CIA – 1.

2
Assignment: Business Asset Financing

Submitted by: Shashank Singh

ROLL NUMBER: 21211781 | Class: 3-BBAH- B
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ACKNOWLEDGEMENT

I'd want to use this time to convey my heartfelt gratitude and admiration for Prof. Mani
Jindal’s outstanding leadership, insightful feedback, and unwavering encouragement
throughout the project. Her excellent comments proved to be quite beneficial
throughout my work. Her constructive comments motivated me to improve this CIA
significantly. Working under her guidance provided me with a wealth of knowledge.

I'd also like to express my heartfelt gratitude to every one of my friends and co-workers
who took the efforts to take the time out, without whom this study would be
incomplete.

I thank my parents for their blessings and constant support, without which this would
not have seen the light of day.

Regards
SHASHANK TOMER
21211781
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● Introduction to the business idea

Since my business idea is a new startup, I have nothing to lose, as in a startup we

can experiment all we want and lose very little.

 India is the 3rd largest producer of electricity but still many million people does
not have access to electricity.
 India ranks 5th in women obesity and 3rd in men obesity ratio.
 Obesity is the reason for various cardiovascular diseases.
 According to WHO, by 2025, there would be 17 million obese children.

These are some major issues prevailing in our nation; but the major question here is
does anyone know a solution to this?

Here I am to present you with the solution to these prevailing challenges:

“EGG” (Electricity generating gymnasium)

 With my product, we can do crunches, triceps, biceps, treadmill and pushups.

All under one roof.
 By doing all these activities electricity is generated and then is stored in the
battery.

● Construct a suitable capital structure for the business

To lead the way in the development and application of new technologies and to
generate/distribute a more sustainable and suitable energy plan, particularly
focusing on smart meters and digitalization. I have created my company’s capital
structure and here it is as follows:
Working Capital:
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Working Plan:

Business Summary:
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Proper use of Raw Materials for optimum utilization of resources which will then be
used in the production house to produce goods, and the finished products will be
stored in the inventory, from where transportation of goods will take place and
advertising of goods will be done as well to reach out to a larger group of people.
Thus, reaching our ultimate goal i.e., Further Expansion & Profit Maximization.

Marketing and Sales Strategy:

 We will do product marketing through advertising our product on televisions,

social networking sites, setting up hoardings and through leaflets.
 Recommendations from people about our product will also help us in our
marketing agenda because there are higher chances of sales if something is
referred by a friend or relative.
 Emails have also proven to be a powerful medium in the modern day to
influence people’s mind.

● Interpret relevant factors that were considered while developing the capital structure

Idea behind the product:

 To provide people a new and innovative way for decreasing weight.

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 To provide people with two-way benefits of electricity as well as obesity

reduction.

 To provide people with new form of renewable energy without harming the
environment.

 Seeing people struggling every day to lose weight but still not getting results
and buying many expensive fitness equipment’s or going to the gym each day;
so, to reduce their struggle our product will help them to lose weight in an
easy manner and will also be easy on their pockets.

Opportunities:

 As our startup is related to electricity the government will provide subsides to

our product.

 The growing demands of customers is increasing and everybody wants new

things and more advanced technological products.

 The market is growing day by day and changes are taking place in every
sector so we can grab this opportunity to develop & sell our product, which in
certain circumstances will not only fulfill customers demand but will also
increase our sales.

 Today 8 out of 10 people are going to one or the other gym, so in this era our
product can earn as much as we invest.

Financing Decision:

1) Equity:
 Debt to Equity Ratio:
The Debt-to-Equity ratio is low as compared to other startups in the same
sector, the debt-to-equity ratio is about 1.6. The ratio is low and it
signifies that there will be more freedom in operations of the company,
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so maintaining high equity means no dilution of any ownership or

shareholdings.
 Risk Factors:
The risk factors also played an important role in framing of the capital
structure as being a startup company the cash flow is not that much in
the company so as a result the risk factor involving debt is more than in
the equity. So, more of the equity is being issued than debt.

2) Retained Earnings:
There are retained earnings in the company because the company is
interested in investing, and also marketing as they are in search of new
marketing for their new project. So, retained earnings is the best way to
finance the company from an internal source.

3) Long term Liabilities:

 Risk factors:
The Long-term Liabilities carry a risk with them so, for a startup
company it’s hard to finance through long term loans but being a
company, which is no more startup as it has already started capturing
the Indian market. So, the inclusion of long-term loans was made.
 Cash Flow:
The cash flow plays an important role in constructing the capital
structure. If more the cash flows in the companies, then company can
opt taking more long-term loans in the capital structure as more loans
means more risk as they carry interest along with the principal amount
to be paid.
 Creditworthiness:
The creditworthiness of the company depends upon the repayment of
the loans. The creditworthiness of my company is good that’s why we
opted in taking long term loans and debentures as a source of finance.
 Increase in EPS:
The increase in EPS in one of the reasons that Long term liabilities is
increased in the capital structure is that keeping solely Equity in the
capital structure reduces the EPS which overall reduces the value of
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the company therefore keeping debt in a ratio makes high EPS without
dilution in the ownership or shareholdings.

