“Financial Management”

Submitted in the partial fulfilment

For the award of

Post Graduate Diploma in Management

Submitted By: Kiran Vidhani

Roll No: 2022149

Batch: 2020-22

Group - 1

Under the guidance of:

Prof. Dr. Ankit Jain,

Associate Professor
SKIPS

Submitted to

St Kabir Institute of Professional Studies, Ahmedabad

 Introduction of company

Name of the company: Zee Entertainment Enterprises.

Founder: Subhash Chandra

Establishment: 1991

Sector: Media & Entertainment

Headquarters: Mumbai

Type: Public

Zee Entertainment Enterprises is a first Indian media company, its parent company is Essel
Group. It is involved in television, print, internet, film, mobile content & allied businesses. It
has reached 1.3 billion viewers around the world through linear and digital platforms. It has
now become the global entertainment platform, with integrated team creating & serving
extraordinary content.
Leverage
Strategy the firm uses for efficient acquirement of their borrowed funds, to
finance their assets and gain specific return to its equity shareholders. This is known as leverage.

Leverage is considered to be an investment strategy.

There are three types of operating leverage

1. Operating Leverage
2. Financial Leverage
3. Combine Leverage

Operating Leverage

Operating Leverage is used to calculate efficient usage of company’s fixed cost to make profits
from total costs i.e. fixed and variable costs

Company with high operating leverage consists high risk and its large amount of cost are
indulged in fixed cost. They have to cover their cost whether company had sell anything or not.

While company with low operating leverage consists of low operating risk and their majority
costs are indulged in variable cost. In this case it is easy for the company to earn profit at low
sales levels.

Contribution
Formula of Operating Leverage =
Operating Profit ( EBIT )

or

% change∈EBIT
Formula of Degree of Operating Leverage =
% change∈Sales
Calculation of Operating Leverage of ZEE ENTERTAINMENT
ENTERPRISE LTD. for five years.

Particulars 2020 2019 2018 2017 2016

Contribution 24,207.00 34,466.00 34,916.00 21,492.00 16,490.00

EBIT 16,262.00 27,458.00 28,737.00 17,750.00 12,785.00

Operating Leverage (in
times) 1.49 1.26 1.22 1.21 1.29

Analysis of operating Leverage

The operating Leverage of ZEE ENTERTAINMENT ENTERPRISE LTD., is getting higher in
times since 2018 this means company’s operating risk is getting higher and the company is
operating at a level lower than the Break-even level; and the EBIT will be negative.

As the company’s fixed cost is increasing, there earnings per sale is increasing, but in future if
company’s fixed cost tends to be increasing they had to make enough sales to meet their fixed
cost. The main reason of their increase in fixed cost is increase in depreciation on property, plant
and equipment and increase in salary & allowances.

While their operating leverage in 2017 is low among the five years which means their operating
risk is lowest in 2017, so in that Year Company earned small profit in each sale and they don’t
have to pressurize in increase in sales to cover their fixed cost.
Financial Leverage

Financial Leverage examines overall debt of the company by measuring the

quity in the company.

In other words it measures the earnings per share of the company, by analysis the change in its
operating income in respect of change in its capital structure.

When there is high financial leverage, the earnings are more unstable, as interest is fixed. This is
ideal when operating income is growing but it can be trouble when operating income is beneath
pressure.

Operating Profit (EBIT )

Formula of Financial Leverage =
Taxable Income( EBT )

Or

% Changege∈EPS( Earning per share)

Formula of Degree of Financial Leverage =
% Change∈ EBIT

Calculation of Financial Leverage of ZEE ENTERTAINMENT ENTERPRISE LTD. for

five years.

Particulars 2020 2019 2018 2017 2016

EBIT 16,262.00 27,458.00 28,737.00 17,750.00 12,785.00

EBT 14,872.00 26,174.00 27,311.00 16,486.00 11,299.00

Financial Leverage (in
times) 1.09 1.05 1.05 1.08 1.13

Analysis of Financial Leverage

The financial leverage of ZEE ENTERTAINMENT ENTERPRISE LTD. shows mix trend due
to fluctuations in their operating income (rise & fall).

In year 2019 the financial leverage is lowest among the five years, this means there was low
financial risk in year 2019, but on negative note their operating income got reduced. This
resulted in decrease in earnings and earnings per share of the company, this
might gave negative impact on investors on that particular year.

The financial leverage is highest in 2016 that leads to high financial risk like bankruptcy for the
company. But on positive note the operating income of company was increased as compare to
previous year and company might have got benefited on stakeholders and investors part. So this
reflects net profit will increase when operating profit increases and vice versa.

Combined Leverage

Combine Leverage states the effects of both operating Leverage and financial leverage on
company’s EPS, based on given trade in stocks.

Combine Leverage

Combine Leverage stats the effects of both operating leverage and financial leverage on
Company’s EPS, based on given trade in stocks.

Combine Leverage determines total risk of combining because it includes both financial risk and
operating risk.

Formula of Combine Leverage = DOL*DFL (Operating Leverage*Financial Leverage)

Or

Contribution
Formula of Combine Leverage =
EBT
Calculation of Financial Leverage of ZEE ENTERTAINMENT
ENTERPRISE LTD. for five years.

Particulars 2020 2019 2018 2017 2016

Contribution 24,207.00 34,466.00 34,916.00 21,492.00 16,490.00

EBT 14,872.00 26,174.00 27,311.00 16,486.00 11,299.00

Combined Leverage (in
times) 1.63 1.32 1.28 1.30 1.46

Analysis of Combined Leverage

The combined leverage of the company also shows the mix trend due fluctuations in financial
leverage. In 2018 the combined leverage is lowest among the five years, this results in low
leverage risk, as fixed cost and interest in 2018 is low in five years. The leverage tends to be
positive and sales level is higher than break-even level. While EPS and sales differ in same
direction.

In year 2020 the combined leverage is highest in all five year so this leads to high combine risk.
The leverage is negative, so the sales level is lower than break-even level, it results into low EPS.
Due to high fixed cost and high interest of the company.
 Learnings from the Project
 The project helps us to determine the risk analysis of the
company on the basis of leverages
 It helps us in depth understandings about leverages i.e. operating, financial and
combine leverages apply the knowledge in the company’s risk analysis
 It helps us to understand the decision policy of company by managing its different
costs.
 The project strengthen our practical thinking about leverages and its application
 The project tends us to understand the company’s usage of fixed cost or funds to
give maximum benefit as possible to company’s equity share holders and balance
its debt effectively.
 Overall the project gave us nice understanding and application of leverages and
management of different costs.

Objective:

To apply the knowledge of leverage using the real data of companies.

To analyze and calculate operating, financial & combined leverage.

To analyze & apply the risk of company involved on basis of leverage.

To learn how the leverages are important for the company’s analysis in financial management

To make and analyze the income statement of the company.