CHAPTER 1: INTRODUCTION

1.1 INTRODUCTION

1.2 REVIEW OF LITERATURE

CHAPTER 2: INDUSTRY PROFILE

CHAPTER 3: COMPANY PROFILE

CHAPTER 4: THEORITICAL FRAME WORK

CHAPTER 5 : DATA ANALYSIS AND INTERPRETATION

Capital structure is one of the most puzzling issues in corporate finance
literature . The relationship between capital structure and profitability
is one that receives considerable attention in the finance literature.
Each and every business organizations need adequate fund to run its
business effectively and efficiently. A firm can raise fund from different
sources and take different forms. However, the capital can mainly be
categorized into two debt and equity

CAPITAL STRUCTURE AND ITS IMPACT ON PROFITABILITY

• The relationship between capital structure and profitability is
one that receives considerable attention in the finance literature.

• Each and every business organizations need adequate fund to

run its business effectively and efficiently.

• capital structure refers to the way a firm finances its assets

through some combination of equity, debt, or hybrid securities.

• A firm can raise fund from different sources and take different
forms.

OBJECTIVES OF THE STUDY

• To identify the relationship between capital structure and
profitability of SME

• To find an optimal capital structure that would be associated

with the best performance.

• To find out the impact of capital structure on profitability.

Scope of Study
  The study covers a period of 5 years from 2010 to 2015.
 The data used in this study are secondary in nature.
 The financial data of SMEs are taken into consideration for
data analysis.

Limitations of Study
• The present study is confined to SME

• The study is analyzed with the help of correlation

• The analysis was restricted to the data available in the balance

sheet of M/S. Serwel Pvt Ltd

RESEARCH METHODOLOGY
1. Primary data:

• Direct personal observation

• Indirect oral interviews

2. Secondary data:

• Personal experience of employment

• Observation of events

• Issues of current interest

 REVIEW OF LITERATURE
• Ooi (1999) argues that profitable firms are more attractive to
financial institutions as lending prospects.

• According to Scheret al. (1993), start-up firms with higher

anticipated profitability have higher debt to equity ratios.

• Miller & Modigliani (1963) and Titman & Wessels, (1998). As a

result, numerous studies have been conducted by academic
writers to examine the impact of Capital structure on firm
profitability
  An ISO 9001:2008 Company

INDUSTRIAL PROFILE

To collect and disseminate both domestic as well as international marketing

intelligence benefits of MSMEs. This cell, in addition to spreading awareness about

various programmers/schemes for MSMEs, will specifically maintain database and

disseminate information on the following.

National small industries corporation (NSIC), AN ISO 9001: 2008 certified company

and a govt. of India enterprise has been working to fulfill its mission of promoting,

aiding and fostering the growth of micro, small & medium enterprises in the country.

Over a period of five decades of transition, growth and development, NSIC has

proved its strength within the country and abroad by promoting modernization, up

gradation of technology, quality consciousness, strengthening linking with large and

medium enterprises and enhancing exports-projects from small industries.

NSIC operation through country wide network of 123 offices and technical centers in

the country. In addition, NSIC has 48 training cum incubation centers & with a large

professional manpower; NSIC provides a package of services as per the needs of

MSME sectors. To manage operations in African countries, NSIC operates from its

office in Johannesburg, South Africa.

In stepping up its efforts to markets the products MSMEs, NSIC has set up a

specialized marketing intelligence cell to collect and disseminate both domestic and

international marketing intelligence in coordination with other relevant department /

agencies. This cell provides a single point contact to collect database relating to bulk

buyers in government, public and private sectors, the detail of exporters, international

buyers and technology suppliers. Besides, the information on trade leads and products

wise buyers and sellers as well as database relating to DGS & D suppliers with prices

of their products, shall also be provided by this NSIC marketing intelligence cell to

help MSMEs in getting appropriate information at one place and at the right time

which will enable MSMEs in enhancing their ability to gauge and be at par with the

global demand.

In the current era of globalization, MSMEs need marketing information about the

changing patterns of fashions /tastes in the domestic and international market besides

information about the trends in exports and potential for exports. These are vital

inputs for making MSMEs aware about their marketing strategy. MSMEs need to be

provided with market related information, new avenues for their products, new

business practices, both domestically as well as overseas. MSMEs are handicapped

because of non-availability of information pertaining to central government / state

government policies and programs, the support schemes and services of central /state

PSUs availability of new technologies, international and national tenders,

opportunities available in various countries for products and project exports. The

NSIC marketing intelligence cell will integrate the available information at one

strengthen their efforts in focused manner.

Schemes of NSIC:

The national small industries corporation limited an ISO 9001: 2008 certified

company established in 1955, has been working to fulfill its mission of promoting,

aiding and fostering the growth of micro and small enterprises in the country.

