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CHAPTER 1
INTRODUCTION
THEORETICAL BACKGROUND OF THE TOPIC:
. Among all the sources of finance, cost of equity capital is considered to be 1.1
INTRODUCTION :
Finance is the study of funds and management. Its general areas are business finance,
personal finance, and public finance. It also deals with the concepts of time, money,
risk, and the interrelation between the given factors. It is basically focused on how the
money is spent and budgeted. It is one of the most important aspects in handling
business. Finance addresses the methods wherein business entities used their financial
resources on a certain period of time. It is the application of a set of techniques used
by organizations in managing their financial affairs. The income and expenditure are
emphasized in finance and its differences can easily be indicated.
Nowadays, loans have been packaged for resale. This means that the debt has been
bought by an investor from the bank. These bonds are sold to investors by financial
corporations who have exceeded beyond their expenditures. The investor can now
collect all the interests and be sold again through a secondary market. Banks serve as
facilitators to companies in the provision of credit and mutual funds. Investments are
managed carefully under a financial risk management to control gambling chances of
these financial assets. Financial instruments are also used to secure these assets on
securities exchanges such as stock exchanges and bonds. A bank provokes the
activities of both borrowers and lenders. Lenders pay deposits to banks on which it
pays the interest rates. The central banks are the last resorts that handle the monetary
funds. These banks affect the interest rates being charged such as an increase in the
money supply will result to a decrease in the interest rates.
Financial capital is a monetary resource allows businesses to purchase items that will
create goods for production and other services. The budget is the documentation of the
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CAPITAL BUDGETING
The first question concerns the firms long-term investments. The process of planning
and managing a firm's long-term investments is called capital budgeting. In capital
budgeting, the financial manager tries to identify investment opportunities that are
worth more to the firm than they cost to acquire. Financial managers must be
concerned with how much cash they expect to receive, when they expect to receive it,
and how likely they are to receive it. Evaluating the size , timing , and risk of future
cash flows is the essence of capital budgeting.
.
CAPITAL STRUCTURE
The term capital structure refers to the percentage of capital (money) at work in a
business by type. Broadly speaking, there are two forms of capital: equity capital and
debt capital. Each has its own benefits and drawbacks and a substantial part of wise
corporate stewardship and management is attempting to find the perfect capital
structure in terms of risk / reward payoff for shareholders. This is true for Fortune 500
companies and for small business owners trying to determine how much of their startup money should come from a bank loan without endangering the business.
Let's look at each in detail:
Equity Capital: This refers to money put up and owned by the shareholders
(owners). Typically, equity capital consists of two types: 1.) contributed
capital, which is the money that was originally invested in the business in
exchange for shares of stock or ownership and 2.) Retained earnings, which
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Other Forms of Capital: There are actually other forms of capital, such as
vendor financing where a company can sell goods before they have to pay the
bill to the vendor that can drastically increase return on equity but don't cost
the company anything. This was one of the secrets to Sam Walton's success at
Wal-Mart. He was often able to sell Tide detergent before having to pay the bill
to Procter & Gamble, in effect, using PG's money to grow his retailer. In the
case of an insurance company, the policyholder "float" represents money that
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ii.
For instance - There are two companies A and B. Total capitalization amounts to be
USD 200,000 in each case. The ratio of equity capital to total capitalization in
company A is USD 50,000, while in company B, ratio of equity capital is USD
150,000 to total capitalization, i.e, in Company A, proportion is 25% and in company
B, proportion is 75%. In such cases, company A is considered to be a highly geared
company and company B is low geared company.
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8. Sizes of a company-
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DEFINITION
According to John J. Hampton, capital structure is the combination of debt and
equity securities that comprises a firms financing of its assets.
According to Gerstenberg, capital structure of a company refers to the composition
or make up of its capitalisation and it includes all long-term capital resources, viz.,
loans, reserves, shares and bonds.
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CAPITAL STRUCTURE
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Replacement
Modernisation
Expansion
Capital Budgeting
Decision
Need to Raise
Funds
Capital Structure
Decision
Existing Capital
Structure
Diversification
Internal Fund
Debt
External Equity
Effect on Return
Payout Policy
Effect on Risk
Effect on Cost of
Capital
Optimum Capital
Structure
Value of the Firm
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company.
A preferential right as to the return of capital when the company is woundup.
These shares carry a right of dividend at a fixed rate prior to any dividend paid to
equity shareholders. They do not normally enjoy voting rights. The preference shares
are similar to equity shares as their holders are also owner of the company. The
dividend on preference shares is not a charge against profit but it is an appropriate of
profit and thus is not a tax deductible payment. The preference share can cumulative
or non cumulative, redeemable or irredeemable, participating or non-participating and
convertible or non-convertible.
Retained earnings: Retained earnings or ploughing back of profits are
considered to be the best sources of internal financing. This type of required to
raise such finance.
This increase net worth without diluting the control of equity shareholders and
does not create a fixed charge and obligation of repayments.
