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A STUDY ON

CAPITAL STRUCTURE ANALYSIS


AT

A Project report submitted to Lovely Professional University in partial fulfillment


of the Requirements For the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO:- SUBMITTED BY;-


Mrs. Sukhpreet kaur surendra pal singh
Reg No. 10900150

Under the guidance of


Mr. Umesh Saini
(Sr. Finance Mgr.)

LOVELY PROFESSIONAL UNIVERSITY

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ACKNOWLEDGEMENT-

Myself surendra pal singh student of LPU, underwent six-week training with
Triveni Engg. & Industries ltd., KHATAULI. This is a part of MBA for which I
had undergone practical training to understand exactly about the working of
Triveni engg. & Industries ltd.

First of all I would like to thank Triveni engg. & Industries ltd. for his co-operation
than I would express my gratitude to Mr. Umesh Saini (Sr. Finance Manager)
and Mr. Harish Grover (Sr. Manager- Quality Control) Triveni Engg. &
Industries for accepting me as trainee and allowing me to do project under their
supervision.

I express my gratitude to Mrs.sukhpreet kaur(Faculty MBA)for their personal


evolvement& support without which this project could never have been the light of
this day.

Last but not the least, I acknowledge with thanks the active co-operation extended
by all the respondents while collecting the data and to those who were concerned
directly or indirectly with this project.

Surendra pal singh

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CONTENTS

CHAPTER PARTICULARS PAGE NO


INTRODUCTION AND DESIGN OF THE

CHAPTER I STUDY 1-10

1.1 Introduction of the Study

1.2 Objective of the Study

1.3 Research Methodology

1.3.1 Research Design

1.3.2 Nature of Data

1.3.3 Methods Data Collection

1.3.4 Research Tools

1.4 Limitations of the Study


CHAPTER II 2.1 REVIEW OF LITERATURE
11-13

PROFILE 14-77
CHAPTER III 3.1 Industry Profile

3.2 Company Profile


CHAPTER IV DATA ANALYSIS AND INTERPRETATION 78-100
CHAPTER V
SUGGESTIONS 100-105

5.1 Suggestions

CONCLUSION AND BIBLIOGRAPHY 106-110

6.1 Conclusion
6.2 Bibliography

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LIST OF TABLE

SL.NO PARTICULRS PAGE NO

CALCULATE PBIT-EPS RELATIONSHIP


1 79

DEGREE OF OPERATING LEVERAGE


2 83

DEGREE OF FINANCIAL LEVERAGE


3 85

DEGREE OF TOTAL LEVERAGE


4 89

DEBT-EQUITY RATIO
5 92

PROPRIETARY RATIO
6 95

CALCULATE RELATIONSHIP BETWEEN ROI-


7 97
ROE

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CHAPTER- I
INTRODUCTION

Contents:

1.1 Introduction of Study

1.2 Objective of the Study

1.3 Research Methodology


1.3.1 Research Design
1.3.2 Nature of Data
1.3.3 Methods Data Collection
1.3.4 Research Tools

1.4 Limitations of the Study

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1.1 INTRODUCTION

The objective of capital structure is:-


 Describe the advantages and disadvantages of financial leverage.
 Compute the financial leverage index, debt to capital ratio, debt to equity
ratio, and other techniques for analyzing capital structure.
 Relate capital structure composition to owner and creditor investment
objectives.
 Capital structure composition
 Consists of long-term liabilities, preferred stock, common stock,
and retained earnings.
 Sufficient equity must exist to provide financial stability
 Debt can be used as leverage to increase returns to shareholders,
but it can also reduce returns on shareholders’ investments

This studying contain following analysis:

A) PBIT-EPS ANALYSIS
B) ROI-ROE ANALYSIS
C) LEVERAGE ANALYSIS :-
I. OPERATING LEVERAGE ANALYSIS
II. FINANCIAL LEVERAGE ANALYSIS

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1) PBIT-EPS ANALYSIS

It examines how different capital structures affect earnings


available to shareholders (Earning Per Share).
It is the analysis of the effect of financing alternatives on
earnings per share.
To design the capital structure of the firm in such a way so as to
minimize the cost of capital.
EBIT-EPS analysis is a method to study the effect of leverage under
alternative methods of financing.

