FREE CASH FLOW (FCF)

is defined as the cash that company able to generate after

spending the money required to run or expand its business. FCF is
a good indicator of the performance of a public company. Many
investors base their investment decisions on the free cash
generated by a company or its equity price to FCF ratio.
From the FCF, company can pay the debts, dividend to the
shareholders and it can also purchase its own shares back and
can expand the business.

year capital
increas Fixed expendit depreciati
WC e in W.C assets ure on PAT FCF
2014
-15 577.94 196.06 381.88 -117.77 987.48 647.16 2.94
2013
-14 301.65 37.54 264.11 -5.09 340.32 5.55 3.66
2012
-13 324.22 65.2 259.02 -37.36 334.77 -8.41 2.354
2011
-12 285.99 64.33 221.66 -47.96 343.18 -9.99 1.635

FCF analysis & comments:

As free cash flow determines how the company has performed
and how much is its ability to repay its debts, dividends to
shareholders and other short term liabilities. From the calculations
we can see that during the years 2012, 2013 and 2014 company
has good amount of free cash flow which shows it produced quite
god amount of money from the operations and it can pay its non-
current liabilities which includes short term borrowings and
deferred tax liabilities, etc. but it may not able to pay the dividend
to the shareholders. After 2014, FCF went down by significant
amount and that was mainly because it didnt produce money
from operations and there were large amount of investments
made for business growth

WAAC (Weighted Average Cost of Capital):

WACC can help the investors to value the company shares and
the higher the WACC, the less likely it is that the company is
creating value.
For calculating WAAC we have to first the equity or in other words
required rate of return for the investor.
In general, there are two ways to determine cost of equity.

First is the dividend growth model:

Cost of Equity = (Next year's Annual Dividend / Current

stock Price) + Dividend Growth Rate

Second is the capital assest pricing model:

ra = rf + Ba (rm-rf)

where:
rf = the rate of return on risk-free securities (typically Treasuries)
Ba = the beta of the investment in question
rm = the market's overall expected rate of return
in India for construction industries in india we typically have
rf =2.52% ;Ba=.99 ;rm=6.63%
COE or re=(2.52/100+.84*(.0663-.0252)=5.9%

WACC=E/V *Re + D/V*Rd*(1-Tc)

Re=cost of equity
Rd=cost of debt
E=market value of the firmss equity
D=market value of the firms debt
Tc=33.99%

For year 2015:

E = 1253.2
D = 312.22
Re = 6.6%
Rd = 4.52%
WACC = 5.88%

For year 2014:

E = 582.33
D = 59.64
Re = 6.6%
Rd = 4.52%
WACC = 5.69%

For year 2013:

E = 570.92
D = 88.07
Re = 6.6%
Rd = 4.52%
WACC = 5.6%

For year 2012:

E = 570.18
D = 88.99
Re = 6.6%
Rd = 4.52%
WACC = 5.58%

For year 2011:

E = 513.93
D = 66.95
Re = 6.6%
Rd = 4.52%
WACC = 5.63

WACC Analysis & comments:

As seen from the calculation, the WACC percentage is nearly the
same for all 5 years. The WACC represents the minimum rate of
return at which a company produces value for its investors.
Ex. Let's say a company produces a return of 20% and has a
WACC of 11%. That means that for Rs.100/- the company invests
into capital, the company is creating Rs.9/- of value.
Return on average net worth is 15.24%, (6.12)%, 23.21&, 6.28%,
25.65% (2016 to 2012)
Return on average capital employed is 20.39%, (4.15)%, 24.29%,
7.6%, 22.415% (2016 to 2012)
If we see the difference between return rate (return on average
net worth or return on average capital employed) and WACC, we
can see that it is decreasing from 2012 to 2016 which determines
investors wont be happy with companys performance as they
need a good WACC percentage WACC is an investment tool for
them.

ECONOMIC VALUATION ADDITION or Economic value

added (EVA)
EVA helps shareholders in determining how their capital is
performing in comparison to other potential investors. It also
helps company to determine which project is more valuable for it.

EVA=NOPAT-[(Total assest current liability)*WACC]

Where NOPAT is net operating profit after taxes.
year WACC Total Asset C.L NOPAT EVA
2015 5.878 1565.42 196.06 66.55 -13.941
2014 5.69 641.97 37.54 25.1 -9.29207
2013 5.598 658.99 65.2 49.74 16.49964
2012 5.8 629.17 64.33 41.33 8.56928
5.63 580.88 54 32.4 2.736656

How EVA affects and its variations:

Economic value added (EVA) is a measure of a company's financial
performance based on the residual wealth calculated by deducting its cost of
capital from its operating profit, adjusted for taxes on a cash basis. EVA can
also be referred to as economic profit, and it attempts to capture the true
economic profit of a company.
EVA simply determines the economic profit.
EVA for the company is very fluctuating. It was positive for the 2012 and
then became negative in 2013 which indicates economic loss for the
company which was due to the net operating profit after the tax i.e. profit
from the operation went down in the year of 2013. In the 2014 it was good
enough and then again in the subsequent years it was very poor.

