RESEARCH PROJECT

CAPITAL STRUCTURE, OF WIPRO AND ITS IMPACT ON

PROFITABILITY OF THE ORGANIZATION.

SUBMITTED TO: MR KAMESHWAR PANDEY

SUBMITTED BY: Miss NIDHI

ROLL NUMBER 1632

2016-2017
 CHANAKYA NATIONAL LAW UNIVERSITY

DECLARATION

I hereby declare that the work reported in the LL.B(Hons.) Project report entitled,

‘A comparative study on corporate banking services of any two multinational

banks’ submitted at Chanakya National Law University, Patna is an authentic

record of my work carried out under the supervision of Dr. Manoj Mishra .I have

not submitted this work elsewhere for other degree or diploma. I am fully

responsible for the content of my Project Report.

NIDHI GUPTA

Chanakya National Law University, Patna

25-04-2017
 ACKNOWLEDGMENT

I would like to express my heartfelt thanks to GOD and all those who helped me with

their continuous guidance and constant encouragement at all the stages throughout my

work. I would like to convey my deepest sense of gratitude to Mr. Kameshwar

Pandey, my project supervisor and mentor for his valuable advice, guidance and

constant encouragement in making this project.

In the end, I would also like to extend my gratefulness to the learned persons I have

interacted with over time and during the course of this project for their helpful insights

and inputs and for providing me with necessary resources

TABLE OF CONTENTS
 INTRODUCTION

Capital Structure of a Company refers to the composition or make up of its

Capitalization and it includes all long term Capital resources i.e. loans, reserves,

shares and bond. It shows the mix of a company's long-term debt, specific short-

term debt, common equity and preferred equity. The capital structure is how a firm

finances its overall operations and growth by using different sources of funds. In

finance, capital structure refers to the way a corporation finances its assets through

some combination of equity, debt, or hybrid securities. A firm's capital structure is

then the composition or 'structure' of its liabilities. For example, a firm that sells

$20 billion in equity and $80 billion in debt is said to be 20% equity-financed and

80% debt-financed. The firm's ratio of debt to total financing, 80% in this example

is referred to as the firm's leverage. In reality, capital structure may be highly

complex and include tens of sources. Gearing Ratio is the proportion of the capital

employed of the firm which come from outside of the business finance, e.g. by

taking a short term loan etc. 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 requirement is also

considered to be part of the capital structure. A company's proportion of short and

long-term debt is considered when analyzing capital Structure. When people refer
to capital structure they are most likely referring to a firm's debt-to-equity ratio,

which provides insight into how risky a company is. Usually a company more

heavily financed by debt poses greater risk, as this firm is relatively highly levered.

The long term creditors would judge the soundness of the firm on the basis of the

long term financial strength measured in terms of ability to pay the interest

regularly as well as repay the installment of the principal on due dates or in one

lump sum at the time of maturity. Accordingly, there are two different, but

mutually dependent and interrelated, types of leverage ratio First Ratio which are

based on the relationship between borrowed funds and owner's capital. In this

Paper, researcher explain the different leverage ratio as also how they can be used

to draw inferences regarding the financial soundness of the firm.

OBJECTIVES OF THE STUDY

• To examine the Capital Structure policy and pattern of WIPRO

• To understand its impact on the profitability of WIPRO

The optimal balance between debt and equity capital has been a critical issue

in corporate finance. A number of theories have developed in the last 50 years to

explain variation in the debt ratios across the firms. The theories suggest that firms
select capital structure depending on attributes that determine the various costs and

benefits associated with debt and equity financing.

There has been a significant contribution to the capital structure gimmicks

since Modigliani and Miller (1958) showed that capital structure was irrelevant.

Even though their contribution is un-doubtful, specifically speaking, evidence of

the presence of capital structure can be found in the instance of corporate control,

especially leveraged buyouts, hostile takeovers, and restructuring. Of the various

contributions to the theory of capital structure, some of the important capital

structure theories are highlighted as under:

Modigliani and Miller hypothesis (1958): The modern theory of capital

structure began in 1958 when Franco Modigliani and Merton H. Miller (MM)

published the most influential and celebrated article in the area of corporate

finance. MM established that no combination is better than the other- that the firms

overall market value (the value of all its securities) is independent of capital

structure. According to them, under competitive competitions and perfect markets,

the choice between equity financing and borrowing does not affect firm’s market

value because the individual investor can alter investment to any mix of debt and
equity that the investor desires. MM argued that a company’s WACC (Weighted

Average Cost of Capital) remains unchanged at all levels of gearing, implying that

no optimal capital structure exists for a particular company.

