Indian Journal of Finance and Banking; Vol. 2, No. 2; 2018 ISSN 2574-6081 E-ISSN 2574-609X Impact Factor: 3.8 Published by Centre for Research on Islamic Banking & Finance and Business, USA 42 A Study on Evaluation of Capital Structure G.D.V. Kusuma 1 1 Department of MBA-Sree Kavitha Institute of Management, India. Correspondence: Dr. G.D.V. Kusuma, Department of MBA-Sree Kavitha Institute of Management, India. Received: October 20, 2018 Accepted: October 28, 2018 Online Published: November 2, 2018 Abstract Capital is the back bone of any organization. Everyone should utilize the capital in a proper way; otherwise their business will be washed away from the market. The present paper is an attempt to present the capital structure of My Home Industries Ltd. In this paper the researcher/s made an attempt to evaluate the capital structure by considering different elements like debt and equity. Keywords: Capital, Debt, Evaluation, Equity, Structure, My Home Industries Ltd., Hyderabad. 1. Introduction The financial decisions taken by the management of the companies is highly important while determining the optimal capital structure. It is responsibility of the management to design their capital structure in a way to maximize their firm value. However, firms have a different level of leverage and managers try to achieve the best set to attain an optimal capital structure. MM (1958) argues that under very restrictive assumptions of perfect capital markets, investor’s homogenous expectations, tax free economy and no transaction cost, capital structure is irrelevant in determining firm value. The present paper is arranged as follows. The next session presents the methodology of the study, and the last session projects the empirical results of the analysis, findings and suggestions that are based on the results of the study. Primary Data: Primary data is data that has not been previously published, i.e., the data is derived from a new or original research study and collected at the source. Secondary Data: This type of data is generally taken from newspapers, magazines, bulletins, reports, journals etc. The present study is entirely based on secondary data i.e. financial reports of the company. 2. Objectives of the Study  To study different sources of finance available to the firm for its operations.  To Study the EPS under different years i.e. from 2010-11 to 2014-15.  To measure the liquidity of the firm through ratios  To project how to take account of a firm’s financing mix in evaluating investment decisions 3. Results and Discussion Table -1 Capital Structure of My Home Industries Limited (Rs. in Lakhs) Particulars 2010-11 2011-12 2012-13 2013-14 2014-15 I. Authorized capital Equity shares 550 550 550 550 550 II. Issued sharers 550 550 550 550 550 III. Reserves &surplus www.cribfb.com/journal/index.php/ijfb Indian Journal of Finance and Banking Vol.2, No.2; 2018 43 1.share premium 1487.5 1487.5 1487.5 1487.5 1487.5 2.capital reserve 48.18 48.18 48.18 48.18 48.18 3.capital investment subsidy 30 30 30 30 30 4.General reserve 6059.7 4848.93 5848.93 5998.93 6228.93 The above table illustrates about the capital structure of the company from 2010-11 to 2014-15. The Equity shares of the company are constant during the entire period of the study i.e. (Rs. 550 Lakhs), from 2010 – 2015, apart from that the capital reserves of the company are also consistent during the study period. The company is maintaining its reserves &surplus from 2010-2015 including share premium and Capital reserves. The company’s general reserve is changing from year to year and the highest GR shows in the financial year 2014-15 i.e. Rs. 6228.93Lakhs. Table – 2 Debt Capital of the Company (Rs. In Lakhs) Loans & Funds 2010-11 2011-12 2012-13 2013-14 2014-15 I. Secured Loans A. Term loans & W.C. borrowing from Bank 7996.6 8228.6 10280 13077 15284 II. Unsecured Loans 2283.4 2093.3 1432.1 4047.5 877.7 From the above data it is evident that the company’s secured loans are increasing continuously during the period of the study i.e. from 2010-15. It also projects that the unsecured loans are not consistent during the years 2010-15. These unsecured loans are changing from year to year. During the years 2013-15, the values of secured loans are very high (i.e. Rs.13077 Lakhs & Rs. 15284). Where as the unsecured loans are showing extremely high during the year 2013-14 i.e. Rs. 4047.5 Table – 3 Growths of Owners Funds (Rs. In Lakhs) Years Equity share capital Reserve & surplus Net worth 2010-11 550 7685 8235 2011-12 550 6470 7020 2012-13 550 7559 8109 2013-14 550 8353 8903 2014-15 550 9225 9775 2010-11 550 7685 8235 The above represents the growths of owner’s funds