AIJRRLSJM VOLUME 7, ISSUE 6 (2022, JUN) (ISSN-2455-6602)ONLINE

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AN ANALYSIS OF CAPITAL STRUCTURE - RELIANCE INDUSTRIES

LIMITED

DR.C SUDEEP RACHA UDAY

Principal and Professor Student,
M.C.Gupta College of Business M.C.Gupta College of Business
Management Management

ABSTRACT
Capital structure is generally known as capital mix , is very important to control the overall cost of capital in
order to improve the earnings per share of shareholders. After globalization and liberalization ,various
financial sector reforms were started by government , such as reducing rates of interest etc. which directly
affected the capital structure planning of firms. Due to this situation, the information technology industry also
reorganized their capital structure .the financing of capital structure decisions is a significant managerial
decision. Initially, the company will have to plan its capital structure at the time of promotion subsequently,
whenever funds have raised for finance and investment , a capital structure decision is involved . in this
research article, researchers try to evaluate the concept of capital structure, capital structure planning and
patterns of capital structure in Leo labs . we found that both companies are using the maximum possible long-
term debt in their capital structure planning. During the study period, both the companies raised more and
more long termfundsto , meet their development and expansion needs because debt is cheaper source of finance
, especially from 1994 onwards when rates of interest decreased regularly in Indian capital market.
Organization theorists suggest that the capital within organizations. In addition , organizational structure may
strengthen or weaken the effects of social capital , by furnishing greater or fewer opportunities for growth. This
article explores the independent and combined effects of organizational social capital structure on the
performance of over organization between them, using panel data.

INTRODUCTION
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 classified as commonstock, preferredstock or retainedearnings. Short-termdebt such as
working capital requirements 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.
OBJECTIVES OF THE STUDY:
The project is an attempt to seek an insight into the aspects that are involved in the capital
structuring and financial decisions of the company. This project endeavors to achieve the
following objectives.
1. To study the capital structure of RELIANCE INDUSTRIES LIMITED through EBIT-
EPSanalysis
2. To study effectiveness of financing decision on EPS and EBIT of the firm.
3. To examine leverage analysis of RELIANCE INDUSTRIES LIMITED.
4. To examine the financing trends in RELIANCE INDUSTRIES LIMITED for the
periodof2017-2021.

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5. To study debt/equity ratio of RELIANCE INDUSTRIES LIMITED for 2017-2021.

SCOPE OF THE STUDY:
A study of the capital structure involves an examination of long term as well as short term
sources that a company taps in order to meet its requirements of finance. The scope of the
study is confined to the sources that RELIANCE INDUSTRIES LIMITED tapped over the
years under study i.e. 2017-2021.
IMPORTANCE OF THE STUDY:
1. The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream.
2. The rate used to discount earnings stream it’s the firm’s required rate of return or the
cost of capital.
3. Thus, the capital structure decision can affect the value of the firm either by changing the
expected earnings of the firm, but it can affect the reside earnings of the shareholders.
4. The effect of leverage on the cost of capital is not very clear. Conflicting opinions have
been expressed on this issue.
5. In fact, this issue is one of the most continuous areas in the theory of finance, and perhaps
more theoretical and empirical work has been done on this subject than any other.
6. If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the total
value of the firm or minimizes the weighted average cost of capital.
RESEARCH
DATA COLLECTION:
Data relating to RELIANCE INDUSTRIES LIMITED. Has been collected throughsecondary
sources.
SECONDARY SOURCES:
A major portion of the data in this study has been collected through secondary sources of
data i.e., Journals, websites, Books, and all other relevant information or literary are taken as
secondary source of data.
RESEARCH DESIGN

The collected data has been processed using the tools of

 Ratio analysis
 Graphical analysis
 Year-year analysis
These tools access in the interpretation and understanding of the Existing scenario of
theCapital Structure
LIMITATION
1. EPS is one of the mostly widely used measures of the company’s performance

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in practice.
2. As a result of this, in choosing between debt and equity in practice, sometimes too
much attention is paid on EPS, which however, has serious limitations as a financing-
decision criterion.
3. 3.The major short coming of the EPS as a financing-decision criterion is that it does
not consider risk; it ignores variability about the expected value of EPS.
4. The belief that investors would be just concerned with the expected EPS is not well
founded.
5. Investors in valuing the shares of the company consider both expected value and
variability.
CHAPTER IV DATA ANALYSIS & INTERPRETATION