 RESEARCH METHODOLOGY

RESEARCH. DESIGN

A research design is the specification of method and procedure for accruing the

information needs. It is overall operational pattern of frame work of project that

stipulates what information is to be collected for source by the procedures.

Descriptive Research design is appropriate for this study.

Descriptive study is used to study the situation. This study helps to describe the

situation. A detail description about present and past situation can be found out by

the descriptive study.

DATA SOURCE AND COLLECTION

This research is based on secondary data. This means the data are already

available, i.e. the data which have been already collected and analyzed by someone

else.

Secondary data are used for the study of ratio analysis of this company and also its

competitors. To collect the data, company annual report, internet websites has been

used.
Analyzing and interpreting the information available in the financial statements

and drawing meaningful conclusions from them.

 COMPANY PROFILE AND MARKET SCENARIO

WIPRO Ltd (NYSE:WIT) is a global information technology, consulting and

outsourcing company with 170,000+ workforce serving clients in 175+ cities

across 6 continents. The company posted revenues of $7.7 Billion for the financial

year ended Mar 31, 2016.1

It helps customers do business better by leveraging our industry-wide experience,

deep technology expertise, comprehensive portfolio of services and vertically

aligned business model. Our 55+ dedicated emerging technologies ‘Centers of

Excellence’ enable us to harness the latest technology for delivering business

capability to our clients.

Wipro is globally recognized for its innovative approach towards delivering

business value and its commitment to sustainability. champions optimized

utilization of natural resources, capital and talent. Today we are a trusted partner of

choice for global businesses looking to ‘differentiate at the front’ and ‘standardize

at the core’ through technology interventions.

In today’s world, organizations will have to rapidly reengineer themselves and be

more responsive to changing customer needs. is well positioned to be a partner

1
http://www.wipro.com/about-Wipro/
and co-innovator to businesses in their transformation journey, identify new

growth opportunities and facilitate their foray into new sectors and markets

History

Wipro started in 1945 with the setting up elate oil factory in Amalner a small town

in Maharashtra in Jalgaon District. The product Sunflower Vanaspati and 787

laundry soap (largely made from a bi-product of Vanaspati operations) was said

primarily A Maharashtra and MP. The company was named western india products

Ltd.

The Birth of the name

As the organization grew and diversified into operations of Hydraulic Cylinders

and InfoTech, ta name of the organization did not adequately reflect its operations.

Azim Premji himself in 1979 selected the name "Wipro" largely an acronym of

Western India Products. That was born the Brand . The name was unique and gave

the feel of an 'International" company. So much so that some dealers even sent

their cheques favoring (India) Limited. Fortunately, the banks accepted them!!By

the early 90s, had grown into various products and services. The product basket

had soaps called Shikakai, Baby products under Baby Soft, Hydraulic Cylinders

branded , PCs under the brand name , a joint venture company with GE named GE

and software services branded . The logo was a 'W", but it was not consistently
used. It was clearly felt that the organization was not leveraging its brand name

across the various businesses.

Technology breakthroughs play a remarkable role in redefining consumer

experience and determining how we live our lives. With consumers becoming

increasingly sophisticated and demanding, technology innovations today happen at

an astounding pace – the consumption and delivery platforms evolving steadily. In

this rapidly changing world, the key to doing business better lies not so much in

creating new technologies as with the skill and ability to effectively innovate and

create breakthrough applications at the intersection of technologies.

 COMPONENTS FOR ANALYSIS OF CAPITAL STRUCTURE

CAPITAL STRUCTURE

It is a mix of a company's long-term debt, specific short-term debt, common equity

and preferred equity. 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 requirement is also considered to be part of the capital

structure

COMPONENTS OF CAPITAL STRUCTURE:

Shareholder's funds

Borrowed funds

The following will be analyzed to comment on the capital structure of the firm.

 Debt Equity Ratio

 Interest Coverage

 Interest to Sales Ratio

 Leverage
 Debt Equity Ratio

Debt Equity Ratio measures the relationship between long-term debt and equity. If

debt component of the total long-term funds employed is small, outsiders feel more

secure. From security point of view, capital structure with less debt and more

equity is considered favorable as it reduces the chances of bankruptcy. Normally, it

is considered to be safe if debt equity ratio is 2:1.