CALCULATION OF EBIT:-

Sales : xxxxx
(-)V.C : xxx
=Contribution : xxxxx
(-)F.C : xxxx
=EBIT {Earning Before Interest and Taxes}

CACULATION OF EPS:-
EBIT : xxxxx
(-)INTERSET : xxx
=EBT : xxxxx
(-)TAX : xx
=Earning for ESH : xxxxx
(÷) No. of E.S : xxx
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= EPS {Earning Per Share} xxx

RELATIONSHIP BETWEEN PBIT AND EPS:-

EPS=(PBIT-I)(1-t)/n

2) ROI-ROE ANALYSIS :-

Looking at the relationship between ROI and ROE we find that:-


The influence of ROI and financial leverage on ROE is mathematically as
follow

ROE=[ROI+(ROI-r)D/E](1-t)

WHERE:-
ROE= Return on equity
ROI=Return on investment
R=Cost of debt
D/E=debt-equity ratio
T=Tax rate

3) LEVERAGE ANALYSIS :-

Leverage arise from the existence of fixed cost there are two kind of
leverage

1. OPERATING LEVERAGE

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2. FINANCIAL LEVERAGE

1. OPERATING LEVERAGE:-

Operating Leverage: Use of fixed operating costs rather than variable


costs.If most costs are fixed (i.e., they do not decline when demand falls)
then the firm has high DOL (degree of operating leverage).
Arise from the firm’s fixed operating cost such as salaries
depreciation, insurance , property taxes .

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2. FINANCIAL LEVERAGE:-

The substitution of fixed-charge financing for variable-cost


(dividend) equity financing. Arise from the firm’s fixed financing
cost such as interest on debt.

Financial leverage concepts


The traditional view is that an optimal mix of debt and equity
exists.
Research demonstrated that the mix of debt and equity is
irrelevant, if taxes are ignored.
The tax deductibility of interest expense creates an advantage
for incurring debt.

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4. DEGREE OF TOTAL LEVERAGE (DTL) :-

The percentage change in EPS that results from a given percentage change in
sales
DTL = DOL X DFL
DTL=Q(P-V)/Q(P-V)-f-int
DTL=S-VC/S-VC-F-INT = GROSS PROFIT/EBIT-INT

1.2 OBJECTIVES OF THE STUDY :-

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 The basic objective of studying the capital structure of the company
is to know the financial position of the company.

 To know the debt-equity position of the company.

 To study the operating leverage and financial leverage so as to know


the fixed cost of triveni engineering & industries ltd.

 To know the stock reserve for sales of the business.

 To know the solvency of the business and the capacity to give interest
to the long term loan lenders (debenture holders) and dividend to the
share holders.

 To study the balance of cash and credit in the organization.

1.2 RESEARCH METHODOLOGY:

1.3.1 Research design:


The descriptive form of research method is adopted for study.
The major purpose of descriptive research is description of state of
affairs of the institution as it exits at present. The nature and characteristics of
the financial statements of triveni engineering & industries ltd. have been
described in this study.

1.3.2 Nature of data:

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The data required for the study has been collected from secondary
source .The relevant information were taken from annual reports, journals and
internet.

1.3.3 Methods of data collection:

This study is based on the annual report of triveni engineering & industry ltd.
Hence the information related to, leverage, short term and long term solvency
were very much required for attaining the objectives of the present study.
1.3.4 Tools applied:
To have a meaningful analysis and interpretation of various data collected, the
following tools were made for this study.