DATA ANALYSIS-RETURN ON ASSETS

In this case profits are related to assets as follows

Return on assets = Net profit after tax
Total assets
Particulars 2013 2014 2015 2016 2017
PAT 128.57 252.19 340.78 290.77 274.5
ROA= TOTAL
ASSETS 8985.5 9283.86 1017.32 9044.41 8916.51

1.43 2.72 3.34 3.21 3.08

b) RETURN ON CAPITAL EMPLOYED
Here return is compared to the total capital employed. A comparison of this ratio with that of
other units in the industry will indicate how efficiently the funds of the business have been
employed. The higher the ratio the more efficient is the use of capital employed.
Return on capital employed = Net profit after taxes & Interest
Total capital employed
(Total capital employed = Fixed assets + Current assets–Current liabilities)
Particulars 2013 2014 2015 2016 2017
PAT 128.57 252.19 340.78 290.77 274.5
ROCE=
Total Capital Emp 6993.9 7079.20 9994.02 7111.40 7112.91
1.83 3.56 3.4 4.08 3.85

YEAR 2013-2014 PERFORMANCE OF COMPANY (AMOUNT IN RS.’000S)

Gross Revenue 924313 Total Expenditure 872511
Profit (Loss) before tax 51802 Profit after tax 25219
Earnings per share Rs. 1.55 Dividend ratio 10%

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YEAR 2014-2015 PERFORMANCE OF COMPANY (AMOUNT IN RS.’000S)

Gross Revenue 1275243 Total Expenditure 1203680
Profit (Loss) before tax 71313 Profit after tax 34078
Earnings per share Rs. 2.10 Dividend ratio 15%
YEAR 2015-2016 PERFORMANCE OF COMPANY (AMOUNT IN RS.’000S)
Gross Revenue 742200 Total Expenditure 711921
Profit (Loss) before tax 30279 Profit after tax 27450
Earnings per share Rs. 1.69 Dividend ratio 10%
YEAR 2016-2017 PERFORMANCE OF COMPANY (AMOUNT IN RS.’000S)
Gross Revenue 726774 Total Expenditure 715556
Profit (Loss) before tax 11218 Profit after tax 10412
Earnings per share Rs. 0.64 Dividend ratio 5%
PERFORMANCE ANALYSIS
There has been an increase of over 25% sales, where compared to previous year there by
contributing to increase in Gross Profit which increases over 45% because of increase in sales
and decrease in cost of sales which in due to reduction in royalty for mining and other
overheads reduction. In this year the company’s operating profit is around 165 lacs as
compared to a heavy loss of over 365 lacs in previous year cost reduction also contributed to
the alone. A dividend of Rs.178 lacs was declared for the year including Tax.
PERFORMANCE ANALYSIS OF 2013-2014
In 2013-14 the company has performed well in all decisions because of high demand
and realizations. The Gross Profit Increased considerably and the interest payments have
decreased at about 140 lacs because of loans taken from the bank at a lesser rate of interest
and payment of loan funds for which the company is paying higher rate of interest. In the
previous year, the cash credit granted by UCO bank to the tune of Rs.594 lacs and losing of
loan funds borrowed from Vijaya Bank and Canara Bank factors, which can tribute to
increase in the Profit before Tax to the tune of Rs.190 lacs the company declared a dividend
of 10% on its equity to its shareholders when compared to 7.5% in the previous year. The
EPS of the company also increased considerably which investors in coming period. The
company has taken up a plant expansion program during the year to increase the production
activity and to meet the increase in the demand
PERFORMANCE ANALYSIS OF 2014-2015
Company is operating in 3 segments, out of which bank contributes about 55% of
turnover while the Boards and prefab segments contribute about 45%. Huge investment in the
industrial sector over the next 3 years is expected to lead to higher bank off –take on the back
of strong GDP growth across the country. It is expected that the domestic bank consumption
would grow at a CAGR of 8% for the next 5 ears. Net sales increased by about 39% to
Rs.10337 Lacks from Rs.7448 Lacks in FY 2016-17. Improved sales from all the tree
divisions particularly from prefab division contributed for increased turnover.
PERFORMANCE ANALYSIS OF 2015-2016
There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.1375 lacs as against around 1300 lacs in last year. Because of
decrease in Non-Operating expenses to the time of 130 lacs the Net profit has increased. It