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Net Income
Approach
Traditional
Approach
INTRODUCTION TO EQUITY
Equity is the term commonly used to describe the ordinary share capital of a
business.
Ordinary shares in the equity capital of a business entitle the holder to all
distributed profit after the holder of debentures and preference share have been
paid.
EARNING PER SHARE (EPS)
Total earning divided by the number of outstanding shares, companies often use a
weighted average of share outstanding over the reporting term. Earning peer share
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INDUSTRY PROFILE:
The power sector has registered significant progress since process of planned
development of the economy began in 1950. Hydro-power and cost based thermal
power has been the main sources of generating electricity. Nuclear power development
is at slower pace, which was introduced, in late sixties. The concept of operating
power systems on a regional basis crossing the political boundaries of state was
introduced in the early sixties. In spite of the overall development that has taken place,
the power supply industry has been under constant pressure to bridge the gap between
supply and demand.
The gears of enterprise in Karnataka powered nascent industrial activity as early as the
year 1800, when the first sugar unit was set up. In 1902, Karnataka recorded another
mega watt sized project first - Asias first Hydro Electric Power Station in
Shivanasamudram, on the banks of river Cauvery
In fact, Karnatakas pioneering spirit in the field of power has been translated into
several major milestones. Karnataka was the first to embark on Alternating current,
when Bangalore Citys lighting scheme was completed.
Karnataka had the longest transmission line in the world in 1902, from
Shivanasamudram to KGF, covering a distance of 147 km. and Karnataka was the first
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HISTORY
Although electricity had been known to be produced as a result of the chemical
reactions that take place in an electrolytic cell since Alessandro Volta developed the
voltaic pile in 1800, its production by this means was, and still is, expensive. In 1831,
Michael Faraday devised a machine that generated electricity from rotary motion, but
it took almost 50 years for the technology to reach at commercially viable stage.
In 1878, in the US, Thomas Edison developed and sold a commercially viable
replacement for gas lighting and heating using locally generated and distributed direct
current electricity.
The worlds first public electricity supply was produced in late 1881, when the streets
of the Surrey Town of Godalming in the UK were lit with electric light. This system
was powered from a water wheel on the River Way, which drove a Siemens alternator
that supplied a number of arc lamps within the town. This supply scheme also
provided electricity to a number of shops and premises.
Coinciding with this, in early 1882, Edison opened the worlds first steam powered
electricity generating station at Holborn Viaduct in London, where he had entered into
an agreement with an agreement with the City Corporation for a period of three
months to provide street lighting. In time he had supplied a number of local consumers
with electric light. The method of supply was direct current (DC).
It was later on in the year in September 1882 that Edison opened the Pearl Street
Power Station in New York City and again it was a DC supply. It was for this reason
that the generation was close to or on the consumers premises as Edison had no
means of voltage conversation. The voltage chosen for any electrical system is a
compromise. Increasing the voltage reduces the current and therefore reduces resistive
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INDUSTRY SCENARIO
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MACRO
KPCL come out with new power generation plants like wind mills around Karnataka
in hill forest areas and as well as they gain lots of shares compare to previous financial
year with a huge profit margin.
MICRO
KPCL encouraging young entrepreneurs in engineering colleges by offering them to
do projects with their own ideas to develop the company example how better we can
use our solar energy.
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INDUSTRY PROFILE:
The power sector has registered significant progress since process of planned
development of the economy began in 1950. Hydro-power and cost based thermal
power has been the main sources of generating electricity. Nuclear power development
is at slower pace, which was introduced, in late sixties. The concept of operating
power systems on a regional basis crossing the political boundaries of state was
introduced in the early sixties. In spite of the overall development that has taken place,
the power supply industry has been under constant pressure to bridge the gap between
supply and demand.
The gears of enterprise in Karnataka powered nascent industrial activity as early as the
year 1800, when the first sugar unit was set up. In 1902, Karnataka recorded another
mega watt sized project first - Asias first Hydro Electric Power Station in
Shivanasamudram, on the banks of river Cauvery
In fact, Karnatakas pioneering spirit in the field of power has been translated into
several major milestones. Karnataka was the first to embark on Alternating current,
when Bangalore Citys lighting scheme was completed.
Karnataka had the longest transmission line in the world in 1902, from
Shivanasamudram to KGF, covering a distance of 147 km. and Karnataka was the first
state in the country to conceive and set up a professionally managed Corporation to
plan, construct, operate and maintain power generation projects in the state. Thats the
legacy that KPCL started with and built on
HISTORY
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COMPANY PROFILE:
Since Independence the Power Sector in India has shown a significant rise. However,
with the growth in power demands the Indian power sector is required to produce
more electricity to meet the consumer requirements. Over the years, it has been
observed that the power generation of India is considerably lower that the
premeditated targets set by the government, chiefly due to the lack of availability of
fuel.
Indian Power Sector witnessed power deficit in the year 2009-2010 which increased to
12.6% from 11.9% in 2008-09. The power requirement in India for the years 2010-11
and 2011-12 is expected to be 906316GWh and 968659GWh respectively. While on
the other hand, the Central Electricity Authority has anticipated peak energy scarcity
of 14.98 GW in the FY 2009-10.To cope up with the energy requirements India is
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Bangalore
Citys
lighting
scheme
was
completed.
