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Deepti Gauri Gurvinder Jitender Mayur Niraj Palak Parminder
MBA, 2nd Semester University Busines School, Panjab University, Chandigarh
Thursday, January 27, 2011 1

January 27. 2011 2 .4a. Recalculate the book and market value balance sheets using the most recent available financial information Thursday.

5% .922 Application of funds Fixed assets (Balancing Figure) 19496.6 x 33.33% Tax @ 33.Source of funds Equity Share Capital Reserves and Surpluses Net Current Assets Loan Funds Deferred Tax Liability Amount 95.3 Amount 19100. January 27.9 19827.Surcharge= 7.8 19827.Education cess= 3%) Thursday.3 All figures in ` Crores *Tax Shield Calculations Debt Amount X Tax rate= 68.6 47.7 22.2 Tax Shield* 68.678 Investments 118.8 703. 2011 3 .33% (Tax rate = 30% .

2 68.32 703.02 All figures in ` Crores Thursday. January 27.402 118.024 Application of funds Fixed assets (Balancing Figure) Investments Amount 17662.922 18035.7 18366.6 47. 2011 4 .9 18366.Source of funds Equity Share Capital Reserves and Surpluses Net Current Assets Loan Funds Deferred Tax Liability Amount 95.

4b. How they changed? Does it appear that asian paints has a stable target dent ratio? Do you see any incidence of peckingorder financing? Thursday. Track asian paints long term debt and debt ratio over the last 5 years. January 27. 2011 5 .

7 2007 125.Year Amount 2010 68. 2011 6 .67 2006 91.084 Thursday.53 2008 94. January 27.59 2009 74.

2011 7 .549 54.7 785.4 Total Debt Loan Funds Current Liabilities Provisions Total 2010 68.11 166.53 771.49 1046.9 1461.27 304.2 2006 95.15 2008 94.9 186.58 Thursday.92 1529.17 2009 74.9 648.287 773.15 107.9 526.9 998.1 433.92 631.03 1032.9 832.084 594.156.Equity Share Capital Reserves & Surplus Total 2010 95.67 2006 91.6 2007 95. January 27.3 2009 95.3 2007 125.6 2008 95.59 1.

03 3086.53 2007 773.8 0. 2011 8 .92 1254.50 Thursday.22 0.51 2006 631.25 0.92 1518.50 2009 1032. January 27.58 2127.02 0.3 1974.Year Total Debt Debt + Equity Debt Ratio 2010 1529.08 0.49 2008 1046.

and when it is not sensible to issue any more debt. Equity is issued.Pecking Order Theory states that companies prioritize their sources of financing according to the Principle of least effort. 3. January 27. Hence. and when that is depleted. or of least resistance. 2. 2011 9 . Debt is issued. It has been explained through this theory why least profitable firms issue more of debt & more profitable firms borrow less. preferring to raise equity as a financing means of last resort. Internal funds are used first. 1. Thursday.

Along with that. that is retained earnings as the major source of financing. 2011 10 . there is an incidence of pecking order theory. But the proportion of equity has been more than that of debt in all the years. it has been paying of its debt over the years. But it can be taken only as a partial occurrence. it is observed that it s capital structure comprises of reserves & surplus in the highest proportion.On Studying the financial data of Asian Paints for the last 5 years. As it is going by that theory that Asian Paints has used it s internal sources. It s equity has remained unchanged. January 27. Thursday. Yes. followed by equity & then debt.

2011 11 .4c. Would the trade off theory predict share repurchases for a conservatively financed company like Asian Paints? Thursday. January 27.

equity ratio so we can say that trade-off theory predicts the share repurchase for Asian Paints.8 crores and have paid income tax amounting to `330 crores for FY 2009-10. And Asian Paints have consistently delivered the same kind of results in past also . January 27.According to Trade-off theory . 2011 12 . Moreover as the Asian Paints is under levered firm so by buyback of shares they are also trying to increasing the leverage and hence maximizing the wealth of the company. Asian Paints have operating income of `1153. Thursday. So as per trade-off theory it should have high target debt-equity ratio. Buyback also results in appreciation of share prices. tangible assets and plenty off taxable income to shield ought to have high debtequity ratio. And by share repurchase Asian Paints is increasing its debt. companies with safe.

January 27.Thursday. 2011 13 .

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