organic method; reserve has been

estimated at 3898.4 Lakhs to19520.7 Lakhs for 2008 to 2013 are respectively.

Under inorganic methods are estimated reserve has been estimated at 3898 Lakhs

44

to102763 Lakhs for 2008 to 2013 are respectively. Under AGR methods are

estimated reserve has been estimated at 3898.4 Lakhs to 19785.8 Lakhs for 2008

to 2013 are respectively.

5. The analysis under three method shows dividend allocations provided at 10% of

paid up capital of the company for next six year. The company has generally

provided the dividend at 138.512 Lakhs for the subsequent years from 2008 to

2013. The Everonn Company had not provided dividend in the year of 2007-2008,

because they had planned to reinvest that money for organizational growth.

6. Earnings Before Interest and Tax (PBIT) - Earning Per Share (EPS) analysis has

find that the plan third is more earning per share at 10.15 for 2008 and 2010

subsequent year has 15.9, 20.4, 26.2, and 33.7. Second plan is an optimal plan as

used both debt-equity 50%. And plan first is low earning per share.

7. The Cost of equity and Cost of debt after tax analysis estimated for at .13% and

6% respectively for the year of 2007-2008. It has reduced in the subsequent years

and its estimated level of .02% and 3% in the year 2012-2013 are respectively.

8. The Over all cost of capital analysis estimated on the basis of Net Income

Approach. The Ko of the Everonn Company has been estimated at .22% in the

year of 2007-2008. It has gradually reduced in the subsequent years and its

estimated level of .14%, 10, 04% and .03% for 2009-2013 are respectively.

3.2 SUGGESTION

45

This was an analysis of the financial planning &forecasting and capital structure

decision of Everonn System India Limited, which is suggested companies capital

decision.

A. In the case of company, they followed a traditional capital structure policy e.g.

share capital (including contributions of society members) reserves, loan capital

and deferred credit. Which due to changes in the rate of interest and the benefit

of a tax shield, decreases the portion of equity shares and increases the portion

of loan funds significantly to reduce their overall cost of capital and Everonn

Company, the reserves take the primary position then loan

B. The Net Income of the Everonn Company has been estimated in the subsequent

years and it reaches higher level and also the education industry are good in

internal and external environment, so the company can go to expansion program

with various sources finance like debt, equity and other sources of finance.

C. The company has held more reserves which are grader sources to maintain the

capital structure. The company can focus the future course of action that is

expansion activity, because the company fundamentally strong.

D. The company can consider the plan second that is debt-equity proportion has

optimal level and also the capital proportion is very safe to organization.

E. The analysis under three method shows dividend allocations provided at 10% of

paid up capital of the company for next six year. The company shall provide the

dividend at higher level, for the subsequent years from 2008 to 2013. The

dividend allocation is more important to investor satisfaction and also to grow

the market value of the firm.

46

F. The company can consider the plan second that is equity and debt proportion

has optimal. It has provides the following benefits

1. Tax advantages

2. Interest payment

3. To increase the EPS value

4. To increase profit of the organization

G. The company Cost of equity and Cost of debt after tax analysis estimated is

very favorable to financial lever of the company.

H. The Over all cost of capital analysis estimated on the basis of Net Income

Approach. The Ko of the Everonn Company has been estimated at .22% in the

year of 2007-2008. It has gradually reduced in the subsequent years and its

more benefit to enhance future course of action.

47

3.3 Conclusion

This project work results indicate that the financial planning and forecasting and

Capital structure decision of Everonn Systems India Limited, seems to be satisfactory.

The financial planning analysis shows that the good growth esteem, liquidity position,

profitability, efficiency, etc of the company are more satisfactory, The company future

conditions are very good, because the education industry is important and booming one

and also monopoly business one.

The company capital structure is optimal and reliable one, even previous year of

capital proportions are good position to meet its current and future obligations. The

company financial and capital management are more efficient. The above analysis is

made very much helpful to Everonn Systems India Limited, to improve their overall

performance, efficiency and thereby improve its financial position. However the weak

spots specified have to be concentrated and serious efforts have to be taken to ensure a

comfortable position in the future.

