2020-22 | By:

JSW Steel Ltd.Purvi Jain

Corporate Finance
Corporate Finance
Acknowledgment
I would like to express my special thanks to Prof. Preeti Bakshi for their guidance and support.
Also, for providing me this wonderful opportunity to do project on operation management. This
helps me a lot to understand the financial aspects of an organization.

Capital Structure
An organization utilizes assets to fund long run resources and short run resources. These
resources have various wellsprings of assets which are extensively arranged into two
categories: Equity and Debt.

The blend of value and obligation characterizes the capital construction of an organization. This
mix should be adjusted for the most extreme use of assets.

Capital Structure of JSW Steel Ltd.

  2020 2019 2018 2017 2016

Total Equity 38,362 34,893 27,907.00 24,098.10 20,410.25

Total Debt 39,768 36,257 35580 36,947.31 35,059.03

Weighted average 0.491002176 0.490414617 0.439570306 0.394756952 0.367955921

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Leverage
Leverage is that the identification of risk think about the corporate. Leverage ratios
facilitate to see the optimum balance of equity and debt. If we have a tendency to
perceive thoroughly, debt comes with a set interest that has to be paid. If the debt isn't
generating returns on top of the price of debt then there's no advantage of mistreatment
fund sources from debt. Thence leverage ratios analyse the danger concerned within
the capital structure.

  2020 2019 2018 2017 2016 2015

DOL/DFL/DCL
Sales 71,116.0 82,499.0 68,813.0 54,628.00 40,857.5 52,050.5
0 0 0 4 7
EBT 3,103.00 11,198.0 7,609.00 5,128.00 -2,467.66 2,539.11
0
Interest (Finance 4,265.00 3,917.00 3,701.00 3,768.00 3,601.18 3,493.03
Costs)
EBIT 7,368.00 15,115.0 11,310.0 8,896.00 1,133.52 6,032.14
0 0
EPS 16.78 31.77 25.85 14.66 -1.40 72.93
Percentage Change -13.80% 19.89% 25.97% 33.70% -21.50% 0
in Sales
Percentage Change -51.25% 33.64% 27.14% 684.81% -81.21% 0
in EBIT
Percentage Change -47.18% 22.90% 76.33% - -101.92% 0
in EPS 1147.14
%
DOL 3.7146 1.6916 1.0450 20.3187 3.7764 0
DFL 0.9206 0.6807 2.8129 -1.6751 1.2550 0
DCL 3.4196 1.1515 2.9396 -34.0362 4.7395 0

Degree of Operating Leverage (DOL)

JSW Steel Ltd has demonstrated operating leverage influence pattern throughout the
long term. The most elevated operating leverage is discovered completion in the year
2017. It implies for each 1% change in deals the EBIT will change with 20.32%. In the
event that the business increment, at that point EBIT will likewise while simultaneously,
a diminishing in deals will likewise diminish EBIT by 20.32%. In the event that proprietor
is certain about deals, at that point just he ought to select working influence.
Degree of Financial Leverage (DFL)
The obligation part in capital structure brings concerning expense in variety of interest.
This expense ought to be paid whether or not there's a profit or misfortune. So the risk is
high. It’s basic to work the extent of financial influence to find the risk.

As per the on top of info, it's seen that within the year 2016 and 2018, the organization is
deeply turned as so much as financial influence. For 2016, within the event that there's 1
% amendment in EBIT, at that time there'll be 1.25%% amendment in EPS. The earning
per share is key for the investors of the organization and businessman ought to make
sure to accumulate conference remuneration to choose high influence.

While the organization will diminish its operating leverage within the year 2019. The
financial leverage is smaller than 1 that shows no matter whether or not there income
level is increasing, the price of the share will not increment.

Degree of Combined Leverage (DCL)

The level of operating and financial leverage impacts at constant time on the business;
so it we are going to return to rely on the immediate impact of deals upon earning per
portion of the organization.