NSIC carries forward its mission to assist micro and small enterprises with a set of

specially tailored schemes designed to put them in a competitive and advantageous

position. The scheme comprises of facilitating marketing support, credit support,

technology support and other support services.

Marketing is a strategic tool for business development and survival of the enterprises

in today’s Competitive era. NSIC acts as a facilitator to promote micro and small

enterprises products and has devised a number of schemes to support in their

marketing efforts both in the outside the country. Some of the schemes are briefly

described an under:

Single point registration for government purchase:

Government is the largest buyer of product from micro and small enterprises. In

order to meet its requirement of purchase, NSIC operation a single point registration

scheme under the government purchase programme, where in NSIC issue registration

to eligible micro and small enterprises for the purpose of suppliers to the government

departments.
The registration is par with DGS & D; the unit registration under this gets the

following facilities.

 Issue of tender sets free of cost

 Exemption from payment of earnest money

 Waiver of security deposit up to the money limit for which the unit is

registered

 Issue of competency certificate in case the value of an order exceeds the

monetary limit, after due verification.

Infomediary services:

Information plays a vital role in the success of any business. Keeping in mind the

information needs to micro and small enterprises. NSIC has launched its Infomediary

services. A one stop, one window bouquet for aids that will provide information on

business, technology, finance and also exhibit the core competence of Indian micro

and small enterprises in terms of price and quality internationally as well as

domestically.

Some important services provided are:

 Tender information in your e-mail box and web based browsing

 Banner display on NSIC’C website

 Accesses to wide range of technologies from India and abroad

 Joint venture opportunities and information on of trade and events

 Comprehensive information on government policies rules, regulations,

schemes and incentives.

  Access to industrial database and member directory.

 Availability of wide range of escort services, example product design, credit

and support rating, development catalogues and product literature, energy and

environment audit, introduction of information (IT)solution in business

operations.

 Skill up gradation training, monitoring, common facility at NSIC technical

services center(s), banners display on websites and market studies.

Raw material assistance:

NSIC extends short term financial assistance to micro and small enterprises for

procurement of raw material on need basis.

The salient features

 Financial assistance for procurement of raw material up to 90 days

 MOU with NALCO, HCL, SAIL, RINL FOR supply of bulk materials

 Easy and quick disbursement

 Flexibility of repayment

Tender marketing:

The corporation participates in bulk global tender enquiries and local tenders of

central & state government and public sector enterprises on behalf of micro and small

enterprises.

It is aimed to assist micro and small enterprises with ability to manufacture quality

products with brand equity & credibility or have limited financial capabilities.
Benefits:

NSIC will provide all financial support depending upon the unit’s individual

requirements like purchase of raw materials and financing of sale bill

Enhance business volume helps micro and small enterprises to achieve maximum

capability utilization. Micro and small enterprises exemption from depositing earnest

money. Ensures fair margin to micro and small enterprises for their production.

Consortia marketing:

Micro and small enterprises in their individual capability face problems to procure,

execute bulk orders, which inhibit and restrict their growth. NSIC, accordingly adopts

consortia approach and forms consortia of units manufacturing the same products,

thereby easing out marketing problems of Micro and small enterprises, the

corporation explores the market and secures order for bulk supply.

These orders are then distributes to micro and small enterprises in tune with their

production capacity.

Performance and credit rating scheme for micro and small enterprises:

To ensure micro and small enterprises to ascertain the strength and weakness of their

existing operation and to take corrective measures to enhance their organization

strength, NSIC is operating performance and credit rating scheme through empanelled

agencies like ICRA; ONICRA, DUN & BRAD STREET, CRISIL, FITCH, CARE

and SNERA.
Micro and small enterprises has the liberty to choose among any of the rating agencies

empanelled with NSIC. The rating agencies will charge the credit rating fee according

to their policies. The benefits to small enterprises are as follows.

 An in dependent trusted third party opinion on capabilities and credit-

worthiness of micro and small enterprises

 Availability of credit at attractive interest

 Recognition in global trade

 Prompt sanctions of credit from banks financial institutions

 Subsidized rating fee structure for micro and small enterprises

 Facilitate vendors/buyers in capacity assessment to micro and small

enterprises

 Enable micro and small enterprises to ascertain the strength and weakness of

their existing operation and corrective measures.

Facilitation of credit support through banks:

Any kind of financial assistance i.e., terms loan, working capital loan, bill

discounting facility and export finance can be arrange through united bank of India,

UCO bank, oriental bank of commerce, central bank of India, bank of Maharashtra,

YES bank and HSDC at the most competitive interest rates.

The terms and condition of finance shall be of individual bank. NSIC will undertake

the follow up the proposals with the bank selected by the unit for obtaining finance

shall ensure timely disposal. Application forms of the individual banks can be had

from the office of the NSIC.