Karnataka had the longest transmission line in the world in 1902, from
Shivanasamudram to KGF, covering a distance of 147 km. and Karnataka was the first
state in the country to conceive and set up a professionally managed Corporation to
plan, construct, operate and maintain power generation projects in the state. Thats the
legacy that KPCL started with and built on.
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The Karnataka power Corporation is mainly involved in the generation of power and
is the sole administrator for the power generation in the state. It was formed on 20 th
July 1970 as a sister concern to Karnataka Electricity Board (KEB) in order to
eradicate the power famine of the state. From the Mysore Power corporation Limited
of 1970 (A successor of the Hydro Electric Construction Department of Mysore state)
to Karnataka Power Corporation Limited of 21 st century it has been a long, rewarding
journey of three decades.
For over three decades, the Karnataka Power Corporation has been a prime mover and
catalyst behind key power sector reforms in the state - measures that have spiralled
steady growth witnessed in both industrial and economic areas.
Right from the year of inception, in 1970, KPCL set its sights on growth from
within meeting growing industry needs and reaching out to touch the lives of the
common
man,
in
more
ways
than
one
KPCL today has an installed capacity of 5509.82 MW of hydel, thermal and wind
energy, with 4000 MW in the pipeline. The 1470 MW Raichur Thermal Power Station
located in Raichur dist is accredited with ISO 14001-2004 certification for its
environment protection measures. From an industry vantage point, KPCL has raised
the bar on the quality of deliverables and is constantly working at lowering the cost
per megawatt - a commendable cost-value equation that has become a benchmark on
the national grid. KPCLs stock in trade is industry proven - well-established
infrastructure & modern, progressive management concepts and a commitment to
excel, helping it meet the challenges of the rising energy demands of Karnataka.
The leverage point of KPCL initiatives are its resource management strengths right
across planning, financing and project engineering. KPCL also has a high rating in
terms of project completion and commissioning within the implementation calendar.
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VISION
Ensuring energy security for Karnataka through diversified energy portfolio.
MISSION
Identifying and developing opportunities in power generation.
Establishing and operating power plants.
Constant up gradation of technical competence and systems.
Developing human resource capabilities and empowerment.
To become a world class organization emphasizing efficiency, cost effectiveness and
harmony with environment.
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The year 2008 09 was also an important year for KPCL - CESD as it obtained the
consultancy service for Upper Bhandra Project of Karnataka Neeravari Nigama
Limited @ a Consultancy cost of Rs. 50.00 million. Previously i.e. during the year
2007-08 KPCL CESD had bagged the consultancy works for 3 * 40 MWcapacity
Rammam Stage III Hydro Electric Project of NTPC Ltd. , with consultancy charges
being Rs. 85.50 Million.
During the present year KPCL CESD achieved a turnover of Rs.179.49 Lakhs. The
consultancy work in progress during the year 2009 10 are as follows:
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KPCL currently has 34 dams & 25 power stations across the State with profiles that
range from 0.35 MW to 1035 MW.
The total installed capacity logged by KPCL is 5509 MW across a project canvas that
covers expansions, renovations and upgrading of existing plants.
GENERATION PERFORMANCE
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availability of 89.38%.
Highest capacity addition of 600 MW.
Almatti Dam Power House has achieved a record generation of 664.21 MUs
surpassing the previous annual generation of 630.23 MUs
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High performance levels to reduce cost and ensure reliable power supply,
ENVIRONMENTAL MANAGEMENT
KPCLs power generation blueprint has a clear-cut policy on environment
management. Building in green-mapping concepts such as sustainable development ,
which creates the framework for improving the quality of life. sustainable
development goes hand-in-hand with 'environment protection. KPCL has a
comprehensive action plan in place that enables environment management, pollution
monitoring and the implementation of specific environment projects.
All KPCL projects have the assurance of a comprehensive Environmental Impact
Study to evaluate the impact of the project on the environment. It also prepares an
Environmental Management Plan complying with all the conditions stipulated by
KSPCB/MOEF. KPCL's Raichur Thermal Power Station has been accredited with ISO
14001 -2004 for its efforts towards environment protection management.
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Fuel supply agreement with collieries to ensure high grade coal supplies.
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COMPETITORS
Reliance Energy
Tata Power
Torrent Power
GMR Energy
CHAPTER 3
RESEARCH DESIGN
INTRODUCTION
A research design is a method and procedure for acquiring information needed to solve
the problem. A research design is the basic plan that helps in the data collection or
analysis. It specifies the type of information to be collected the sources and collection
procedure.
Research in common parlance refers to a search for knowledge. Research can also be
defined as a scientific and systematic search for pertinent information on specific
topic. We can also say that research as an art of scientific investigation.
