FINANCIAL MANAGEMENT

CIA-1.2

Name- Shambhavi Sinha

Registration no.- 21211466

Subject- Financial management

Class- 3BBAFT

Submitted to- Dr. Amit

Topic- Capital structure

 TABLE OF CONTENTS

1. INTRODUCTION – PAGE 3
2. INTRODUCTION TO THE BUSINESS IDEA - PAGE 3
3. INTRODUCTION TO CRYSTAL CABLES -PAGE 4
4. CAPITAL STRUCTURE OF CRYSTAL CABLES-PAGE 5
5. FACTORS AFFECTING CAPITAL STRUCTURE – PAGE 6
6. COMPARISON BETWEEN CRYSTAL CABLES AND FINOLEX CABLES-
PAGE 7
7. CONCLUSION- PAGE 9
8. REFERENCES -PAGE 9
 Introduction-
This report aims to put forward a self made business idea with forming its capital structure
after considering various sources if finance that will be available to the business. The idea for
the company and its capital structure will be then compared to an existing company of the
same sector.

Introduction to the Business Idea:

Sector chosen- Electrical and Electronic Appliances

The Electric and Electronic Appliances is an indispensable part of the FMEG Sector (Fast
moving electric goods). It adds the major contribution to the assembling GDP of India. It
easily puts in 3.4% currently and is expected to contribute to about 6.4% in the next few
years.

With growth in infrastructure in areas of residential, commercial and industrial uses, the
consumption of both electric goods and electronic goods have increased in a very rapid ratio.
A lot of sectors had rumpled due to pandemic, FMEG being one. The companies are hoping
the government will soon offer concessions and brings down the parity and rates to 18 per
cent for all products.
Some of the top companies which cover the major market capital of FMEG sectors are:
1) Havells India ltd
2) Crompton Greaves

3) Polycab
4) Finolex Cables limited
5) Orient Electric
6) Bajaj Electricals ltd

Commonly purchased products of FMEG sector-

Company name-
CRYSTAL CABLES

The well-being and the protection of house completely depends upon the quality of raw
materials that was used in its foundation. Once the structure is formed then it is the duty of
owner to put up that electric equipments which are of great quality and are eco-friendly and
flame resistant. This is because the house is built nor for few years but for several decades
and one of the main component on which the durability is assured is the quality of wire which
is chosen is the utmost important while establishing a house in today’s world.

So, here comes the ‘Crystal Cables’ which brings you a wire with triple layered that
consists, the first layer is for water resistant, second is heat or high temperature resistant, and
the third layer is for fire retardant. Also, the highest temperature withstands by the insulation
without melting will be + 100o C.

Crystal Cables, one of the leading wire brands across the country which contains all kinds of
wires that are required while making a house. Crystal Cables got wires and cables of best
quality which includes copper wire, aluminium cable, wires used for internet purpose (cat
wires), shielded and unshielded twisted copper wires, and wires used in industrial region
(armoured cables) etc.
 Business Model Of My Business (Unique Selling Proposition)

Our business is completely focused on entire wires and cables which ensures utmost safety of
the stakeholders specially consumers. Our company uses certified oxygen-feee
high-conductivity copper that contains a minimum of 99% copper in our wires that makes
them purest quality wires.

Also, for our customer’s convenience our company provides them a expert service man that
belongs to the company who will manage the activities of consumer’s new houses so that the
wires are properly fitted in the building without faults and wastage.This service is our after
sales facility for our consumers that is started by Crystal Cables, first time in Indian market.

Capital Structure of Crystal Cables-

The capital structure of Crystal Cables is framed and designed according to the demands of
the consumers, survivability of business , growth of sales and profitability in long term and
increasing revenue in short term so that it strengthens its entire cash flow position.

Below is the Capital structure of Crystal Cables that shows the distribution of Equity and
Liabilities(debt):
EQUITY- (in crores)
- Equity share capital = 45
- Retained earnings = 15

DEBT- (in crores)

- Debentures = 7.5
- Long term loans = 15
- Short term loans= 15
 Factors that are considered while framing Capital Structure

1. Equity-

Debt to equity ratio:

In the case of Crystal Cables the debt to equity ratio(1.6) is certainly low as compared
to other companies if this sector. A low debt-to-equity ratio means the equity of the
company's shareholders is bigger, and it does not require any money to finance its
business activities from borrowed funds, because debt is inherently risky source of
finance.