48

APPENDEX

1. Balance Sheet:

Balance SheetParticulars As at 31st March

Sources of Funds 2007 2006 2005 2004 2003

A. Net Worth

Share Capital 1027.82 171.37 171.37 171.37 171.37

Reserves and Surplus 2631.59 1632.18 1160.31 1058.03 1095.35

Total Net Worth 3659.41 1803.55 1331.68 1229.40 1266.72

B. Borrowings: Secured Loans/ Long term debt 2354.21 2688.72 1045.67 924.17 1380.24

Borrowings 2354.21 2688.72 1045.67 924.17 1380.24

C. Capital Employed (A+B) 6013.62 4492.27 2377.35 2153.57 2646.96

Applications of funds

D. Investment: 0.12 0.12 0.12 48.12 48.00

E. Fixed Assets

Gross Block 5623.42 5914.99 3748.17 3280.13 3215.76 Less: Depreciation amortization 1971.28 2711.17 2254.82 1667.12 1141.49

Net Block 3652.14 3203.82 1493.35 1613.01 2074.27

Add: Capital WIP 0.00 0.00 0.00 0.00 0.00

Total Fixed Assets 3652.14 3203.82 1493.35 1613.01 2074.27F. Current Assets, Loans and Advance

Inventories 25.64 26.59 11.08 4.42 3.24

Sundry Debtors 2796.50 1734.50 806.78 395.80 556.79

Cash and Bank Balance 422.29 296.53 173.60 120.04 57.52

Loan and Advance 593.79 554.87 301.86 206.54 148.18

Total 3838.22 2612.49 1293.32 726.80 765.73

G. Liabilities and Provisions:

Deferred Tax Liability 544.34 440.11 185.39 92.76 51.91

Current Liabilities 736.07 803.69 206.74 163.32 319.63

Provisions 196.46 103.01 67.57 73.49 (1.54)

Total 1476.87 1346.81 459.70 329.57 370.00

H. Net Current Assets ( F-G ) 2361.35 1265.68 833.62 397.23 395.73

I. Net Assets (E+H) 6013.49 4469.50 2326.97 2010.24 2470.00

To the extent not W/off 0.00 22.65 50.25 95.19 128.952. Profit and Loss Account

49

ParticularsYear ended March 31

2007 2006 2005 2004 2003

Income:

Education & Training income 4033.98 2813.87 1942.94 1616.42 1601.54

Sales of hardware 270.49 279.15 0.00 0.00 0.00

Other Income 0.00 0.01 0.01 0.00 0.00

Total Income 4304.47 3093.03 1942.95 1616.42 1601.54

Expenditure:

Manpower 758.96 527.85 443.20 380.53 399.85

Education &Training expense 1759.56 1100.09 458.65 376.92 427.33

Deferred revenue expenditure 22.65 27.60 44.95 41.80 41.80

Total Expenditure 2541.17 1655.54 946.80 799.25 868.98

EBIDT (before Depreciation) 1763.30 1437.49 996.15 817.17 732.56

Depreciation & Amortization 844.35 456.36 587.69 526.91 489.11 Less: Overheads transferred to fixed assets (23.52) 0.00 0.00 0.00 0.00

EBIT (After Depreciation) 942.47 981.13 408.46 290.26 243.45

Interest and finance charge 233.99 155.49 143.96 180.37 171.97

EBT 708.48 825.64 264.50 109.89 71.48

provision for taxation

Current tax 105.63 69.48 20.74 8.45 5.63

Deferred tax 104.21 254.72 92.63 40.85 25.01

Fringe benefit tax 13.00 10.50 0.00 0.00 0.00

Total tax 222.84 334.70 113.37 49.30 30.64

PAT 485.64 490.94 151.13 60.59 40.84 Balance brought forward from previous items 518.45 95.67 8.49 51.88 37.94

Dividend on shares 0.00 17.14 42.84 85.68 0.00

Tax on dividend 0.00 1.92 6.01 12.23 0.00

Transfer to general reserve 41.00 49.09 15.11 6.06 0.00

Deferred tax liability 0.00 0.00 0.00 0.00 (26.90)

Balance carried to Balance sheet 963.09 518.46 95.66 8.50 51.88

50

Bibliography

1. Financial Management By I M Pandey2. Financial Management By Kacon Jecan 3. Financial Management By Peer Mohamed

Web site search:

1. www.everonn.com 2. www.google.com 3. www.nseindia.com

Other Sources:

1. Annual report of Everonn Systems India Limited.

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http://www.nseindia.com/

http://www.google.com/

http://www.everonn.com/

Documents

Financial Planning and Capital Structure Decision