for the years 2010-15. The company’s equity share capital is constant during the entire period of the study i.e. 2010-11 to 2014-15. It is observed from the above data that the net worth of the company is gradually increasing from 2011-15 (i.e. from Rs. 7020 to Rs. 977 Lakhs), which indicates the good performance of the company. This indicates the earnings and savings potentiality of the company, and the company is suggested to maintain the same in the future. Table – 4 Growth Of Debt Capital (Rs. In Lakhs) Year Secured loans Unsecured loans Total debt 2010-11 7996.55 2283.43 10279.98 2011-12 8228.56 2093.25 10321.81 2012-13 10280.35 1432.13 11712.4 2013-14 13077.04 4047.47 17124.51 2014-15 15284.48 877.71 16162.19 The above table represents the growth of debt capital of the company. The company’s debt capital is increased during the period of the study. It is not a good sign to the company because it increases the company’s risk. This shows that the liquidity position of the company is not in a good position and hence the company has to reduce its debt capital in order to maintain the desirable norm of current ratio i.e. 2:1 www.cribfb.com/journal/index.php/ijfb Indian Journal of Finance and Banking Vol.2, No.2; 2018 44 Table- 5 Debt Equity Ratios (Rs. In Lakhs) Years Debt Equity (net worth) Ratio 2010-11 10279.98 8234.64 1.24838 2011-12 10321.81 7020.11 1.47032 2012-13 11712.48 8108.72 1.44443 2013-14 17124.51 8903.24 1.92340 2014-15 16162.19 8775.21 1.65340 It is clear from the above depicted graph that debt equity ratio of the net worth was approximately 1.24 times in the year 2012. And it is increased to 1.92 times in the year 2013-14 and suddenly decreased 1.65 in the year 2014-15. From this it is clear that debt equity ratio is not consistent and it is in unpredictable manner. Table – 6 Interest Coverage Ratio (Rs. In Lakhs) Year EBIT INT I.C.R 2010-11 3352.86 1118.37 2.998 2011-12 3385.02 1038.45 3.260 2012-13 4240.58 896.83 4.728 2013-14 4185.45 1082.33 3.867 2014-15 4269.01 1159.13 3.683 The above information projects the interest coverage ratio of the company. Interest coverage ratio has been calculated for the years 2010-11 to 2014-15. The calculated ICR is very low from the starting year i.e. 2011-12 (2.998 lakhs), it is increased in the year 2012-13 (4.728 Lakhs), and in the years 2013- 14 and 2014-15 it was decreased (3.683 lakhs). Table – 7 Return On Networth (Rs. In Lakhs) Years Net profit Net worth R.O.N % 2010-11 781.47 8234.64 0.09 9 2011-12 888.74 7020.11 0.13 13 2012-13 1398.84 8108.72 0.17 17 2013-14 1042.71 8903.24 0.12 12 2014-15 1122.61 9775.15 0.11 11 The above chart illustrates the net worth position of the company for the years 2010-11 to 2014-15. Here Net profit & Net worth bas been taken for calculating the RON. During the period of the study the RON is in fluctuating manner and is lowest in the year 2010-11 i.e. 9% and it is highest in the year 2012-13 i.e. 17%. Table – 8 Earning Per Share (Rs. In Lakhs) Years Net profit No of shares E.P.S % 2010-11 781.47 55,00,000 142.09 14.21 2011-12 888.74 55,00,000 161.59 16.16 2012-13 1398.84 55,00,000 254.33 25.43 2013-14 1042.71 55,00,000 189.58 18.96 2014-15 1122.61 55,00,000 204.01 20.04 www.cribfb.com/journal/index.php/ijfb Indian Journal of Finance and Banking Vol.2, No.2; 2018 45 From the above table it is observed that Net worth earnings per share in the year 2010-11 is (142.09), it is increased in the year 2012-13 (254.33), finally it decreased in the year 2013-14 (204.1) and there is a slight increase in the year 2014-15. 4. Findings  Debt equity ratio reveals that the company employed more amount of debt for raising the funds. The debt equity ratio was approximately 1.24 times and increased to 1.92 times in the year 2014-15 which is not a good sign to the company.  The interest coverage ratio in the year 2010-11 is 2.99 indicating that the firm has very low debt servicing capacity. The interest coverage ratio is high in the year 2012-2013 and indicates that the firm has sufficient earning to cover the interest charges. Company’s ability to service the debt has increased over the period of study.  The return on net worth is high in the year 2011-13 by 17% indicating that the firm earned greater returns on their investment.  The company’s turnover position is gradually increasing every year from 2010-11 to 2014-15.  The net profit of the firm is growing during the period of the study and indicates the good operational efficiency of the firm.  The net worth of the firm is in increasing manner for the years 2010-2013, and it is in fluctuating manner from 2013 -2014 onwards. 5. 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