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CAPITAL STRUCTURE'SLONG-TERMIMPACT
Capital structure affects a company's overall value through its impact on operating
cash flows and the cost of capital. Since the interest expense on debt is tax deductible
in most countries, a company can reduce its after-tax cost of capital by increasing debt
relative to equity, thereby directly increasing its intrinsic value. While finance
textbooks often show how the tax benefits of debt have a wide-ranging impact on
value, they often use too low a discount rate for those benefits. In practice, the impact
is much less significant for large investment-grade companies (which have a small
relevant range of capital structures). Overall, the value of tax benefits is quite small
over the relevant levels of interest coverage. For a typical investment-grade company,
the change in value over the range of interest coverage is less than 5 percent.
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Review 3:
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Debt ratio
Cost of equity
Bond rating
Interest rate on deposits
After-tax debt
Firm value
Review 5:
3.2.5 The capital structure Decision of new firms
Contrary to widely held beliefs that startup companies rely heavily on funding from
family and friends, a Kauffman Foundation research paper released today reported that
external debt financing such as bank loan are the more common source of funding of
many companies during their first year of operation. According to the study , nearly 75
percent of most firm startup capital is made up in equal part of owner equity and bank
loan and/or credit card debt, understanding the importance of liquid credit market to
the formation and success of new firms.
Interestingly, the capital structure paper also found that high-tech firms are more likely
to get outside equity investment in their first year of operation than any other type of
company. According to the data, high tech firms received an average of $31,216 in this
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STATEMENT OF PROBLEM:
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HYPOTHESIS:
SCOPE OF STUDY:
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1. Equity Share: Equity shares are those shares which are ordinary in the course
of companys business. They are also called as ordinary shares. These shares
holders do not enjoy preference regarding payment of dividend and repayment
of capital. Equity shareholders are paid dividend out of the profit made by a
company. Higher the profits, higher will be the dividend and lower the profit,
lower will be the dividend.
2.
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6 RESRARCH METHODOLOGY
TYPES OF STUDY
The nature of the study of this project will be Descriptive study. In Descriptive study,
one has to use facts or informations which are already available and analyze these to
make critical evaluation of the material. The objective of this research is to generate
new ideas.
SOURCES OF DATA
Secondary data: published data and the data collected in the past is called secondary
data.
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DATA ANALYSIS
The data collected will be classified and tabulated for the purpose of the study.
The analyzed data will be represented in the form of tables, charts and graphs.
Making use of financial tools such as averages and percentages for the better
understanding of the study.
CHAPTER SCHEME
Chapter One:
Introduction
Chapter Two:
Chapter Three:
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CHAPTER 4
ANALAYSIS AND INTERPRETATION
INTRODUCTION:
The term Financial Analysis and Interpretation refers to the process the process of
determining financial strengths and weaknesses of the firm by establishing a strategic
relationship between the components of financial statements and other operating data.
The purpose of financial analysis is to diagnose the information contained in financial
statements so as to judge the profitability and soundness of a firm. Financial analysis
means simplifications of financial data by methodical classification of data given in
the financial statements. Interpretation means explaining the meaning of and
significance of data so simplified. The analysis and interpretation of financial
statements is used to determine the financial position and results of operations as well.
The basic objective of capital structure and management is to realize the twin
objective of profitability of the operation and to maintain adequate to meet the
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The following figures will give an idea regarding the capital structure in KPCL.
Particulars
As at 31st
march
2013
Number
(in Lakhs)
Authorised
Equity Shares of 4,10,00,000 4,10,000
Rs 1000 each
Issued
Equity shares of 3,12,69,686 3,12,,697
Rs 1000 each
Subscribed & Paid
up
Equity Shares of 3,12,69,686 3,12,,697
Rs 1000 each fully
paid
A) Reconciliation of number of
equity shares outstanding
Particulars
Equity Shares
Number
2,28,19,686
Shares
outstanding at the
beginning of the
year
Shares
Issued 84,50,000
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As at 31st
March 2012
Number
(in Lakhs)
3,10,00,000
3,10,000
2,28,19,686
2,28,197
2,28,19,686