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stood at 293 lacs in current year against 165 lacs in previous year because of redemption of
debenture and cost reduction. A dividend of Rs.162 lacs was declared during the year at 10%
on equity.
PERFORMANCE ANALYSIS OF 2016-2017
1. The production and Sales has increased by 23%
2. Bank turnover has increased by 6% as against fall in Sales realization by 15% last year.
3. Bank Boards Division has contributed 18% more than the previous year to the PBDIT.
4. Perform Division realization has increased by 4% even the Turnover have came down to
845 lacs from 1189lacs in last year.
5. The profit After Tax has came down from 302 lacs to 112lacs in Current year because of
slope in Bank Industry.
6. The Interest cost has come down by 24% due to reduction in Interest rates by Commercial
Banks & Public Deposits.
EBIT LEVELS
Particulars 2013 2014 2015 2016 2017

Earnings Before
Interest & Tax 803 861.16 1235.69 1096.15 969.61

Change 294.2 477.39 374.53 - 126.54

% Change 26.83% 21.44% 30.30% - 11.50%

DEGREE OF FINANCIAL LEVERAGE:

The higher the quotient of

DEL, the greater the leverage. In NCL
Industries case it is increasing
because of decrease in EBIT levels from 2013-2014, to 2016-2017. The EBIT level is in a
decreasing trend because of drastic decline in prices in Bank industry during above period. In
the year 2013 the EBIT level has increased substantially because of Raise inn Bank prices
because of demand and the policies of Govt. such as rural housing and irrigation project taken
up.

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INTERPRETATION
The EBIT level in 2013 is at 618.76 lacs and is increasing every year till 2017. Because of
ascent in the Bank industry. The EBIT levels in 2014 again started decreasing and reached to
1096.15 in 2016 were at 969.6 in 2017, because of the sale price increase per bag and
decrease in demand.
PERFORMANCE

EPS ANALYSIS
Particulars 2013 2014 2015 2016 2017
Profit After Tax 30569000 32806000 34078000 29077000 2745000
Less: Preference
Dividend - - - - -
Amount of Equity share
holder 12857000 25219000 34093133 29077000 27450000
No. OF equity share of
Rs.10/- each 16234825 16234825 16234825 16234825 16234825
EPS 0.79 1.55 2.1 1.79 1.69
EPS LEVELS

INTERPRETATION

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The PAT is in an increasing trend from 2012-2013 because of increase in sale prices and also
decreases in the cost of manufacturing. In 2014 and 2015 even the cost of manufacturing has
increased by 5% because of higher sales volume PAT has increased considerably, which
leads to higher EPS, which is at 9.36 in 2013
EBIT – EPS CHART
One convenient and useful way showing the relationship between EBIT and EPS for
the alternative financial plans is to prepare the EBIT-EPS chart. The chart is easy to prepare
since for any given level of financial leverage, EPS is linearly related to EBIT. As noted
earlier, the formula for calculating EPS is
EPS = (EBIT - INT) (1 – T) = (EBIT - INT) (1 – T)
N N
We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore in
equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT increases
and fall if EBIT declines. Can also be written as follows

Under the assumption made, the first part of is a constant and can be represented by an EBIT
is a random variable since it can assume a value more or less than expected. The term (1 –
T)/N are also a constant and can be shown as b. Thus, the EPS, formula can be written as:
EPS = a + bEBIT Clearly indicates that EPS is a linear function of EBIT.
FINANCING DECISION
Financing strategy forms a key element for the smooth running of any organization
where flow, as a rare commodity, has to be obtained at the optimum cost and put into the
wheels of business at the right time and if not, it would lead intensely to the shut down of the
business. Financing strategies basically consists of the following components:
 Mobilization
 Costing
 Timing/Availability
 Business interests
Therefore, the strategy is to always keep sufficient availability of finance at
the optimum cost at the right time to protect the business interest of the company.

STRATEGIES IN FINANCE MOBILIZATION

There are many options for the fund raising program of any company and it is quite
pertinent to note that these options will have to be evaluated by the finance manager mainly
in terms of:
 Cost of funds
 Mode of repayment
 Timing and time lag involved in mobilization
 Assets security
 Stock options
 Cournand’s in terms of participative management and
 Other terms and conditions.