Risk factors:
There are many risk factors that may play an important role in framing the capital of a
newly started company as the cash flows are not very certain, that is why more debt in
the capital structure may lead in losses for the business.

2. Retained earnings-

Retained earnings are the amount of profit a company has left over after paying all its
direct costs, indirect costs, income taxes and its dividends to shareholders. This
represents the portion of the company's equity that can be used in future to meet its
short term and contingent liabilities of the company.

3. Long Term Liabilities-

Risk factors:
The amount of capital raised through long term sources of finance such as debentures
and loans from commercial banks should be dependent on company’s ability to clear
its long term debt can opt these sources for raising funds. Company like Crystal
Cables has started capturing market at a rapid rate, that is why long term liabilities can
be included.

Cash flows:
If the company is receiving regular cash flow from their operating activities that may
be sufficient to fulfil its interest obligations then the company may raise additional
funds through long term debts.

Creditworthiness:
The creditworthiness of the company depends upon the repayment of loans in the
given span of time. The creditworthiness of Crystal Cables is good, that is why long
term sources of debts can be included in the capital structure of the company.

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 to satisfy
the operating capital needs of a business. Crystal Cables has also several short term
sources of debts for which they use as working capital requirements.
 Less interest to be paid:
If the company uses short term debts for financing .business activities then the interest
rates that will be charged will also be less as compared to long term sources of debts.

5. Nature of the sector-

Nature of the sector is an important factor that is considered before framing a capital
structure of the company which differs from sector to sector. Crystal Cable belongs
the FMEG sector which requires funds in every step in its operational activities. That
is why equity capital is chosen as it is less risky.

Comparison between Crystal Cables and Finolex Cables

(existing company for comparison)

FINOLEX CABLES LTD

Finolex Cables Ltd is India's largest and leading manufacturer of electrical and
telecommunication cables with a turnover in excess of ₹26 Billion (about US$ 400
million) The company started its operation with the manufacture of PVC insulated
electrical cables for the automobile industry.

Capital Structure of Finolex Cables Ltd

EQUITY- (in crores)

- Equity share capital = 30.6
- Retained earnings = 3223

DEBT- (in crores)

- Long term loans = 42.75
- Short term loans= 293.5
 The company that is chosen is Finolex Cables ltd is an another wire and cable
manufacturing company of multiple types. The company has market capital of
6565crores which shows that the company is one of big players in this sector.

So after comparing the capital structure of both companies, the differences

came out to be as follows:

1. Equity share capital:

The Equity share capital of both companies is a lot different from each other in terms
of size and amount of capital. Finolex Cables ltd being one of the oldest companies in
FMEG sector has a large amount of capital and Crystal Cables being one of the new
companies in this sector with a quite low amount of equity.
As Crystal Cables is the new startup company, so the source of funds are majorly
dependent on equity as the means of ownership rather than preferring debt because it
is more risky source of finance.

2. Retained Earnings:
Retained earnings are the part of self financing which is done through keeping the part
of profits for use and meeting unexpected losses. For a newly started company like
Crystal Cables it is difficult to retain profits as a newly established company has
future plans of expansion but it not the same in case of Finolex Cables ltd as it is an
already settled company that us why they have huge amounts of profits as retained
earnings.

3. Long term liabilities:

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.
A well settled company in the market has enough cash flows in the business from
their operating activities. So the companies like Finolex Cables ltd are not in need of
long term debts where as a newly started company has to maintain a balance between
its sources of debt and equity.
That is why we can see the long term debts are more in case of Crystal Cables than in
case of Finolex Cables ltd.(proportion wise)

4. Short term liabilities:

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

More short-term liabilities and low short-term liabilities show:

- More short-term liabilities show that more working capital is required and needed as
in the case of Finolex Cables ltd.
- Less short term liabilities show that they are working are on small scale as in the case
of Crystal Cables as it is established recently.
 CONCLUSION-

After comparing both of the reports we were able to learn how learn and structure
proper capital structure for any startup companies with considering various factors in
mind and in the case of already settled company that is working from many years.

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

References:
- Www.google.com
- https://www.moneycontrol.com/financials/finolexcables/balance-sheetVI/FC01
- https://www.investopedia.com/