2,28,197
Equity Shares
(Rs in Lakhs)
2,28,197
Number
1,74,32,622
(Rs in Lakhs)
1,74,326
84,500
53,87,064
53,871
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2,28,19,686
2,28,197
No. of
Shares held
2,28,19,686
% of Holding
100
Note No. 2 :
SCHEDULE-B RESERVES AND SURPLUS
Particulars
a.Capital Reserves
Opening Balance
(+) Current year transfer
Closing Balance
b. Special Reserve for Replacement of
Plant and Machinery
Opening Balance
(+) current year Transfer from
General Reserve
Closing Balance
c. General Reserves
Opening balance
(+) Net Profit/(net Loss) For the
current year
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(Rs in Lakhs)
(Rs in Lakhs)
472
472
472
472
6,489
6
6,202
287
6,495
6,489
3,45,065
233
3,45,533
11,470
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(3,657)
(2,651)
(6)
(287)
3,50,635
3,57,602
3,54,065
3,61,026
ANALYSIS
An appropriation of 2.5% of distributable profits is made to Special
reserve
annually for replacement of machinery and also for the Renovation, Modernization
and up rating schemes of the Corporation including other Capital works that may be
undertaken by the corporation on a contingent basis. An appropriation of `5.83
Lakhs is made towards special Reserve during current year (Prev. year ` 286.75
Lakhs)
CHART SHOWING SHARE CAPITAL
3.5
3
2.5
(Rs in Lakhs)
2013
Column1
1.5
1
0.5
0
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SHARE CAPITAL
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3.6
3.58
3.56
2013
3.54
Column1
3.52
3.5
3.48
3.46
3.44
RESERVES AND SURPLUS
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NOTE 3
SCHEDULE-A SHARE CAPITAL
Particulars
As at 31st
march 2012
Number
(in Lakhs)
Authorised
Equity Shares of Rs 31,000,0000 310000
1000 each
Issued
Equity shares of Rs 22,819,686
228197
1000 each
Subscribed & Paid
up
Equity Shares of Rs 22,819,686
228197
1000 each fully
paid
A) Reconciliation of number of
equity shares outstanding
Particulars
Equity Shares
Number
Shares outstanding 17,432,622
at the beginning of
the year
Shares
Issued 5,387,064
during the year
Shares outstanding 22,819,686
at the end of the
year
B) Share Holding
pattern
Name of the Share No. of Shares
Holder
held
Government
of 3,12,69,686
Karnataka
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As
at
31st
March 2011
Number
(in Lakhs)
20,000,000
200000
17,432,622
174326
17,432,622
174326
Equity Shares
(Rs in Lakhs)
174326
Number
12,432,622
(Rs in Lakhs)
124326
53871
5,000,000
50000
228197
17,432,622
174326
% of Holding
No. of
Shares held
2,28,19,686
% of Holding
100
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100
NOTE 4
SCHEDULE-B RESERVE AND SURPLUS
Particulars
a.Capital Reserves
Opening Balance
(+) Current year transfer
Closing Balance
b. Special Reserve for Replacement of
Plant and Machinery
Opening Balance
(+) current year Transfer from
General Reserve
Closing Balance
c. General Reserves
Opening balance
(+) Net Profit/(net Loss) For the
current year
(-) Proposed Dividends (incl. of
Dividend Taxes)
(-) Special Reserve for Replacement
of Plant and Machinery
Closing Balance
Total
(Rs in Lakhs)
(Rs in Lakhs)
472
472
472
472
6,202
287
4,890
1,312
6,489
6,202
3,45,065
11,470
3,45,533
11,470
2,651)
(2,651)
(287)
(1,312)
3,54,065
3,61,026
3,45,533
3,52,206
ANALYSIS
1.An appropriation of 2.5% of distributable profits is made to Special reserve
annually for replacement of machinery and also for the Renovation, Modernization
and up rating schemes of the Corporation including other Capital works that may
be undertaken by the corporation on a contingent basis. An appropriation of
`286.75 Lakhs is made towards special Reserve during current year (Prev year
`1312.00 Lakhs)
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3.5
3
2.5
2012
2
Column1
1.5
1
0.5
0
SHARE CAPITAL
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3.6
3.58
3.56
2012
3.54
Column1
3.52
3.5
3.48
3.46
3.44
RESERVE AND SURPLUS
NOTE:5
SCHEDULE-A SHARE CAPITAL
Particulars
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Number
20,000,000
Number
20,000,000
17,432,622
12,432,622
5,000,000
22,819,686
17,432,622
NOTE:6
SCHEDULE-B RESERVES AND SURPLUS
Particulars
(Rs
Lakhs)
(Rs
Lakhs)
A.Capital Reserves
Balance as per last Balance 46896
sheet
255
Add. Current year additions
B.
Special
Reserve
for
Replacement of Plant and
Machinery
EWCM/RNG/RSB
in
47151
Page 62
46896
-
in
46896
489031
131200
29841645
4711617
TOTAL
620231
379969
109062
489031
34553262
25879145
3962500
29841645
35220644
30377572
EWCM/RNG/RSB
Page 63
2.5
(Rs in Lakhs)
1.5
2011
Column1
0.5
SHARE CAPITAL
EWCM/RNG/RSB
Page 64
2.5
(Rs in Lakhs)
1.5
2011
Column1
0.5
SHARE CAPITAL
INTERPRETATION
Authorised capital of the company has been enhanced from Rs 2000 crores to 3100
crores on 19.05.2011
NOTE 7.
SCHEDULE-A SHARE CAPITAL
(Rs.'000)
Particulars
EWCM/RNG/RSB
20,000,000
20,000,000
12,432,622
7,432,622
5,000,000
17,432,622
12,432,622
NOTE 8.
SCHEDULE-B RESERVES AND SURPLUS
(Rs.'000)
Particulars
(Rs
Lakhs)
(Rs
Lakhs)
in
in
A.Capital Reserves
Balance as per last Balance
sheet
EWCM/RNG/RSB
46896
Page 66
46896
489031
310645
69324
29841645
23349437
2529708
30377572
379969
25879145
26306010
ANALYSIS
During the year 50,00,000 equity shares of Rs 1000/-each have been allotted at par to
the Government of Karnataka.
