Final Prepared Fm

8/2/2019 Final Prepared Fm

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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


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S.no Particulars Pg. no

1. Introduction 3

2. Components

3. Annextures: Financial Statements

4. Findings & conclusions

5. bibliography


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INRODUCTION

Liberty Shoes have been fashioningfootwear, for well over 50 years now, for the style-conscious people around the globe. Currently with anannual turnover exceeding U.S. $150 million, they areamongst the top 5 manufacturers of leather footwear of theworld producing more than 50,000 pairs a day using acapacity of more than 3 lacs square feet of leather permonth. Helping us dress up the feet of the fashion-drivenand quality-seeking customers in more than 25 countries,which includes major international fashion destinations likeFrance, Italy and Germany, is our worldwide distributionnetwork of 150 distributors, 350 exclusive showrooms andmore than 6000 multi-brand outlets. Our 3nnualized toquality is also evidenced by our ISO 9001: 2000certification.

Product info.

Liberty has developed a spectrum of exclusive brands forall age groups and both males & females, each of which hasbeen given that extra edge to cater to a specific targetrequirement. Today the new range from Liberty is all aboutstyle, design, and comfort. The range imbibes the spirit offun and is trendy to the core


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HISTORY OF THE COMPANY

The company was incorporated on the 3rd September ,1986 as a Public Limited Companyand obtained the Certificate of Commencement of Business on 11th March 1988. The

company has been set up to manufacture and sell leather and non leather shoes ,leathershoe uppers and leather garments Presently the company is engaged in the manufacturingof leather and non leather shoes. It has also set up a joint venture in Russia to manufactureshoes in 1991 under the name of M/S Liberty &Go ,with M/S Gorky Production & shoesUnit,Gorky. The Company is marketing its product nationally and internationally under thebrand name LIBERTY and is well established in the national and international market. Thecompany has entered into an agreement with one of the group firms M/S Liberty Enterprisefor using the established brand name LIBERTY.The company has commenced its commercial production for non leather shoes on 25 th

December 1993.Intially one direct injection soiling machine was installed with a capacityof 240000 pairs per annum on single shift basis .The second direct injection soiling

machine was installed in March 94.From the commencement of commercial production till31st March 1994,the company has been operating on full capacity.As the promoters ar inthis line for the last five decades ,the company is confident of maintaining this level ofoperations in the future.The company has been promoted by P.D.Gupta and R.K.Bansaland belongs to the LIBERTY Group .Liberty Group has completed Five decades of itsexistence in the shoe industry in 1994. 2000 The Company is to enter into an agreementfor sale/purchase of goods and/or taking on franchise basis the production on franchisebasis the production facilities and/or acquire movable and immovable property includingplant and machinery, building etc. with Liberty Group Marketing Division and/or LibertyEnterprises, partnership firms - The Company is all set to venture into the e-commerceactivitie which will cater to the B2B and B2C requirements.

2003 Liberty Footwear has introduced its innovative Liberty Footstylers collection. It isalso unveiling a slew of shoes whose price will range between Rs 1,500 and Rs 2,500,higher than its other products such as Gliders, Windsor and Senorita. Pearl Academy inkspact with Liberty Shoes. 2004 Liberty Shoes Board approves setting up of SubsidiaryCompany Mr. Adesh Gupta presently working as Executive Director of the Companysince July 16, 2001, has been elevated as Chief Executive Officer (CEO) of theCompany. Liberty Shoes Ltd launched its retail format, Revolution Liberty FootwearCompany Ltds claim to use brand name Revolution for its new footwear retail chain has


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been challenged by a Delhi-based womens wear chain Revolution Clothings, which too,has claimed ownership of the same brand name. 2005 Liberty unveils new range offootwear 2006 Liberty Shoes joins hand with Pantaloon.

Management Liberty Shoes

Name Designation

Adesh Kumar Gupta Executive Director & CEO

Shammi Bansal Executive Director

Sunil Bansal Executive Director

Surendra Kumar Arya Independent DirectorAmitabh Taneja Independent Director

Vivek Bansal Independent Director

Name Designation

Adarsh Gupta Executive Director

Satish Kumar Goel Director

Adeesh Kumar Gupta Additional Director

Raghubar Dayal Independent Director

Prem Chand Garg Independent DirectorSiddharth Sanghi Independent Director


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PROFILE

Name of the Company : LIBERTY

Business type : Manufacturer

Year of Establishment : 1986

Annual turnover :U.S. $150 MILLION

NETWORK :150 distributors,

350 exclusive showrooms andmore than 6000 multi-brand outlets.

Standard Certification :ISO 9001-2000

Address : Humantech Centre I

Liberty Puram,13th Mile

GT Karnal Road

Karnal Dist.

Haryana

132114


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Phone No. : 91-22-28325028/28324837/28380080

Fax :91-22-28380947

CAPITAL COMPONENTS :

A firms Capital Components are

Debt

Borrowed money, either loans or bonds

Common equity

Ownership interest

Preferred stock

A hybrid security, a cross between debt and equity

Capital structure is the mix of the three capital components

generally expressed in percentages.