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Strategies of finance mobilization can be through two sectors, that is, owner’s
resources and the debt resources. Each of the above category can also be split into:
Securitized resources; and non-securities resources. Securitized resources are those who
instrument of title can be traded in the money market and non-securities resources and those,
which cannot be traded in the market.
AUROBINDO PHARMA LIMITED BANK FUNDING MIX

Years 2013 2014 2015 2016 2017

Source of funds

Share holders funds

a) Share capital 1622.93 1622.93 1622.93 1622.93 2179.97

b) Reserves and surplus 796.f48 890.21 881.46 948.59 937.65

c)Deferred tax 778.62 787.99 - - -
TOTAL (A) 3198.03 3301.13 2504.39 2571.52 3117.62
Loan Funds
a) Secured Loans 1372.53 1413.17 1167.82 1783.66 4015.28

b) Unsecured Loans 2588.22 2161.95 2404.33 1711.95 1954.07

TOTAL (B) 3960.75 3575.12 3572.15 3495.61 5969.35
TOTAL (A+B) 7158.78 6876.24 6075.92 6067.13 9086.97
% of S H in total C.E 44.67 48 41.22 42.38 34.3
% of Loan Fund in total
C.E 55.33 52 58.78 57.62 65.69
INTERPRETATION
The shareholder fund is at 3125.8 constitutes 43.72% in total C.E and loan funds
constitute 56.28% in 2013. The Funding Mix on an average for 6 years will be 45% of
shareholders Fund and 55% of Loan Funds there by the company is trying to maintain a good
Funding Mix. The leverage or trading on equity is also good because the company affectively
utilizing the Loan Funds in the Capital Structure. So that it leads to higher profit increase of
EPS at 0.79 to 2013 1.55
Term Loans for the Year 2013-2014

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
779.17
development agency ltd.
Non convertible debentures 0.00

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HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 410.15
UCO Bank 594.34
Canara Bank Factors 0.00 1004.49
1167.20
UNSECURED LOANS
Deposits from public 399.69
Deposits from stockiest & others 1053.83
Lease/Hire purchase 57.39
Others 201.04
TOTAL 3495.64
Term Loans for the Year 2014-2015
Particulars Rs. (in Lakhs)
TERM LOANS
Indian Renewable Energy
2532.14
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 561.32
UCO Bank 306.54

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Canara Bank Factors 403.46

UTI Bank Ltd 211.82 1483.14
4015.28
UNSECURED LOANS
Interest free from sales tax
162.40
deferment loan
Deposits from public 616.87
Deposits from stockiest & others 919.26
Lease/Hire purchase 54.25
Others 201.29
TOTAL 5969.35
Term Loans for the Year 2015-2016

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Particulars Rs. (in Lakhs)

TERM LOANS
IDBI 0.00
IFCI 0.00
0.00
HIRE PURCHASE LOANS
TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00
Non Convertible Debentures 677.75

CASH CREDIT
Global Trust Bank 638.21
Vijaya Bank 56.57
694.78
1,372.53
UNSECURED LOANS
Deposits from public 602.15
Lease /Hire purchases 4.64
IFST Loan from Govt. of AP 0.00
Deferred sales tax loan 0.00
Deposits from stockiest & others 1730.39
Inter corporate deposits 50.00
Others 201.04
TOTAL 2588.22

Term Loans for the Year 2016-2017

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Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
255.00
development agency ltd.
Non convertible debentures 509.61

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Global Trust Bank 583.41
Vijaya Bank 65.15
648.56
1,413.17
UNSECURED LOANS
Deposits from public 600.54
Lease /Hire purchases 21.25
Canara Bank factors ltd. 100.09
Deferred sales tax loan 0.00
Deposits from stockiest & others 1,239.02
Inter corporate deposits 0.00
Others 201.04
TOTAL 2161.94

INTERPRETATION
The Non-convertible debentures are being redeemed and were completely repaid. The
cash credit assistance was provided by Global Trust Bank and Vijaya Bank to the tune of
Rs.696 lacs and Canara bank factors to the tune Rs.158 lacs was completely repaid by taking
cash credit facility from Oriental Bank of Commerce and UCO Bank to the tune of Rs.1000
lacs. The company is paying of deposits from public every year.
Deposits from public were stood at 1608.87 lacs in 2012-2013 and in 2016-2017 it
came down to 1202.69 lacs. The IRIDA has granted Rs.255 lacs term loan for installation of
energy saving equipment and the loan was again increased to 779.17 lacs in 2012-2013.