Debt Equity ratio = Long term debts

Shareholder’s Funds

Interest Coverage

The interest coverage ratio is used to determine how easily a company can pay

interest expenses on outstanding debt. The ratio is calculated by dividing a

company's earnings before interest and taxes (EBIT) by the company's interest

expenses for the same period. The lower the ratio, the more the company is

burdened by debt expense. When a company's interest coverage ratio is only 1.5 or

lower, its ability to meet interest expenses may be questionable.

The ratio indicates as to how many times the profit covers the payment of interest
on debentures and other long term loans hence it is also known as times interest

earned ratio. It measures the debt service capacity of the firm in respect of fixed

interest on long term debts

Formula:

Interest to Sales Ratio

The EBITDA to sales ratio is a financial metric used to assess a company's

profitability by comparing its revenue with earnings. More specifically, since

EBITDA is derived from revenue, this metric indicates the percentage of a

company's earnings remaining after operating expenses. Sometimes referred to as

EBITDA margin, a higher value is appreciated for this ratio as it indicates the

company is able to keep its earnings at a good level via efficient processes that

have kept certain expenses low.

BREAKING DOWN 'EBITDA to sales ratio'

In some sense, EBITDA can also be viewed as a liquidity measurement. Because a

comparison is being made between the total revenue earned and the residual net

income before certain expenses, EBITDA to sales ratio reports the total amount a

company can expect to receive after operating costs have been paid. Although this

is not a true sense of the concept of liquidity, the calculation still reveals how easy

it is for a business to cover and pay for certain costs.

Calculation of EBITDA

Leverage

The degree to which an investor or business is utilizing borrowed money.

Companies that are highly leveraged may be at risk of bankruptcy if they are

unable to make payments on their debt; they may also be unable to find new

lenders in the future. Leverage is not always bad, however; it can increase the

shareholders ' return on investment and often there are tax advantages associated

with borrowing. Components of leverage are: LEVERAGE Financial leverage,

Operating leverage.
Financial leverage:

Financial leverage is a leverage created with the help of debt component in the

capital structure of a company. Higher the debt, higher would be the financial

leverage because with higher debt comes the higher amount of interest that needs

to be paid. Leverage can be both good and bad for a business depending on the

situation. If a firm is able to generate a higher return on investment (ROI) than the

interest rate it is paying, leverage will have its positive effect shareholder’s return.

The darker side is that if the said situation is opposite, higher leverage can take a

business to a worst situation like bankruptcy. the Degree of Financial Leverage

(DFL) can be calculated with the following formula: DFL = % Change in EPS / %

Change in EBIT Where EPS is the Earnings per Share and EBIT is the Earnings

before interest and Taxes.

Operating leverage:

Operating leverage, just like the financial leverage, is a result of operating fixed

expenses. Higher the fixed expense, higher is the operating leverage. Like the

financial leverage had an impact on the shareholder’s return or say earnings per

share, operating leverage directly impacts the operating profits (Profits before

Interest and Taxes (PBIT)). Under good economic conditions, due to operating

leverage, an increase of 1% in sales will have more than 1% change in operating

profits. The formula used for determining the Degree of Operating Leverage or
DOL is as follows: DOL = % Change in EBIT / % Change in Sales So, WIPRO

limited (WIPRO) need to be very careful in adding any of the leverages to your

business viz. financial leverage or operating leverage as it can also work as a

double edged sword.

 DATA ANALYSIS

BALANCE SHEET OF WIPRO

( in millions, except share and per share data, unless otherwise

stated)