The Weighted Average CalculationThe WACC

A firms cost of capital is a weighted average of the costs of the three capitalcomponents where the weights reflect the $ amounts of each component in use

Referred to in two ways

k, the cost of capital

WACC, for weighted average cost of capital


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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 CostBook 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 years 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 years 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

- Growth


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- At a Constant Rate

- At a Variable Rate

b) Earning Based

c) Realized Yield Method

d) CAPM (Capital Asset Pricing Model)

Constant Dividend Model :

- For Existing Equity Shares :

Ke = D1

Po

Where as, D1 = Expected DividendPo = Current Market Price

- For New Equity Shares:

Ke = D1

Net Proceeds

- Dividend Growth Model :

- At Constant (fixed) rate

Ke = D1 + g

Po


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1) CALCULATION OF RETENTION RATIO

CALCULATION OF RETENTION RATIO

YEAR EPS DPS B

2009 0 0 1

2010 0 0 1

2011 0 0 1

B=EPS/DPS

2) CALCULATION OF GROWTH RATE

CALCULATION OF GROWTH RATE

YEAR ROE B GROWTH

2009 6.33 1 6.33

2010 7.1 1 7.1

2011 5.07 1 5.07

GROWTH= ROE*B

3) CALCULATION OF COST OF EQUITY


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Ke = DIV/BV+G

4) CALCULATION OF COST OF DEBT

CALCULATION OF COST OF DEBT

YEAR INT BO INT% TAX RATE Kd

2009 8.22 95.56 8.6 0.3 6.02

2010 9 75.04 11.99 0.3 8.393

2011 12.59 82.65 15.23 0.3 10.661

Kd = INT RATE * (1-TAX RATE)

5) WACC FOR THE YEAR 2009

WACC FOR THE YEAR 2009

SOURCE AMOUNT WEIGHT COST W.COST

EQUITY 17.04 0.083126 6.33 0.526188

RETAINED 105.3 0.513684 6.33 2.552195

DEBT 82.65 0.40319 6.02 2.427206

TOTAL 204.99 5.505589

WEIGHTED

COST =WEIGHT * COST

CALCULATION OF COST OF EQUITY

YEAR DIV BV G KE

2009 0 0 6.33 6.33

2010 0 0 7.1 7.1

2011 0 0 5.07 5.07


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SOURCE AMOUNT WEIGHT COST W. COST

EQUITY 17.04 0.082486 7.1 0.585652

RETAINED 114.5 0.554265 7.1 3.935279

DEBT 75.04 0.363249 8.393 3.04875

TOTAL 206.58 7.569681

WEIGHTED COST = WEIGHT * COST



SOURCE AMOUNT WEIGHT COST W. COST

EQUITY 17.04 0.071841 5.07 0.364235

RETAINED 124.59 0.525275 5.07 2.663145

DEBT 95.56 0.402884 10.661 4.295144

TOTAL 237.19 7.322523

WEIGHTED COST = WEIGHT * COST


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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 51.45% and debt weight was 40% approx. but in the

next year the company increased their retained earning capitalto 55% and decreased the debt in the company to 36%.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

companys profit as well as goodwill


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Bibliography:

www.indiainfoline.com

www.moneycontrol.com

www.wikipedia.com

www.libertyshoes.com/india

FINANCIAL MANAGEMENT I M PANDEY
http://www.indiainfoline.com/http://www.moneycontrol.com/http://www.wikipedia.com/http://www.libertyshoes.com/indiahttp://www.moneycontrol.com/http://www.wikipedia.com/http://www.libertyshoes.com/indiahttp://www.indiainfoline.com/


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FINANCIAL STATEMENTS


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Balance Sheet of Liberty

Shoes------------------- in Rs. Cr. -------------------

Mar 11 Mar 10 Mar 09

12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 17.04 17.04 17.04

Equity Share Capital 17.04 17.04 17.04

Share Application Money 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00

Reserves 124.59 114.50 105.30

Revaluation Reserves 0.00 0.00 0.00Networth 141.63 131.54 122.34

Secured Loans 95.56 75.04 82.65

Unsecured Loans 4.45 10.00 16.44

Total Debt 100.01 85.04 99.09

Total Liabilities 241.64 216.58 221.43

Mar 11 Mar 10 Mar 09


Application Of Funds

Gross Block 145.95 136.53 131.73

Less: Accum. Depreciation 59.47 53.25 47.08

Net Block 86.48 83.28 84.65

Capital Work in Progress 1.05 0.00 0.13

Investments 17.94 17.50 20.34

Inventories 81.28 69.71 67.27

Sundry Debtors 77.67 68.45 70.43


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Cash and Bank Balance 0.96 1.06 1.11