As indicated by the data determined, it's seen that the combined leverage is most
noteworthy within the year 2016 wherever 1 percent modification in deals can get
4.7395% modification EPS. It’s important for the businessman of the organization to
make certain for the calculable deals as 1 % decrease in deals will cause 4.7395%
reduction in provide value. However, organization has managed its combined leverage
to 1.15 in the year 2019 but not able to reduced it below 1.

Hence, after analyzing the leverage we can conclude that the organization is highly
levered.

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Debt to equity ratio
Debt to equity ratio shows a proportion of how much an organization is financing its
activities through obligation versus entirely possessed assets.

The proportion is utilized to assess an organization's Financial Leverage. The Debt to

equity proportion is a significant measurement utilized in corporate account.

  2020 2019 2018 2017 2016 2015

Debt to Equity ratio
Non-Current Asset 95,251.0 81,359.0 68,826.0 66,813.0 67,727.7 67,101.8
0 0 0 0 7 5
Current Asset 36,569.0 33,555.0 23,192.0 21,276.0 14,737.3 18,817.3
0 0 0 0 0 1
Non-Current Liabilities 52,108.0 38,561.0 35,520.0 36,128.0 37,560.8 37,512.5
0 0 0 0 9 8
Current Liabilities 43,688.0 42,008.0 28,964.0 29,560.0 25,486.2 25,254.8
0 0 0 0 2 6
Total Debt 95796.00 80569.00 64484.00 65688.00 63047.11 62767.44
Total Equity 38,362 34,893 27,907.0 24,098.1 20,410.2 24,736.0
0 0 5 2
Total Asset 131,820 114,914 92,018 88,089 82,465 85,919
Debt to Equity ratio 2.4972 2.3090 2.3107 2.7259 3.0890 2.5375

As per the data determined, it's seen that D/E proportion was most elevated within the
year 3.0890. It shows that for every one hundred rupees equity the organization has
accessible obligation of rupees 308.90 that is very much than the available equity.
Therefore organization is not in acceptable scenario to pay its obligation.

While the organization pays off its obligation to worth proportion throughout the future
and least within the year 2019. It’s indicates that the organization is improving its
financial position.

Debt to equity ratio

  2020 2019 2018 2017 2016 2015
 Total Debt 95796.00 80569.0 64484.00 65688.00 63047.11 62767.44
0
Total Equity 38,362 34,893 27,907.0 24,098.1 20,410.2 24,736.0
0 0 5 2
Total Asset 131,820 114,914 92,018 88,089 82,465 85,919
Debt to Asset ratio 0.7267 0.7011 0.7008 0.7457 0.7645 0.7305

Obligation to quality proportion demonstrates the live of resources accessible with the
firm to pay its obligation. The organization has almost same proportion in all the years
that is accessible for each unit of obligation to be paid in future.

As indicated by the on top of analysis of organization's business outline, the

organization is not risky. It handles obligation cautiously and may bring the perfect
balance among asset and debt.

Average Debt Level

Being an entrepreneur, an organization ought to consistently be in the restriction of risk
for obligation. JSW Steel Ltd. Is dealing with a steady obligation level throughout the
long term.

The average debt level of the organization is discovered to be the most elevated in the
year finishing 2020. It demonstrates the risk limit of an organization of an organization.

  2020 2019 2018 2017 2016 2015

Total Debt 95796.0 80569.0 64484.0 65688.00 63047.1 62767.4
0 0 0 1 4
Average debt level 136080. 112811 97328 97211.55 94430.8 0
5 5 3

Times Interest Earned Ratio

The times interest earned proportion demonstrates that the income of JSW Steel Ltd. Is
continually expanding at present 11.23 times of the yearly interest, depreciation and
amortization cost of the organization. It is a decent pointer of the productivity of the
organization. It shows high productivity.

