1

PROJECT REPORT ON COST OF CAPITAL

ON

LIBERTY SHOES

PREPARED BY:
DIVIYESH GOHEL
ROLL NO: 19

CLASS
INSTITUTE: PIET (MBA) SEM –I ACADEMIC YR:2012-2013

SUBMITTED TO:

PROF.(Dr) RAJKUMARI SONI

2

S.no 1. 2. 3. 4. 5.

Particulars Introduction Components Annextures: Financial Statements Findings & conclusions bibliography

Pg. no 3

350 exclusive showrooms and more than 6000 multi-brand outlets. $150 million. they are amongst the top 5 manufacturers of leather footwear of the world producing more than 50. Product info.000 pairs a day using a capacity of more than 3 lacs square feet of leather per month. for well over 50 years now. The range imbibes the spirit of fun and is trendy to the core .3 INRODUCTION Liberty Shoes have been fashioning footwear. for the styleconscious people around the globe. Helping us dress up the feet of the fashion-driven and quality-seeking customers in more than 25 countries. which includes major international fashion destinations like France. is our worldwide distribution network of 150 distributors. and comfort. Our 3nnualized to quality is also evidenced by our ISO 9001: 2000 certification. each of which has been given that extra edge to cater to a specific target requirement. Italy and Germany. design.S. Today the new range from Liberty is all about style. Liberty has developed a spectrum of exclusive brands for all age groups and both males & females. Currently with an annual turnover exceeding U.

leather shoe uppers and leather garments Presently the company is engaged in the manufacturing of leather and non leather shoes.The Company is all set to venture into the e-commerce activitie which will cater to the B2B and B2C requirements.1986 as a Public Limited Company and obtained the Certificate of Commencement of Business on 11th March 1988.4 HISTORY OF THE COMPANY The company was incorporated on the 3rd September . has been elevated as ‘Chief Executive Officer’ (CEO) of the Company. It has also set up a joint venture in Russia to manufacture shoes in 1991 under the name of M/S Liberty &Go .the company has been operating on full capacity. Revolution –Liberty Footwear Company Ltd’s claim to use brand name ‘Revolution’ for its new footwear retail chain has .Bansal and belongs to the LIBERTY Group . building etc.500.Intially one direct injection soiling machine was installed with a capacity of 240000 pairs per annum on single shift basis . higher than its other products such as Gliders.Gupta and R.The second direct injection soiling machine was installed in March 94. Adesh Gupta presently working as Executive Director of the Company since July 16. –Pearl Academy inks pact with Liberty Shoes. with Liberty Group Marketing Division and/or Liberty Enterprises. The company has entered into an agreement with one of the group firms M/S Liberty Enterprise for using the established brand name LIBERTY.D. 2001.As the promoters ar in this line for the last five decades .K. 2000 – The Company is to enter into an agreement for sale/purchase of goods and/or taking on franchise basis the production on franchise basis the production facilities and/or acquire movable and immovable property including plant and machinery. It is also unveiling a slew of shoes whose price will range between Rs 1.Liberty Group has completed Five decades of its existence in the shoe industry in 1994. 2004 –Liberty Shoes Board approves setting up of Subsidiary Company –Mr. – Liberty Shoes Ltd launched its retail format. partnership firms .500 and Rs 2.The company has been promoted by P.From the commencement of commercial production till 31st March 1994. The company has been set up to manufacture and sell leather and non leather shoes .with M/S Gorky Production & shoes Unit. The company has commenced its commercial production for non leather shoes on 25th December 1993. The Company is marketing its product nationally and internationally under the brand name LIBERTY and is well established in the national and international market. 2003 –Liberty Footwear has introduced its innovative Liberty Footstylers collection.Gorky.the company is confident of maintaining this level of operations in the future. Windsor and Senorita.

5 been challenged by a Delhi-based women’s wear chain Revolution Clothings. Management – Liberty Shoes Name Adesh Kumar Gupta Shammi Bansal Sunil Bansal Surendra Kumar Arya Amitabh Taneja Vivek Bansal Name Adarsh Gupta Satish Kumar Goel Adeesh Kumar Gupta Raghubar Dayal Prem Chand Garg Siddharth Sanghi Designation Executive Director & CEO Executive Director Executive Director Independent Director Independent Director Independent Director Designation Executive Director Director Additional Director Independent Director Independent Director Independent Director . has claimed ownership of the same brand name. 2005 –Liberty unveils new range of footwear 2006 –Liberty Shoes joins hand with Pantaloon. which too.