Total Current Assets 159.91 139.22 138.81

Loans and Advances 36.00 29.69 28.17

Fixed Deposits 1.83 3.07 4.04

Total CA, Loans & Advances 197.74 171.98 171.02

Deffered Credit 0.00 0.00 0.00

Current Liabilities 60.10 54.75 53.37

Provisions 1.48 1.44 1.33

Total CL & Provisions 61.58 56.19 54.70

Net Current Assets 136.16 115.79 116.32

Miscellaneous Expenses 0.00 0.00 0.00

Total Assets 241.63 216.57 221.44

Contingent Liabilities 27.35 25.26 9.58

Book Value (Rs) 83.11 77.20 71.80


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PROFIT AND LOSS A/C

PARTICULARS Mar 11 Mar 10 Mar 09


Income

Sales Turnover 318.68 274.29 266.89

Excise Duty 8.40 5.65 6.16

Net Sales 310.28 268.64 260.73

Other Income 1.18 -0.15 -0.32

Stock Adjustments 9.00 5.88 -2.91

Total Income 320.46 274.37 257.50

Expenditure

Raw Materials 169.99 151.86 146.71

Power & Fuel Cost 6.45 5.44 4.39

Employee Cost 41.70 31.06 25.03

Other Manufacturing Expenses 26.50 22.95 21.65

Selling and Admin Expenses 46.16 35.56 36.56

Miscellaneous Expenses 5.35 4.91 5.59

Preoperative Exp Capitalised 0.00 0.00 0.00

Total Expenses 296.15 251.78 239.93

Consolidated Profit &Loss account

------------------- in Rs. Cr. -------------------


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MAR 09 MAR 10 MAR 11

Operating Profit 23.13 22.74 17.89

PBDIT 24.31 22.59 17.57

Interest 9.59 10.26 14.99

PBDT 14.72 12.33 2.58

Depreciation 8.59 8.05 8.04

Other Written Off 0.00 0.00 0.00

Profit Before Tax 6.13 4.28 -5.46

Extra-ordinary items -0.29 -0.52 -0.35

PBT (Post Extra-ord Items) 5.84 3.76 -5.81

Tax -0.21 -0.35 -0.22

Reported Net Profit 6.06 4.12 -5.60

Minority Interest -0.12 -0.22 -0.33

Share Of P/L Of Associates 0.00 0.00 0.00

Net P/L After Minority Interest & Share OfAssociates

6.47 4.86 -4.92

Total Value Addition 126.16 99.92 93.22

Preference Dividend 0.00 0.00 0.00

Equity Dividend 0.00 0.00 0.00

Corporate Dividend Tax 0.00 0.00 0.00

Per share data (19nnualized)

Shares in issue (lakhs) 170.40 170.40 170.40

Earning Per Share (Rs) 3.56 2.42 -3.29

Equity Dividend (%) 0.00 0.00 0.00

Book Value (Rs) 74.52 70.92 60.43


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FINANCIAL RATIOS

------------------- in Rs. Cr. -------------------

Investment Valuation Ratios

Face Value 10.00 10.00 10.00

Dividend Per Share -- -- --

Operating Profit Per Share (Rs) 13.58 13.35 10.50

Net Operating Profit Per Share (Rs) 182.09 157.66 153.01

Free Reserves Per Share (Rs) 64.49 60.89 50.41

Bonus in Equity Capital 50.00 50.00 50.00

Profitability Ratios

Operating Profit Margin(%) 7.45 8.46 6.85

Profit Before Interest And TaxMargin(%)

4.67 5.45 3.75

Gross Profit Margin(%) 4.68 5.46 3.77

Cash Profit Margin(%) 4.78 5.01 1.71

Adjusted Cash Margin(%) 4.78 5.01 1.71

Net Profit Margin(%) 1.98 1.61 -2.00

Adjusted Net Profit Margin(%) 1.98 1.61 -2.00

Return On Capital Employed(%) 6.33 7.10 5.07

Return On Net Worth(%) 4.86 3.59 -5.11

Adjusted Return on Net Worth(%) 4.97 4.50 -3.45

Return on Assets ExcludingRevaluations

74.52 70.92 60.43

Return on Assets IncludingRevaluations

74.52 70.92 60.43

Return on Long Term Funds(%) 11.24 12.46 9.88

Liquidity And Solvency Ratios

Current Ratio 0.82 0.82 0.74

Quick Ratio 1.83 1.68 1.36

Debt Equity Ratio 0.91 0.79 1.15

Long Term Debt Equity Ratio 0.10 0.02 0.10

Debt Coverage Ratios

Interest Cover 1.82 1.60 0.78

Total Debt to Owners Fund 0.91 0.79 1.15

Financial Charges Coverage Ratio 2.53 2.28 1.28

Financial Charges Coverage RatioPost Tax

2.54 2.21 1.19

Management Efficiency Ratios


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Inventory Turnover Ratio 3.26 3.37 3.05

Debtors Turnover Ratio 4.70 3.67 3.42

Investments Turnover Ratio 3.26 3.37 3.05

Fixed Assets Turnover Ratio 1.86 1.78 1.77

Total Assets Turnover Ratio 1.22 1.21 1.19

Asset Turnover Ratio 1.86 1.78 1.77

Average Raw Material Holding 62.01 53.09 61.64

Average Finished Goods Held 77.78 71.25 82.68

Final Prepared Fm

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