 PBIT-EPS analysis
 ROI-ROE analysis
 Operating leverage analysis
 Financial leverage analysis

1.4 LIMITATION OF THE STUDY:

 The analysis was made with the help of the secondary data collected from
the company.

 All the limitations of PBIT-EPS analysis, ROI-ROE analysis, operating


leverage analysis and financial leverage analysis and interpret are
applicable to this study.

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 The period of study is 5 years from 2005-06 to 2008-09. Because of
given task I have to choose only 5 year.

CHAPTER- II
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REVIEW OF LITERATURE

Contents:

2.1 Review Of Literature

Donald P. Cram, on March 27, 2000 Environmental and Financial


Performance Literature

Abstract

"We review the growing literature relating corporate environmental


performance to financial performance. We seek to identify achievements
and limitations of this literature and to highlight areas for further research.
Our primary interest is to assess the adequacy of the literature in informing
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corporate managers how, when, and where to make pro-environment
investments that will pay off with financial returns for long-term
shareholders. To do so, we create a conceptual framework that maps the
influence of regulators, public health scientists, environmental advocates,
consumers, employees, and other interested parties upon corporate
financial returns. Our discussion has relevance to all parties interested in
influencing corporate actions that affect the environment."

By Janet Y. Murray, Masaaki Kotabe & Albert R. Wildt An Investigation


of the Perceived Financial Performance

Abstract

"This sugar is primarily based on cane’ diffusion of innovations theory and


Auger’s empirical study. Financial performance was measured using four
financial indicators: sales, profits, costs, and return-on-investment (ROI).
The diffusion of innovations theory states that an innovation brings changes
to a company.

hilippe Jacquart, Catherine Ramus & John Antonakis, on May 23, 2004
Strategic and Financial Performance Implications of Global Sourcing
Strategy: A Contingency Analysis

Abstract

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"Using a contingency model of global sourcing strategy, this study
investigated the moderating effects of sourcing-related factors on the
relationship between sourcing strategy and a product's strategic and
financial performance. The results lent some support to the contingency
model of global sourcing strategy in that product innovation, process
innovation and asset specificity were significant moderator variables for
financial, but not strategic, performance. However, the results provided no
support for bargaining power of suppliers and transaction frequency as
moderator variables. In other words, in achieving high financial
performance for a product, whether a particular sourcing strategy should
be used for a particular product depended on the levels of product
innovation, process innovation and asset specificity."

Journal of the Operational Research Society (2003) Vol-54,Pages 48–58,


By E H Feroz Financial statement analysis: A data envelopment analysis
approach

Abstract

 Capital structure analysis is commonly used for Describe the


advantages and disadvantages of financial leverage.

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 Compute the financial leverage index, debt to capital ratio, debt to
equity ratio, and other techniques for analyzing capital structure.
 Relate capital structure composition to owner and creditor
investment objectives.

Milton Harris and Artur RavivThe Theory of Capital Structure,1991

Abstract

This paper surveys capital structure theories based on agency costs, asymmetric
information, product/input market interactions, and corporate control
considerations (but excluding tax-based theories). For each type of model, a brief
overview of the papers surveyed and their relation to each other is provided. The
central papers are described in some detail, and their results are summarized and
followed by a discussion of related extensions. Each section concludes with a
summary of the main implications of the models surveyed in the section. Finally,
these results are collected and compared to the available evidence. Suggestions for
future research are provided.

Harry DeAngelo Ronald W. Masulis 2002 Optimal capital structure under


corporate and personal taxation

Abstract

In this paper, a model of corporate leverage choice is formulated in which corporate


and differential personal taxes exist and supply side adjustments by firms enter into the
determination of equilibrium relative prices of debt and equity. The presence of
corporate tax shield substitutes for debt such as accounting depreciation, depletion
allowances, and investment tax credits is shown to imply a market equilibrium in
which each firm has a unique interior optimum leverage decision (with or without
leverage-related costs). The optimal leverage model yields a number of interesting

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predictions regarding cross-sectional and time-series properties of firms' capital
structures. Extant evidence bearing on these predictions is examined.