EPS and P/E ratio:

For year 2016:
EPS = 4.56
Market value per share = 10
P/E ratio = 2.19

For year 2015:

EPS = (1.9)
Market value per share = 10
P/E ratio = 5.26*

For year 2014:

EPS = 7.16
Market value per share = 10
P/E ratio = 1.39

For year 2013:

EPS = 1.68
Market value per share = 10
P/E ratio = 5.95

For year 2012:

EPS = 6.17
Market value per share = 10
P/E ratio = 1.62

EPS and P/E ratio analysis:

Earnings per share (EPS) is the portion of a company's profit allocated to
each outstanding share of common stock. Earnings per share serves as an
indicator of a company's profitability.
As EPS is the difference between Net income and dividend on preferred stock
divided by the number of outstanding shares. During the year 2012-2014
(except 2013) EPS of the company was good enough but then in 2015
company was unable to pay the dividend to its shareholders because net
income was poor. Also in recent years i.e. 2015-2016 company paid more
money for the preferred stock which is another reason for the reduction in
the EPS
As the market value for the share is Rs.10/- P/E ratio follows the same trend
as EPS. Generally high P/E ratio means that investors are anticipating higher
growth in the future, but looking the company performance in 2015-2016
investors wont anticipate the higher growth In the future. The average
market P/E ratio is 20-25 which implies for Pricol Pvt Ltd the P/E ratio is very
poor which is due to low value of the EPS.

Capital Structure:
The capital structure is how a firm finances its overall operations
and growth by using different sources of funds. Debt comes in the
form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings.
Short-term debt such as working capital requirements is also
considered to be part of the capital structure .
A firm's capital structure can be a mixture of long-term debt, short-term debt,
common equity and preferred equity.
Debt to Equity ratio is basically a measure of the Capital structure
Debt = Bonds issue / Long term notes payable
Equity = common stock, preferred stock or retained earnings
Capital structure is the combination of the debt and equity a company uses to
finance its long term operations and growth. This also helps in determining which
form of capital to use.

For year 2016:

Equity = 2993.268
Debt = 3376.304
Debt-equity ratio = 1.12

For year 2015:

Equity = 2675.389
Debt = 2913.32
Debt-equity ratio = 1.08

For year 2014:

Equity = 3207.82
Debt = 2649.744
Debt-equity ratio = 0.82

For year 2013:

Equity = 2545.275
Debt = 3145.558
Debt-equity ratio = 1.23

For year 2012:

Equity = 2426.989
Debt = 4336.888
Debt-equity ratio = 1.786

Capital structure analysis and comments:

Capital structure basically determines how the balance maintained between
Debt and equity by the company. Proportion of the debt and equity can be
calculated using the Debt-equity ratio which in turn can be used to
determine capital structure of the company.
From the calculations we can see that Debt-equity ratio was highest in 2012
and then till 2016 it was nearly constant (except for year 2014 it was 0.82).
Debt-equity ratio should be more than 1 i.e. debt should be preferred over
the equity which is the case in all years from 2012 to 2016 (except 2014)
and hence its a good sign for the company.
Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage
(Financial leverage refers to the use of debt to acquire additional assets) .

Payout Pattern:
Payout ratio is the proportion of earnings paid out as dividends to
shareholders
For year 2016:
Payout ratio = DPS/EPS = 1/4.56 = 0.22

For year 2015:

Payout ratio = DPS/EPS = 0 (as no dividend paid)

For year 2014:

Payout ratio = DPS/EPS = 0.8/7.16 = 0.11

For year 2013:

Payout ratio = DPS/EPS = 0.4/1.75 = 0.22

For year 2012:

Payout ratio = DPS/EPS = 0.8/6.27 = 0.12

Factors that affects Share price:

In an efficient market, share prices would be determined primarily by fundamentals,
which, at the basic level, refer to a combination of two things:
1) An earnings base (earnings per share (EPS)
2) A valuation multiple (P/E ratio)
An owner of a common stock has a claim on earnings, and earnings per share (EPS)
is the owner's return on his or her investment.
Share price will decrease as the EPS will increase i.e. as earnings will increase
demand will increase for the shares which will cause the reduction in the share
price. In case of the Pricol Pvt Ltd we can see that EPS was roughly increasing from
2012-2016 (except for some time). So we can say that share prices should decrease
and if we refer the annual report it is following some decrement in the share prices.
Also in case of the Pricol there are no high fluctuations observed.
P/E ratio follows inverse trend in comparison to EPS (as market price for the
share is constant). Hence share prices will increase with P/E ratio and we can
see that they have increased and in some cases nearly constant as we dont
observe any sharp fluctuations.