EWCM/RNG/RSB
Page 67
18
16
14
12
(Rs in Lakhs)
2010
10
Column1
8
6
4
2
0
SHARE CAPITAL
3.1
3
2.9
2010
(Rs in Lakhs)
2.8
Column1
2.7
2.6
2.5
2.4
EWCM/RNG/RSB
Page 68
YEAR
LAKHS)
2009
115
16,568.07
2010
200
17,522.52
2011
200
22,377.62
EWCM/RNG/RSB
Page 69
310
26,774.84
2013
410
44,765.48
ANALYSIS:
As it could be observed in table 1, among all the year of Karnataka Power
Corporation Ltd,
Amount of Debt there is a slight increase in every year. In the year 2013 debt is high
(44,765.48) and low in 2009 (16,568.07). In future it is expected to increase more.
EWCM/RNG/RSB
Page 70
Column2
20000
15000
10000
5000
0
2009
2010
2011
2012
2013
INTERPRETATION:
As we have seen in the above graph 1, among all the year of Karnataka Power
Corporation Ltd, there is continuous increase in debt. By increasing in the debt value
at moderate levels, the same will depict the enhancement in the long term liabilities
which are repayable in a long duration. This is turn helps the firm in mobilizing the
appropriate funds for the required purpose.
EWCM/RNG/RSB
Page 71
YEAR
2009
373
2010
351
2011
349.76
2012
52.34
2013
41.75
EWCM/RNG/RSB
Page 72
Chart Title
400
350
300
250
RUPEES
200
150
100
50
0
2009
2010
2011
2012
2013
YEAR
INTERPRETATION:
As we have seen in the above graph 2, among all the year of Karnataka Power
Corporation Ltd, there is fluctuation in the EPS by taking Earnings before interest and
tax. If the Earning per share is a measure and investors will watch carefully and
consider it. While deciding the market value of the Equity share it is assumed that the
company has earned good profit and investors will be ready to invest in the company.
If the EPS decreases than the company is not earning good profits and the company
will have bad reputation among investors and financial institution. In 2012 EPS is low
because paid up capital is more.
EWCM/RNG/RSB
Page 73
YEAR
2009
27.47
2010
19.01
2011
16.98
2012
18.68
2013
12.22
ANALYSIS:
As it could be observed in table 3, among all the year of Karnataka Power Corporation
Ltd, the ratio of EPS by earnings taking after interest and tax is high and high in the
year
2009
(40.46)
and
decreasing
continuously
from
EWCM/RNG/RSB
Page 74
2010
to
2013
15
Column1
10
5
0
YEAR
INTERPRETATION:
As we have seen in the above graph 3, among all the year of Karnataka Power
Corporation Ltd, there is decrease in Earnings per share by taking Earnings after
interest and tax in the year 2013. If the EPS decreases due to the economic factors
such as moderate performance and also the political influence in the state due to the
tax rate has been increased so it has major impacts on EPS. If the company pays more
of its income towards tax rate it decreases the EPS. If the Company starts booming
and less interference of political factor then EPS will increase in any financial year.
EWCM/RNG/RSB
Page 75
Series 3
9.3
9.2
9.1
9
8.9
FINANCIAL PLAN
INTERPRETATION:
As we have seen in the above graph 5, among all the plans of Karnataka power
Corporation Ltd, plan 4 is good because of 100% Equity shares. In this regard to this
plan it can increase the earnings per share and also excess profit can be retained in the
company for the further expansion activities, but the risk increases for the company. If
the company follows plan 2 there is decrease in EPS due to 100% Debt so the
EWCM/RNG/RSB
Page 76
FINANCIAL PLANS
EQUITY CAPITAL
DEBT CAPITAL
100
100
50
50
70
30
30
70
ANALYSIS:
As it could be observed in table 6, it shows the various plans which can be utilized by
of Karnataka Power Corporation Ltd to increase the maximum profits and earnings per
share for the long run survival of the company. Based on this projected earnings for
the equity share holders will be made for three years from 2012-2014. By doing this
projected analysis company will be able to select the best plans for future.
EWCM/RNG/RSB
Page 77
EQUITY
60
Column1
40
20
0
FINANCIAL PLAN
INTERPRETATION:
EWCM/RNG/RSB
Page 78
PLAN 1
PLAN 2
PLAN 3
PLAN 4
PLAN 5
Initial capital
5000000
5000000
5000000
5000000
5000000
+ Addition
450000
NIL
225000
135000
315000
5000000
5225000
5135000
5315000
Sources: working has been performed in MS_EXCEL from the data available in annual reports
of the company concerned.
EWCM/RNG/RSB
Page 79
ANALYSIS
As it could be observed in table 7, it shows the various financial plan with the
additional capital to find out the number of outstanding shares. Based on this
outstanding share the projected analysis for the year 2012 to 2014 will be made, as we
can see from the table 7 plans 1 has got more outstanding shares of (5450000), and
plan 2 has got less outstanding shares (50000000).