S.6 PROFILE • • • • Name of the Company Business type Year of Establishment Annual turnover NETWORK : LIBERTY : Manufacturer : 1986 : U. 350 exclusive showrooms and more than 6000 multi-brand outlets.13th Mile • • GT Karnal Road Karnal Dist. $150 MILLION : 150 distributors. • • • Standard Certification : ISO 9001-2000 Address : Humantech Centre – I Liberty Puram. Haryana 132114 .

7 • Phone No. : 91-22-28325028/28324837/28380080 • • Fax : 91-22-28380947 CAPITAL COMPONENTS :  A firm’s Capital Components are  Debt   Borrowed money. either loans or bonds Common equity  Ownership interest  Preferred stock   A hybrid security. the cost of capital WACC. The Weighted Average Calculation—The WACC  A firm’s cost of capital is a weighted average of the costs of the three capital components where the weights reflect the $ amounts of each component in use  Referred to in two ways   k. for weighted average cost of capital . a cross between debt and equity Capital structure is the mix of the three capital components – generally expressed in percentages.

Growth .8 Calculating the WACC  Step 1: Develop a market-based capital structure  Step 2: Adjust market returns on the underlying securities to reflect the costs of the three capital component Step 3: Combine in calculating the WACC  Capital Structure and Cost—Book Value Versus Market Value  We can think of the WACC in terms of either book or market values of capital components  For both structure and component costs   Which is the correct focus? WACC used to evaluate next year’s capital projects    Must be supported by capital raised next year Book values reflect capital raised and spent years ago Current market values represent our best estimate of next year’s capital market conditions  Market values are the appropriate basis for WACC   For capital structure For component costs COMPUTATION OF COST OF CAPITAL COST OF EQUITY : a) Dividend Based : .Constant .

For Existing Equity Shares : Ke = D1 Po Where as.At Constant (fixed) rate Ke = D1 + g Po .Dividend Growth Model : .9 .At a Variable Rate b) Earning Based c) Realized Yield Method d) CAPM (Capital Asset Pricing Model) Constant Dividend Model : . D1 = Expected Dividend Po = Current Market Price .For New Equity Shares: Ke = D1 Net Proceeds .At a Constant Rate .

07 YEAR 2009 2010 2011 GROWTH= ROE*B 3) CALCULATION OF COST OF EQUITY .10 1) CALCULATION OF RETENTION RATIO YEAR 2009 2010 2011 CALCULATION OF RETENTION RATIO EPS DPS B 0 0 1 0 0 1 0 0 1 B=EPS/DPS 2) CALCULATION OF GROWTH RATE CALCULATION OF GROWTH RATE ROE B GROWTH 6.33 7.33 1 6.07 1 5.1 1 7.1 5.

505589 EQUITY YEAR DIV BV G KE 2009 0 0 6.33 2010 0 0 7.56 8.3 YEAR 2009 2010 2011 Kd 6.33 0.04 11.1 WEIGHTED 2011 0 0 5.COST EQUITY 17.083126 6.33 6.393 10.59 82.40319 6.427206 TOTAL 204.65 0.99 CALCULATION OF COST OF 5.02 2.513684 6.07 COST = WEIGHT * COST .1 7.3 0.22 95.526188 RETAINED 105.552195 DEBT 82.02 8.3 9 75.07 5.99 0.23 0.33 2.11 Ke = DIV/BV+G 4) CALCULATION OF COST OF DEBT CALCULATION OF COST OF DEBT INT BO INT% TAX RATE 8.661 Kd = INT RATE * (1-TAX RATE) 5) WACC FOR THE YEAR 2009 WACC FOR THE YEAR 2009 SOURCE AMOUNT WEIGHT COST W.3 12.65 15.04 0.6 0.

04 0.1 75. COST 0.07 95.19 SOURCE EQUITY RETAINED DEBT TOTAL W.58 SOURCE EQUITY RETAINED DEBT TOTAL W.585652 3.569681 WEIGHTED COST = WEIGHT * COST 7) WACC FOR THE YEAR 2011 WACC FOR THE YEAR 2011 AMOUNT WEIGHT COST 17.082486 7.295144 7.59 0.56 0.07 124.661 237.322523 WEIGHTED COST = WEIGHT * COST .5 0.1 114.04875 7. COST 0.363249 8.393 206.663145 4.554265 7.04 0.364235 2.12 6) WACC FOR THE YEAR 2010 WACC FOR THE YEAR 2010 AMOUNT WEIGHT COST 17.935279 3.525275 5.071841 5.402884 10.04 0.