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CHAPTER- III
PROFILE

Contents:

3.1 Industry Profile

3.2 Company Profile

3.1 INDUSTRY PROFILE

We are a focused, innovative corporation having core competencies in the areas


of sugar And engineering. Our growth has been empowered with steadfast and
distinctive adherence to business ethics, transparent governance and

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commitment to highest standards of social responsibility.

From a humble beginning in 1930s, we have transformed ourselves into an INR


19 billion company through an interesting blend of people, technology and
entrepreneurial spirit.

Today, we touch the lives of millions of people globally by serving our


customers in the areas of sugar, turbines, gears & gearboxes and water &
wastewater treatment. While we are amongst the three largest sugar
manufacturers in India, we are also the market leaders in our engineering
businesses, having a global footprint.

Embracing the virtues of integrity, excellence and commitment, we move ahead


to take on the opportunities and challenges offered by the future. We are geared
to transform into a truly global enterprise through a prudent mix of technical
innovation and exceptional customer service delivery.

Our commitment to excellence and strong corporate governance guides us in this


endeavour, as we look ahead at powerful growth and building a socially
equitable, sustainable future.

BUSINESS OVERVIEW;-

Triveni's association with the Sugar Industry is as old as the Industry itself. In
pre independence India, the promoters of what is now the Triveni Group
established several sugar factories in pre independent India. Even now, Triveni
is the pre- eminent name in the Indian sugar industry.

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With a current cane crushing capacity of 61,000 TCD (Tonnes Crushing per
Day), the Triveni Group continues to be one of the largest producers of sugar in
India. The crush capacity of the existing plants are (as follows;

• Khatauli, in District Muzaffarnagar (16,000 TCD)


• Deoband in District Saharanpur (14,000 TCD)
• Ramkola in District Kushinagar (6,500 TCD)
• Sabitgarh in District Bulandshehar (7,000 TCD)
• Chandanpur in District J P Nagar (6000 TCD)
• Raninagal in District Moradabad (5500 TCD)
• Milak Narainpur in District Rampur (6000 TCD)

The new capacities at Chandanpur, Raninagal & Milak Narainpur together with
the brownfield expansion at Ramkola were commissioned during the sugar
season 2006-07.
All seven sugar factories are located in the state of Uttar Pradesh. In all the
factories, double suphitation process is followed for sugar production.
The sugar produced at Triveni's factories is direct consumption
plantation white low ICUMSA (an International method for determining colour
value of sugar, lower value means whiter sugar), bold grain sugar which
commands premium in the market. A lot of emphasis is placed on the quality
control procedures an quality of sugar produced in the factories.

At all the factories, emphasis is on usage of energy efficient systems, modern


technology and R & D for better operations and for improved per hectare sugar
output. As a result of Triveni's tie up with Sugar Research International of
Australia, the group factories have access to modern equipments & process
knowhow.
Khatauli, Deoband & Sabitgarh plants are located in fertile, well irrigated and
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high cane intensity region of western Uttar Pradesh where the sugar cane crop is
least dependent on the vagaries of the Monsoon & therefore are very consistent
in terms of the cane availability & capacity utilization.
The Ramkola unit is located in lucrative eastern UP where the
realization of sugar (particularly because of the robust demand from sugar
deficient West Bengal) is better as compared to western UP.

The three new sugar units are located in the Central UP.

The cane development activities taken up by the factories are regarded to be


amongst the best in the industry. Group has been pioneer in using modern
techniques like Satellite tracking for getting information on area in its command
for enabling decisions on which variety to be propagated in which area. Factory
has huge data base on individual farmer's field data (total cane area, past
supplies, ratoon and plant cane acreage, soil details, land type details etc.) to
take prudent decisions on cane development.