 COMPANY PROFILE:

ABOUT SERWEL ELECTRONICS LIMITED:

Serwel Electronics was established in 1996 with a vision to provide Power Solutions.

Serwel is committed to excellence in the areas of Designing, Manufacturing and

Development of all types of power products like Power and Distribution

Transformers, Servo Voltage Stabilizers, UPS, Variacs etc. Serwel products are

appreciated for its Efficient Performance, Long Service Life, Reliability, Sturdy

Construction and Dimensional Accuracy.

Serwel being an ethically responsible company, operate with transparency, validate

commitment and sincerity since its inception is serving its customers on various

power solutions and has grown in geographical reach, market size and product range

to become one of the leading transformer manufacturing company with excellent sales

and service backup team.

Infrastructure Set Up and Our Team

Serwel products are manufactured on state-of-the-art machines with latest technology;

we deliver zero defect power products. This is achieved through team of experts and

streamlined production process. Our endeavor to produce quality products is boosted

by the sophisticated infrastructural facilities and experienced workforce. The entire

set up is backed by efficient manpower comprising of electrical engineers and other

technocrats in the field of power systems having vast experience and exposure in their

respective fields with extensive know how of the power industry.

With synchronous approach, we strive to deliver quality proven power products

meeting our customer’s expectations. Our plants are well equipped with most modern

Machinery & Testing Equipment’s to conduct tests as per IS: 5142 with an installed

capacity of 100000 units per annum. Serwel operations include 3 manufacturing

facilities, two facilities located in Hyderabad and one in Bangalore. We provide sales

and support services from marketing offices spread across pan India.

QUALITY

Serwel is an ISO 9001:2000 certified company with a commitment of well-defined

quality systems that ensures quality products and services are delivered to our

customers. R & D is a continues process in Serwel and we are committed to introduce

new products which can be customized as per customers request and configurations.

All products are tested on various parameters like safety, electricity consumption,

durability, maintainability, etc. The stringent quality check imbibed by us assures

conformance of products in relation to international quality standards.

PRODUCTS

 Electronic voltage stabilizer

 Power and distribution transformers

 Automatic power factor

 LT panel boards
  Energy saver

 Ups

INFRASTRUCTURE

We possess a state-of-the-art manufacturing units, which are facilitated with the latest

machinery, equipment and technology. With these facilities, we are able to meet the

bulk requirements of our clients. We make sure that we upgrade our machinery from

time to time for the smooth functioning of our manufacturing process.

We are also backed up by a team of qualified and competent workforce. The team

comprises Engineers, Quality Controllers, and Technicians. They are highly

experienced and skilled in their respective fields, and work in close coordination with

each other to come up with the highest quality and range of different transformers.

PROFILE

Serwel is one of the leading manufacturers of Servo Stabilizers, Distribution and

Power Transformers, Ultra Isolation Transformers, APFC Panels, Auto Transformers

and Power Savers. Serwel constantly adds new products every year to existing

product line and is in business to address electrical needs of customers from more

than 16 years.

Serwel is well known for its quality products and strictly adhere to quality norms and

bench marks in Production Process. We are destined to produce and provide products

with the highest quality standards and distribute them within the strategic marketing

value chain and support the customers with comprehensive after-sales-service. We

have supplied thousands of our products to various industries in India. Quality of our

products is well patronized with repeat orders from our customers.

Our plants are well equipped with most modern Machinery & Testing Equipment’s to

conduct tests as per IS: 5142 with an installed capacity of 100000 units per annum.

Serwel operations include 3 manufacturing facilities two facilities located in

Hyderabad and one in Bangalore. We provide support through its marketing office at

Hyderabad, Bangalore and pune and service offices spread across pan India.

Company Profile

Basic Information

Business Type  Supplier

 Manufacturer

 Service Provider

Ownership & Capital

Year of Establishment 1996

Ownership Type Public Limited Company

Trade & Market

Annual Turnover Rs. 50 - 100 Crore (or US$ 10 Mn - 20 Mn Approx.)

Export Percentage 20-40%

Quality & Certification

Trade Memberships Enclosed

Team & Staff

Total Number of 101 to 500 People

Employees

Company USP

Primary Competitive  Experienced R  Good Financial

Advantage &D Position &

Department TQM

 Large  Provide

Production Customized

Capacity Solutions

Statutory Profile

PAN No. AAECS3499J

Registration Authority Hyderabad

Registration No. AAECS3499JXM003

TIN No. / VAT No. 28250204177V

Packaging/Payment and Shipment Details

Payment Mode  Cheque  Credit Card

 DD  LC

Shipment Mode  By Air  By Cargo

 By Road  By Sea

Core Value

Serwel Electronics Limited values its customers and enjoys working side-by-side with

them in delivering solid business value. We believe in respecting our customers,

listening to their requests and understanding their expectations. We strive to exceed

their expectations in affordability, quality and on-time delivery.