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Position of mobilization and development of funds

(Amount in Rs.000s)
Total liabilities 714986 Total assets 714986
Sources of funds
Paid u capital 162293 Reserves & surplus 150287
Secured Loans 172496 Unsecured loans 229916
Application of funds
Net fixed assets 522854 Investments 6278
Net current assets 182012 Misc. Expenditure 3846
Accumulated losses NIl
YEAR 2013- 2014 Position of Mobilization and Development of funds (Amount in RS.
000s)
Total liabilities 928386 Total assets 928386
Sources of funds
Paid u capital 1622.93 Reserves & surplus 94859
Deferred tax 1041.93
Secured Loans 178366 Unsecured loans 171195
Application of funds
Net fixed assets 481100 Investments 13000
Net current assets 213820 Misc. Expenditure 2986
Accumulated losses Nil
YEAR 2014 – 2015 -Position of Mobilization and Development of funds
(Amount in RS. 000s)
Total liabilities 1017320 Total assets 1017320
Sources of funds
Paid u capital 1623.48 Reserves & surplus 93765
Deferred tax 1086.23
Secured Loans 4015.28 Unsecured loans 195407
Application of funds
Net fixed assets 7055.88 Investments 13000
Net current assets 2938.22 Misc. Expenditure 4910
Accumulated losses Nil
Year 2015 - 2016 Position of Mobilization and Development of funds
(Amount in RS. 000s)
Total liabilities 715878 Total assets 715878
Sources of funds
Paid u capital 162293 Reserves & surplus 79648
Secured Loans 137253 Unsecured loans 258822
Application of funds
Net fixed assets 554677 Investments 5723
Net current assets 150891 Misc. Expenditure 4587
Accumulated losses Nil

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Year 2016 – 2017 Position of Mobilization and Development of funds (Amount in RS.
000s)
Total liabilities 687624 Total assets 687624
Sources of funds
Paid u capital 162293 Reserves & surplus 89021
Deferred tax 78799
Secured Loans 141317 Unsecured loans 216194
Application of funds
Net fixed assets 517233 Investments 5019
Net current assets 160545 Misc. Expenditure 4827
Accumulated losses Nil

CHAPTER V FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 FINDINGS
1. The Non-convertible debentures are being redeemed and were completely repaid. The
cash credit assistance was provided by Global Trust Bank and Vijaya Bank to the tune
of Rs.696 lacs and Canara bank factors to the tune Rs.158 lacs was completely repaid
by taking cash credit facility from Oriental Bank of Commerce and UCO Bank to the
tune of Rs.1000 lacs. The company is paying of deposits from public every year.
2. The shareholder fund is at 3125.8 constitutes 43.72% in total C.E and loan funds
constitute 56.28% in 2010. The Funding Mix on an average for 6 years will be 45% of
shareholders Fund and 55% of Loan Funds there by the company is trying to maintain
a good Funding Mix. The leverage or trading on equity is also good because the
company affectively utilizing the Loan Funds in the Capital Structure. So that it leads
to higher profit increase of EPS in 2007 at 0.79 to 2015 at 1.55
3. Deposits from public were stood at 1608.87 lacs in 2012-2013 and in 2014-2015 it
came down to 1202.69 lacs. The IRIDA has granted Rs.255 lacs term loan for
installation of energy saving equipment and the loan was again increased to 779.17
lacs in 2012-2013.
SUGGESTIONS
1. The company has to maintain the optimal capital structure and leverage so that in
coming years it can contribute to the wealth of the shareholders.
2. The mining loyalty contracts should be revised so that it will decrease the direct in the
production
3. The company has to exercise control over its outside purchases and overheads which
have effect on the profitability of the company.
4. As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of interest
as in the case of UCO Bank.
CONCLUSION
For the development of the bank industry ‘Working Group on bank Industry’ was
constituted by the planning commission for the formulation of X Five Year Plan. The
working Group has projected a growth rate of 10% for the bank industryduring the plan

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period and has projected creation of additional capacity of 40-62 million tones mainly
through expansion of existing plants. The working Group has identified following thrust
areas for improving demand for bank;

 Further push to housing development programmes;

 Promotion of concrete Highways and roads; and
 Use of ready-mix concrete in large infrastructure project.

Further, in order to improve global competitiveness of the Indian Bank Industry, the
Department of Industrial policy & promotion commissioned a study on the global
competitiveness of the Indian industry through an organization of international repute,
viz. Videocon industries limited bank. The report submitted by the organization has
made several recommendations for making the Indian Bank industry more competitive
in the international market. The recommendations are under consideration. Efficiency
and competency in managing the affairs of the company should be maintained.
BIBLOGRAPHY
BOOKS
 Financial Management : Khan & Jain
 Financial Management : I.M. Pandey
 Financial Management : Prasanna Chandra
 Financial Management : R.P. Rastogi
 Strategic Management : John .A. Pierce

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