4) Short term Liabilities:

 Working capital demands
Short term liabilities are important because it ensures that the
companies do not fall of any working capital requirements. It ensures
that enough cash is available satisfy the operating capital needs of a
business. It is also a short-term source of finance. Nobel tyres too has
enough short-term liabilities that even cover ups their loan demands.
 Less interest to be paid:
Typically, there is less interest to be paid in short term loans than be it
in the long-term loans as the period increases it increases the Interest
amount but shorter the period less will be the interest paid.

5) Sector:
The Sector is also to be considered before structuring any kind of capital
structure as the capital differs from sector to sector. Vehicle sector being
more capital intensive it shows that more of capital is required on operational
activities. So, more of Equity Capital is chosen and for more daily operational
activities short term loans are taken like Working capital demand loans.

6) State of Capital market:

If the company wants to issue ordinary shares but the people are not willing to
because of the high-risk nature of the business. In that case, the management
has to raise funds through other sources like debt. So, in short, the tendencies
of investors and creditors determine whether a company uses more debt or
equity in finance their operations.

Target Market:

Choosing a target market is important because it enables the firm to direct its
resources to those customers with high potential for sales growth, interest in the
product and loyalty to the brand. Having the right target market helps you determine
where to find potential clients who are looking for what you have to offer. If you have
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a target market, you know where to concentrate your marketing efforts and what to
offer that is compelling and well received. Thus, it is considered as an important
aspect to determine the capital structure of one’s business.
My Target Market Research:

●Compare this capital structure with the capital structure of an existing company in
the same industry with suitable capital structure concepts

The company that is chosen is Lightspeed Venture Partners; another electric cycle
company that is involved in manufacturing of different varieties of cycles for
different needs. LightSpeed Venture Partners raised $4.2 billion across three funds:
$890 million for its latest early-stage venture fund, a $1.83 billion growth fund for
later-stage investments, and a $1.5 billion opportunity fund for doubling down on
winners in its international portfolio. The Company has stock options and share
awards as potentially-dilutive securities. Diluted net loss per share excludes all
potentially-dilutive shares if their effect is anti-dilutive.
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So, after comparing the capital structures of both of the companies the point of
differences is:

1) Equity Share capital:

The Equity share capital of both of the companies is a lot different in terms of
size and amount of capital. LightSpeed being one of the oldest companies in
this sector has a large amount of capital and my company being one of the
new companies in this sector.
LightSpeed’s main source of finance is the equity and they did not raise
enough debt in their capital structure, being a startup company raising funds
through debt is of enough risk so, it was an obvious choice that they will
financing through giving ownership of the company and other venture capital
and angel investors.

2) Retained earnings:
Low retained earnings for an already established company shows
that:
• They do not have any investment plans for this term
(expansion, investing I. other ventures etc.)
• They have enough cash flows
• They plan to distribute dividend for the following year
So, LightSpeed already have enough cash flows in the company and they
already have planned investment this year so this is the reason why there
retained earnings part looks much less as compared to Egg.

On the other hand, Egg being a new company, the best way to raise finance is
through self-finance which is done through Retained earnings in the business.
High retained earnings in the business means:
• Company has investment plans
• They do not have enough cash flows and want to self-finance.

3) Long term liabilities:

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Long term liabilities include liabilities that a company has to pay after a
period of 5 years so it is way of financing through long term measures and
keeping long term vision in mind.
The long-term liabilities of the LightSpeed is more because being an
established company it’s an easier job to repay as there are enough cash
flows with ultimately results in less risk. It’s also another way of financing so,
long term as well as short term financial needs of a business is fulfilled, when
we talk about Egg, we as a company which started some years ago so, has
taken the no risk factor into consideration.

4) Short Term liabilities:

The Short-term liabilities are more of LightSpeed because they are operating
on a larger scale than Egg. So, more need of working capital and also more
trade payables so more short-term liabilities.

Conclusion:

After comparing both of the reports we were able to learn how to prepare a capital
structure for any startup company with considering various factors in mind.

With the comparisons between the two companies of the same sector we can see
that how the two companies work on their scalability and maintaining their capital
structure in a good ratio which results in increase in EPS.

References:

https://investors.lightspeedhq.com/financials/financial-reports/
https://www.cartoq.com/olas-electric-scooters-to-get-25-cheaper-thanks-
to-
locally-produced-lithium-ion-cells/
https://www.investopedia.com/terms/c/capitalstructure.asp
https://www.cfainstitute.org/en/membership/professional-
development/refresher-readings/capital-structure
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THANK YOU