For our employees, we treat them with respect and trust, and lead through

competence, creativity and teamwork

Our Infrastructure

Serwel Electronics Limited processes modernized and sophisticated infrastructure

that spread across a widespread land area. To accomplish bulk demands with utmost

ease, we have segregated our infrastructure into a number of specialized departments.

These departments are well-equipped with modernized machines and requisite tools

to timely execute our work processes with utmost precision. Our manufacturing cum

designing department is installed with hi-tech machines and sophisticated equipment

and designing patterns to ensure that dimensionally accurate and robust range of

products in the market. These machines and tools are regularly upgraded and are

timely service our machines to ensure that the products are timely dispatched and as

per the budgetary constraints of customers.

Quality Policy / Processes

Premier aim of our organization is to offer quality-assured range of products to our

worldwide customers. To manufacture our exclusive product range, we make use of finest
grade components and material that are sourced from trusted sources. Besides the product
development is carried under strict surveillance of experienced quality inspectors. These
professionals ensure that the product range is developed as per the agreed demands and
regulatory specifications. Not only this, our ardent quality inspectors have proper
arrangement to cautiously check these products on the basis of varied quality checks. Owing
to robust and never failing quality control, we are able to offer internationally acclaimed
range of products to our customers.
 Statistical tool use
 Mean

 Standard deviation

 Coefficient of variance

 Correlation

Variables taken
 ROCE

 ROE

 Debt to equity

 Debt to total funds

ROCE = x 100

ROE=

debt to equity = x100

debt to total funds= x100

Calculating Net profit

Years PBT Interest Net profit

2010-2011 55016918 16491369 71508287

2011-12 84723414 42948477 127671891

 2012-13 51310613 60137125 111747738

2013-14 (83478602) 69342605 (14135996)

2014-15 (220058556) 9199744 (128061115)

Calculating the employed

Years Total Assist Current Capital

liabilities Employed

2010 - 11 363700730 217972647 145728083

2011 - 2012 927324719 640000517 287324202

2012 – 2013 1225125295 869890553 355234742

2013 – 2014 1309222402 1009067728 300154674

2014 - 2015 1072701047 791141730 281559317

Calculation of ROCE

Years Net Profit Capital ROCE

Employed

2010 - 2011 71508287 145728083 49.06966834

2011 – 2012 127671891 287324202 44.4347848

 2013 – 2013 111747738 355234742 31.4574349

2013 – 2014 (14135996) 300154674 (4.709570506)

2014 - 2015 (128061115) 281559317 (45.48481917)

ROCE

-45.48481917 2014 - 2015

2013 – 2014 -4.709570506 ROCE

2013 – 2013 31.4574349

2011 – 2012 44.4347848

2010 - 2011 49.06966834

-60 -40 -20 0 20 40 60

Calculating the ROE

Years Net Profit Preference Equity Share ROE

after Tax dividend Capital

2010 - 2011 33191254 0 1863300 178.1316

2011 – 2012 5759055 0 32192000 178.89

2012 – 2013 40278831 0 41737812 101.36

2013 – 2014 (84683957) 0 41737000 (213.111)

2014 – 2015 (222231467) 0 41737000 (532.45)

ROE

-532.45 2014 – 2015

-213.111
2013 – 2014
ROE

2012 – 2013 101.36

2011 – 2012 178.89

2010 - 2011 178.1316

-600 -500 -400 -300 -200 -100 0 100 200 300

Calculating of debt to equity

Years Debt Share Holder Debt to

Fund equity

2010 – 2011 737945 142525427 0.517763

2011 – 2012 26038724 257939981 10.094877

2012 – 2013 44902047 306994812 14.6263

2013 – 2014 87183784 208336107 41.87658

 2014 – 2015 288093383 (13895359) (2073.3209)

Debt to equity

2014-2015 -2073.3209

2013-2014 41.8476
Debt to equity

2012-2013 14.6263

2011-2012 10.0948

2010-2011 0.5177

-2500 -2000 -1500 -1000 -500 0 500

Calculating of debt to Total funds

Years Debt Total funds Debt to total

funds

2010 – 2011 737945 143263372 0.51509

2011 - 2012 26038724 283978705 90.1692

2012 – 2013 44902047 351896859 12.7600

2013 – 2014 87183784 295519891 29.5018

2014 – 2015 288093383 301990742 105.067

Debt to total funds

2014 – 2015 105.067

2013 – 2014 29.5018 Debt to total funds

2012 – 2013 12.76

2011 - 2012 90.1692

2010 – 2011 0.51509

0 20 40 60 80 100 120