  2020 2019 2018 2017 2016 2015

EBITDA 47,934.00 46,049.00 32,351.00 32,990.00 28,808.78 28,689.35
Interest (Finance 4,265.00 3,917.00 3,701.00 3,768.00 3,601.18 3,493.03
Costs)
Times Interest 11.23892 11.756190 8.741151 8.7553078 7.999816 8.213313
Earned Ratio 15 96 04 56 73 37

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Basic Earning Power
This proportion shows the measure of profitability with the utilization of resources put
resources into the business. JSW Steel Ltd. Shows great fundamental acquiring power
in the year 2019 which is 0.13 and it reduced to 0.055 in the year 2020 due to pandemic.
Additionally this proportion is expanding throughout the long term which is likewise a
decent pointer for the productivity of the organization.

Basic Earning Power

EBIT 7,368.00 15,115.00 11,310.00 8,896.00 1,133.52 6,032.14
Total Asset 131,820 114,914 92,018.00 88089 82465.07 85919.16
Basic Earning 0.055894 0.13153314 0.12291073 0.10098877 0.0137454 0.0702071
Power 4 7 5 3 6 6

Return on equity
Return on equity demonstrates the earning received from the value wellsprings of the
contributed properties. The value benefit declines over the long term, which means that
the organization cannot use the assets over the long term. In order to make greater
gains, companies need to regain their speculation.

The organization earns income through influence, as it can very well be seen that the
organization.

  2020 2019 2018 2017 2016 2015

Total Debt 95796.00 80569.00 64484.00 65688.00 63047.11 62767.44
Total Equity 38,362 34,893 27,907.00 24,098.10 20,410.2 24,736.0
5 2
Total Asset 131,820 114,914 92,018 88,089 82,465 85,919
Debt to Equity ratio 2.4972 2.3090 2.3107 2.7259 3.0890 2.5375
Debt to Asset ratio 0.7267 0.7011 0.7008 0.7457 0.7645 0.7305
Cost of Capital
Over the years, the cost of capital for the organization has been reduced, which is
mostly due to the reduced debt factor. Debt costs are normally the lowest and cost of
equity are the highest. The cost of capital is low since the vast amount of investment is
from debt. Although the business is now heading toward equity, the cost of capital has
risen over the years. The largest, i.e. 11.60%, is in the year 2020 due to pandemic
situation.

  2020 2019 2018 2017 2016

Beta -0.327150 0.035027 0.02994 0.09972 -0.01959
Risk free Rate 7.23% 6.72% 7.72% 6.97% 6.08%
Market Risk 13.95% 11.53% 4.09% 6.22% -4.68%
Cost of equity 0.05029409 0.06888617 0.07611334 0.06895561 0.06288772
(CAPM) 9 4 9 4 6

Cost of Debt(Kd)
Interest Expense 4,265.00 3,917.00 3,701.00 3,768.00 3,601.18
Total Debt 39,768 36,257 35580 36,947.31 35,059.03
EBT 3103 11198 7609 5128 -2467.66
Tax 943 2,473.00 1,826.00 152 86.68
Interest Rate 10.72% 10.80% 10.40% 10.20% 10.27%
Tax Rate 30.39% 22.08% 24.00% 2.96% -3.51%
Cost of Debt(Kd) 0.07465471 0.08417568 0.07905671 0.09896016 0.10632571

Cost of Capital
Total Equity 38,362 34,893 27,907.00 24,098.10 20,410.25
Cost of Equity 0.15880351 0.06888617 0.07611334 0.06895561 0.06288772
4 9 4 6
Total Debt 39,768 36,257 35580 36,947.31 35,059.03

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 Cost of Debt 0.07465471 0.08417568 0.07905671 0.09896016 0.10632571
8 9 2 8 6
Weighted average 0.49100217 0.49041461 0.43957030 0.39475695 0.36795592
Equity 6 7 6 2 1
Weighted average 0.50899782 0.50958538 0.56042969 0.60524304 0.63204407
Debt 4 3 4 8 9
Cost of Capital 11.60% 7.67% 7.78% 8.71% 9.03%

Dividend Decision
Liquidity Position
With the assistance of liquid assets available for day-to-day expenditures, the liquidity
status of the organization is indicated.

interest coverage ratio

The interest coverage ratio shall assess the period of profits received on the interest
charged by the undertaking. The organization has a revenue of 3.86 times that of the
interest paid in 2019, but it has reduced in 2020 due to non-operation of business
activities. Apart from this the proportion is rising, which is a positive indication of the
organization's liquidity status.