As at March 31,

Notes 2016 2015

EQUITY AND LIABILITIES

Shareholders' funds

Share capital 3 4,941 4,937

Reserves and surplus 4 441,945 365,983

446,886 370,920

Share application money

-
pending allotment (1) 5 -

Minority interest 2,224 1,646

Non-current liabilities

Long term borrowings 6 17,361 12,707

Deferred tax liabilities (net) 37(ii) 644 269

Other long term liabilities 7 3,195 679

Long term provisions 8 4,632 3,067

25,832 16,722

Current liabilities

Short term borrowings 9 102,650 64,441

Trade payables* 10 68,390 58,486

Other current liabilities 11 36,129 29,494

Short term provisions 12 25,319 42,059

232,488 194,480

TOTAL EQUITY AND

707,430
LIABILITIES 583,768

ASSETS

Non-current assets

Goodwill 14 100,870 58,047

Fixed assets

Tangible assets 13 58,072 49,693

Intangible assets 14 1,121 631

Capital work-in-progress 3,806 3,951

Non-current investments 15 4,422 3,404

Deferred tax assets (net) 37(ii) 2,210 834

Long term loans and advances 16 34,766 31,376

Other non-current assets 17 3,241 3,642

208,508 151,578

Current assets

Current investments 18 127,330 51,917

Inventories 19 5,391 4,849

Trade receivables 20 102,390 91,548

Cash and bank balances 21 135,039 166,190

Short term loans and advances 22 61,786 57,190

Other current assets 23 66,986 60,496

498,922 432,190

707,430
TOTAL ASSETS 583,768

Significant accounting

policies 2

(1) value is less than one

million rupees

* Trade payables include amount due to micro and small

enterprises 11 and 22 as of March 2016 and 2015 respectively.

The notes referred to above forms an integral part of the

balance sheet

Profit and Loss statement

For the year ended

March 31,

Notes 2016 2015

REVENUE

Revenue from operations

512,478
(gross) 24 469,512

Less : Excise duty - 2

Revenue from operations (net) 512,478 469,512

Other income 25 28,487 24,497

Total Revenue 540,965 494,007

EXPENSES

Cost of materials consumed 2 34

Purchases of stock-in-trade 30,549 34,373

Changes in inventories of

finished goods, work in -606

progress and stock-in-trade 26 -2,588

Employee benefits expense 27 246,661 225,115

Finance costs 28 5,484 3,499

Depreciation, amortisation and

13,585
impairment charge 11,749

Other expenses 29 130,043 109,584

Total Expenses 425,718 381,766

Profit before tax and

115,247
minority interest 112,241

Tax expense

Current tax 26,136 25,070

Deferred tax -978 31

Total tax expense 25,158 25,101

Profit after tax 90,089 87,140

Minority interest -492 -531

Net Profit 89,597 86,609

Earnings per equity share 39

(Equity shares of par value 2

each)

Basic 36.47 35.28

Diluted 36.4 35.18

Significant accounting policies 2

The notes referred to above forms an integral part of the statement

of profit and loss

Debt Equity Ratio

2015-16

490810 = 1.09

. 446886

2014-15
211202 = 0.5

370920

2013-2014

246318 = 0.7

350670
Interest to Sales Ratio

90089 = 0.16

540965

87140 = 0.17

494007

86240 = 0.19

443116

 RETURN ON INVESTMENT

It explains the overall utilisation of funds by a business enterprise. Capital

employed means the long-term funds employed in the business and includes

shareholders fund, debentures and long-term loans. Alternatively, capital employed

may be taken as the total of non-factious assets current liabilities. Profit refers to

the Profit before Interest and Tax (PBIT) for computation of this ratio.

Significance: It measures return on capital employed in the business. It reveals the

efficiency of the business in utilisation of funds entrusted to it by shareholders,

debenture-holders and long-term liabilities. For inter-firm comparison, return on

capital employed which reveals overall utilisation of fund is considered good

measure of profitability. It also helps in assessing whether the firm is earning a

higher return on capital employed as compared to the interest rate paid.

Return on investment = Net profit before interest and tax

Capital Employed

i. 2013 – 2014

270336 = 0.18

1433148

ii. 2014 – 2015

282372 = 0.18

1527732

iii. 2015 – 2016

291060 = 0.18

1604438
CONCLUSION

According to this Research we find that The company's overall position is at a

good position. The company achieves sufficient profits in past three years. The

long term solvency of the company is good. The company maintains low liquidity

to achieve high profitability .The company distributes dividend every year to its

shareholders. Inventory turnover ratio is increased as compared to after that all

year so management should take care about good efficiency of stock management.

The firm does not have an aggressive debt equity ratio. At the same time, its debt

serving ratio is good. This means that the company is cautious in financing its

activities through debt and ensures pahyment of the loan it has already undertaken.

Since interest to sales ratio denotes the total earnings a firm gets, after the

operating costs are filled, this indicates that the operating costs of the firm are very

high. This means that the fixed assets are not getting efficiently utilized. This can

be tackled by increasing the sale of the company’s production.

 BIBLIOGRAPHY

Books

 Financial Management, IM Pandey, tenth edition, Vikas Publication.

 Fundamental of Financial Management.

Websites

www.moneycontrol.com

www.investopedia.com

www.about.wipro.com

www.slideshare.com

www.reuters.com