FINANCIAL PLAN
EWCM/RNG/RSB
Page 80
DIRECTORS REPORT
The Board of Directors take immense pleasure in presenting the 43rd Annual Report
on the business and operations of the Corporation with the audited statement of
accounts for the year ended March 31, 2013.
I. Financial Performance
Financial Results
(Rs in crores)
5622
(Rs in crores)
5242
43
41
152
------
5426
967
6393
4857
1537
1366
5201
541
5742
4409
1333
1171
EWCM/RNG/RSB
Page 81
171
162
Particular
2012-13
2011-12
17120
16228
1
05
56618
40467
2
54
0
104
326
(480)
Finance charges
88987
77109
EWCM/RNG/RSB
Page 82
(9)
(144)
(357)
(362)
162418
133353
Adjustments for:
B
(8118)
65144
288
(5611)
(106302
)
(5659)
(267624
)
207374
(1202)
(40426)
38674
(4138)
7302
(11205
8)
158280
21295
4382
11617
153898
CASHFLOW
FROM
INVESTMENT ACTIVITIES
Interest receipts
356
362
79)
(730)
in
(815
(1404)
investment
(122691)
(81947
)
CASHFLOWS FROM
FINANCING ACTIVITIES
Receipt from issue of equity share 40000
capital
Receipt from secured loan (net)
5680
EWCM/RNG/RSB
Page 83
62500
53716
(88988)
Payment of Dividend
(2282)
Payment of Corporate Dividend Tax () (373)
NET CASH USED IN FINANCING
ACTIVITIES (C)
Net increase/decrease in cash & cash
equivalents( A+B+C)
(77110)
(3487)
(566)
(45963)
35053
(14696)
(36660
)
23933
60594
9237
23934
2012-13
2011-12
2)
a) cash on Hand
b) Imprest
8733
23665
430
200
68
64
Total
9237
23934
EWCM/RNG/RSB
Page 84
CHAPTER 5
FINDINGS, CONCLUSIONS AND SUGGESTIONS
FINDINGS
The study is undertaken for the purpose of finding out the efficiency of Capital
structure and Management of KPCL. The following are the summary of findings
arrived after analysis.
1. The Net capital has been constantly increasing in all 3 years due to increase in
debtors, loans & advances and decrease in creditors etc.
2. In the year 2012-2013 more than 80% of the current assets are locked up in
sundry debtors which may affect the liquidity position of the company.
3. Current ratio shows an increasing trend which is 9.94 in the year 2010-2011 and
is way more than the standard ratio 2:1. Based on this data it can be said that the
liquidity position of the company is good.
4. Liquid ratio also shows an increasing trend which is 9.43 in the year 2010-2011
and is way more than the standard ratio 1:1. This ratio reflects the financial
soundness of the firm in terms liquidity.
5. As per debtors turnover ratio the liquidity position of the company is poor as it is
less than the standard ratio 1:1. Debtors turnover ratio shows a decreasing trend
from 1:01 to 0.98 and 0.73 in the last 3 years.
6. Working capital turnover ratio shows a decreasing trend over the past 3 years.
The ratio has reduced from 0.93 to 0.61. This clearly shows that the working
capital is under utilized in generating net sales.
7. The sales of the company have been increasing through all 3 years.
8. Stock turnover ratio shows an increasing trend as the sales are constantly
increasing. The ratio has increased from 8.53 to 11.59 over the last 3 years.
EWCM/RNG/RSB
Page 85
Page 86
CONCLUSIONS
Based on the study made at KPCL, on capital structure and management, the
following conclusions were made.
Debtors are forming a large part of current assets.
Analysis was made on assets and liabilities of the company to find out the
gross capital. It was found that the capital in good position and was
constantly increasing.
The liquidity position of the company is very good as revealed by the
current ratio. The companys ability to meet their obligations is high.
Debtors turnover ratio shows decreasing trend and the collection period is
very high.
Inventory levels were showing decreasing trend as less investment is made
in inventories.
Cash levels are showing increasing trend.
Debtors form a major part of current assets.
There is considerable scope of improving capital structure at KPCL by
incorporating much effective policies and practice with regard to capital
management.
The company is performing its operations successfully and its overall
performance is very good.
EWCM/RNG/RSB
Page 87
BIBLIOGRAPHY
1. Financial Management- Prasana Chandra
Tata McGraw-Hill
Published co ltd
6th Edition
2. Financial management- Ravi M Kishore
Taxman Publications
7th Edition
WEBSITES
www.karnataka power.com
www.indianpowersector.com
EWCM/RNG/RSB
Page 88
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
Note
No.