45% and debt weight was 40% approx.but in the next year 2011 the company preferred same ratio of retained earnings and of debt . But I think that the the year 2010 had the best combination as its showed the maximum growth rate with will boost the company’s profit as well as goodwill .13 CONCLUSION As per the above date we came up with the following conclusions: In the year 2009 the retained earning of the company was almost 51. but in the next year the company increased their retained earning capital to 55% and decreased the debt in the company to 36%.

com www.com www.14 Bibliography: www.indiainfoline.wikipedia.moneycontrol.libertyshoes.com/india FINANCIAL MANAGEMENT –I M PANDEY .com www.

15 FINANCIAL STATEMENTS .

67 136.16 Balance Sheet of Liberty Shoes Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities ------------------.04 0.71 68. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors 145.01 241.58 Mar ‘10 12 mths 17.34 82.13 20.00 122. Cr.50 69.56 4.00 124.30 0.00 0.00 114.48 1.04 17.65 16.28 0.95 59.04 17.45 131.43 Mar ‘09 12 mths Gross Block Less: Accum.28 77.34 67.00 85.05 17.09 221.00 131.04 216.04 17.00 0.50 0.94 81.59 0.45 100.65 0.53 53.63 95.00 0.00 17.00 141.04 10.27 70.04 0. ------------------Mar ‘11 12 mths Mar ‘10 12 mths Mar ‘09 12 mths 17.00 105.08 84.43 .44 99.in Rs.25 83.64 Mar ‘11 12 mths Application Of Funds 17.54 75.73 47.47 86.04 0.

44 1.00 221.80 .00 53.17 Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA.48 1.91 36.00 241.17 4.74 0.37 1.35 83.32 0.11 56.79 0.96 159.58 71.70 116.19 115.63 27. Loans & Advances Deffered Credit Current Liabilities Provisions 0.00 216.83 197.75 1.22 29.02 0.98 0.58 136.04 171.06 139.81 28.00 1.20 54.00 60.26 77.16 0.69 3.00 54.57 25.44 9.10 1.11 138.33 Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 61.07 171.

16 260.91 257.18 9.18 PROFIT AND LOSS A/C Consolidated Profit & Loss account PARTICULARS ------------------.16 5.86 5.99 6.29 5.95 35.15 5.91 0.00 251.00 239.50 .46 274.06 22.00 320.28 1. ------------------- Mar ‘11 12 mths Mar ‘10 12 mths Mar ‘09 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 169.89 6.65 36.64 -0.40 310.93 318. Cr.78 146.56 5.71 4.44 31.50 46.45 41.00 296.88 274.70 26.73 -0.56 4.in Rs.39 25.35 0.65 268.15 151.59 0.32 -2.03 21.37 266.68 8.

31 9.00 6.92 93.00 6.40 3.12 -0.86 99.16 0.92 170.81 -0.92 0.84 -0.76 -0.19 MAR ‘09 Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (19nnualized) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 170.56 0.59 14.59 10.35 4.33 8.00 74.05 0.40 2.00 MAR ‘11 17.35 -5.57 14.00 -5.22 -5.00 0.06 -0.22 0.00 0.00 0.00 60.00 0.13 24.13 -0.28 -0.58 8.59 0.29 0.99 2.00 MAR ‘10 22.00 0.42 0.00 -4.22 0.89 17.21 6.47 126.43 .00 4.33 0.04 0.00 0.00 170.60 -0.40 -3.46 -0.52 23.26 12.52 3.29 5.00 4.72 8.12 0.00 70.74 22.

10 3.75 3.09 64.43 9.52 11.15 1.83 0.28 1.00 10.10 0.00 -2.91 0.66 60.82 0.33 4.77 1.53 2.61 1.50 153.01 50.71 1.82 1.01 5.46 5.00 -13.41 50.59 4.78 1.67 4.98 1.92 12.52 74.79 2.36 1.11 -3.00 -13.60 0. Cr.46 5.19 0.98 6.43 60.01 1.54 1.86 4.00 -10.68 0.46 6.89 50.24 8.50 70.45 5.00 5.35 157.78 1.49 50.78 4.97 74.28 2.91 2.82 1.68 4.00 10.in Rs.74 1.58 182.02 0.00 . ------------------- Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios 1.45 4.79 0.71 -2.88 10.07 -5.61 7.15 0.21 0.92 70.20 FINANCIAL RATIO’S ------------------.45 60.10 7.85 3.

68 .42 3.19 1.01 77.70 3.78 53.78 1.22 1.21 1.05 3.64 82.78 3.26 1.37 3.37 1.67 3.21 Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio 3.86 1.25 61.77 1.77 Average Raw Material Holding Average Finished Goods Held 62.26 4.86 3.09 71.05 1.

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