  2020 2019 2018 2017 2016 2015

EBT 3,103.0 11,198.0 7,609.00 5,128.0 - 2,539.1
0 0 0 2,467.6 1
6
Interest (Finance Costs) 4,265.0 3,917.00 3,701.00 3,768.0 3,601.1 3,493.0
0 0 8 3
EBIT 7,368.0 15,115.0 11,310.0 8,896.0 1,133.5 6,032.1
0 0 0 0 2 4
Interest Coverage Ratio 1.73 3.86 3.06 2.36 0.31 1.73

Quick Ratio
The Quick ratio shows the proportion of liquid assets at the disposal of the organization
for the payment of the organization's current liabilities. In the year 2020, the ratio is
rising and higher, suggesting the organization's strong liquidity role.

  2020 2019 2018 2017 2016 2015

Current & Quick ratio
Current Asset 36,569.0 33,555.0 23,192.0 21,276.0 14,737.3 18,817.3
0 0 0 0 0 1
Current Liabilities 43,688.0 42,008.0 28,964.0 29,560.0 25,486.2 25,254.8
0 0 0 0 2 6
Inventories 13,864.0 14,548.0 12,594.0 11,394.9 8321.18 11,009.0
0 0 0 6 4
Quick Assets 22,705.0 19,007.0 10,598.0 9,881.04 6,416.12 7,808.27
0 0 0
Prepaid expenses 253.00 221.00 0.00 150.60 116.32 97.80
Current Ratio 0.84 0.80 0.80 0.72 0.58 0.75
Quick Ratio 0.51 0.45 0.37 0.33 0.25 0.31

Current Ratio
The sum of the current assets available for the current liabilities to be paid is stated. In
the year 2020, it is rising and at its peak. Current assets become liquid assets when
inventories and prepaid expenditures are removed.

The organization's average earning level is high, which is seen as shown above, with
the aid of growing the organization's net income and return on assets.

Dividend Distribution
The trend in dividend distribution shows that business returns are rising over the years.
For the organization's shareholders, the dividend has risen over the years. The business
often pays highly in relation to the distribution rate paid by the organization.

  2020 2019 2018 2017 2016

Dividend Distribution Trend
Dividend Paid 1,190.00 908.00 655.00 218.00 320.03
Net Income 4,009.00 7,554.00 6,071.00 3,454.00 -501.45
Dividend Per 2 4.1 3.2 2.25 0.75
Share

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 Earnings Per 17.00 32.00 26.00 15.00 -1.40
Share
Market Per Share 252.18 261 325.39 219.65 1455.02
Dividend pay-out 0.297 0.120 0.108 0.063 -0.638
ratio
Dividend Yield 0.0079308 0.0157088 0.0098343 0.0102435 0.0005154
43 12 53 69 57
Retained Earning 0.703 0.880 0.892 0.937 1.638

Retained earning
The retention ratio is the proportion of earnings as retained earnings held back in the
organization. Instead of being paid out as dividends, the retention ratio refers to the
percentage of net income that is retained to grow the organization. That is the reverse of
the payout ratio, which calculates the proportion of profit paid out as dividends to
shareholders. The highest retained earning was in the year 2016 i.e. 0.937 which shows
that organization has paid low dividend in that year.

Excel is attached for the calculation purpose.

Purvi Jain_CF report.xlsx