22
As at 31st
March 2013
5,42,596
As at 31st
March 2012
5,20,130
23
96743
6,39,339
54,098
5,74,228
24
25
3,83,137
4,224
20,333
3,45,337
5,885
19,725
26
27
28
70,644
88,987
56,618
63,093
77,110
40,442
29
7,213
6,31,156
8,183
6,023
5,57,615
16,613
30
60,8,183
46
555
16,058
31
32
(9043)
17,120
286
(456)
EWCM/RNG/RSB
16,228
3,448
13,439
233
3,504
1,254
11,470
0.75
50
Page 89
0.75
48
Table 1:
Balance Sheet as on 31st March 2013
(in Lakhs )
Particulars
2
3
Ii
1
Note No.
As at 31st As
at
March
31sTMarch
2013
2012
3,12,697
3,57,602
18,000
2,28,197
3,61,026
62,500
4
5
6
7
292019
59456
28,057
23,576
2,86,339
46,017
29,354
23,482
8
9
10
11
7,28,250
93,251
59,495
15,264
19,87,667
5,57,884
57,787
56,754
16,381
17,25,681
Total
ASSETS
Non-current assets
(a) Fixed assets
(i) Tangible assets
12
(ii) Intangible assets
12
(iii) Capital work-in-progress-Tangible 13
6,90,213
24
1,55,365
5,32,938
46
2,47,594
Asset
(b) Non-current investments
(d) Long-term loans and advances
35,365
44,317
34,020
14,191
allotment
Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long-term provisions
Current liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
EWCM/RNG/RSB
14
15
Page 90
16
5,26,334
1,72,298
17
18
19
20
21
53,529
4,26,159
9,237
22,066
25,058
19,87,667
45,411
4,91,302
23,934
22,353
1,41,594
17,25,681
Total
Table:2
Balance Sheet as on 31st March 2012
(`in Lakhs)
Particulars
Note No.
As at 31st As at 31st
March
March
2012
2011
228,197
174,326
361,026
352,206
62,500
53,871
Share
application
allotment
Non-current liabilities
money
pending 3
789,639
735,923
46,017
44,764
29,369
29,370
EWCM/RNG/RSB
Page 91
23,482
10,000
54,490
50,781
57,787
35,811
10
56,793
52,747
11
16,381
7,439
1,725,681
1,547,244
Current liabilities
Ii
Total
ASSETS
Non-current assets
(a) Fixed assets
(i) Tangible assets
12
532,937
555,951
12
46
53
247,,593
182,875
(iii)
Capital
work-in-progress-Tangible 13
Asset
(b) Non-current investments
14
34,020
33,289
15
14,191
8,977
16
174,655
165,232
(b) Inventories
17
45,411
39,800
18
491,302
385,001
19
23,934
60,595
20
21
21,376
140,216
15,681
99,790
1,725,681
1,547,244
Current assets
Total
EWCM/RNG/RSB
Page 92
Table:3
Balance Sheet as on 31st March 2011
(Rs '000)
EWCM/RNG/RSB
Page 93
Sl
Particulars
no
31.03.2011
31.03.2010
Sources of funds
1.
shareholder's
A
funds:
B
a) share capital
b) reserve & surplus
C
2. load funds
D
a)secured loans
b) unsecured loans
3.
Deferred
tax
liability(Net)
4.Advance
2281968
6
3522064
Application of funds:
1.Fixed assets
a)Gross Block
b) Less: Depreciation
3839429
3552012
2. Investments
3. current assets, loans
balance
B. Loans & Advances
EWCM/RNG/RSB
8
3829963
4781019
4
7381976
3
5
4476393
684213
4136721
-
1469510
1257666
24
76
G
H
& advance
A. current Assets
a) inventories
b) sundry debtors
c) cash & bank I
(A)
8375008
1014042
9142444
81
45803911
5
4313903
in F
progress
2
3037757
2
TOTAL
c) Net Block
d) capital work
Depreciation
II
5804033
8
4535579
against
1743262
8
5560037
0
1836543
4828540
7396580
3
7
2041452
6869992
9
2
3328988
63500
3979990
6380187
3355190
5204198
4660594
0
6948310
78
7384134
6234548
2
3588303
0
3219598
Page 94
7742964
6556507
Table:4
BALANCE SHEETS AS ON 31st MARCH 2009, 2010
(Rs.000)
Sl no
I
II
Particulars
Sources of funds
1. shareholders funds
a) share capital
b) reserve & surplus
2. Load Funds
a)secured loans
b) unsecured loans
3. Deferred Tax Liability (Net)
4.Advance
Against
Depreciation
TOTAL
Application of funds
1.Fixed Assets
a) net block
b) capital work in progress
2. Investments
3. Current Assets, Loans &
Adv
A. current assets
a) inventories
b) sundry debtors
c) cash & bank balance
B. loans & advances
Total (A)
2009-2010
2010-2011
1743.26
3037.75
2281.96
3522.06
3552.01
3829.96
413.67
0
3839.42
4535.57
447.63
68.42
12576.65
14695.06
4828.54
2071.45
6.35
5560.03
1836.54
332.89
335.51
5204.19
694.83
291.95
6526.5
398
6380.18
605.94
358.83
7742.96
expenditure
EWCM/RNG/RSB
TOTAL
5667.3
3.02
Page 95
12576.66
683.75
94.63
778.38
6964.57
1.04
14695