MILESTONES :-

Since the setting up of first unit at Deoband in 1932, the overall performance of
our Sugar Business has been commendable. During the last two decades we
have crossed many milestones and are committed to cross many more in the
future.

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Following is a glimpse of our achievements during the last two decades:

1989
Awarded "Certificate of Merit" for best performance during season 1987-88 by
National Productivity Council of India. This award was presented by Hon'ble
Shri J. Vengala Rao, then Hon'ble Minister of Industries, Govt. of India and
President of NPC.

1991
The Double Carbonation and Double Sulphitation process was converted
successfully into Double Sulphitation process having due consideration to
Environmental problems.

1992
Successfully completed Expansion and Modernisation of the Plant from 5000
TCD to 10,000 TCD.
1998
Successfully completed the Expansion of the Plant from 10,000 TCD to 11,000
TCD.

2000
We exported 2.42 Lac. Qtls. of Sugar to Pakistan.

2001
Launching of the Biological Control Lab. for Soil testing and developing of
biological pest control system for the benefits of the Cane Growers of the area.

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2003
In August, 2003 launched Branded Sugar "Shagun" and started packing of
consumer packets.

2005
Launched "Triveni Kushali Bazaar" an Agri-business Centre at Village Ladpur
near our Sugar Unit mainly for making available agricultural implements &
inputs and other domestic items under one roof for the Cane Growers of the
area.

2005
We crushed 186.61 lac. Qtls. of cane during season 2004-05 which was the
highest crush in India with highest production of 19.59 lac. Qtls. of Sugar.

Expansion of the Plant from 12,500 to 16,000 TCD by adding a new Milling
Tandam with complete automation system is being done which will commence
production in season 2005-06.

A new Co-generation plant of 24.0 M.W. is under installation which will


commence production in October, 2005.

Product Quality

The commercial grading of sugar in India is based on grain size and colour
categories. Currently 3-grain sizes and 3 colour series are identified.

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GRADE GRAIN SIZE
L > 1.70 – mm
M 1.18 - 1.70 mm
S 0.60 - 1.18 mm

APPROX. ICUMSA COLOUR


COLOUR
UNITS
31 < 100
30 100-150
29 29 >150

Khatauli Sugar Quality :-

In India bold grain carries a premium. Keeping this in mind, the Khatauli unit
produces sugar of bolder grain of low colour value. The production is
categorised as following (figures are approx. as they vary every year)-

L-31 20%
M-31 70%
S-31 10%
Sugar is statutorily required to be packed in 100 Kg twill jute bags

CANE DEVELOPMENT PROGRAM :-

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Cane Development Programme
The philosophy of the cane development and marketing is almost common for
all the sugar units. While in following paragraphs, description is for Khatauli but
applies generally to Deoband & Ramkola units as well.

After identifying the constraints in the area of operation, the mill has undertaken
an ambitious programme of Cane Development for improvement in productivity
and quality of cane. The mill has separate cane development wing with qualified
staff and experienced personnel. For this purpose the operational area has been
divided into sub-zones and the field supervisory staff has been provided with the
necessary facilities for efficient working and proper supervision of the various
cane development activities.
The cane development programme is planned with following activities:-

• To educate the farmers regarding modern agricultural practices in


sugarcane cultivation.
• To replace the unapproved and degenerated cane varieties
• To initiate and propagate the use of healthy and generically pure, seed
material.
• To initiate heat therapy for the treatment of cane seed through moist hot
air treatment plant to eliminate the diseases.
• Fertilizers recommendation based on soil testing.
• Supply of press mud on subsidized cost for improving the soil fertility.
• Distribution of agro-chemicals on subsidized rates.
• Incentive for high sugared varieties like CoS-88230, CoS-8436, CoJ-
64/85 and CoS-88230 in the early group and CoS-8432, CoP-84212 in
the mid and late group.

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• Three tier seed nursery programme for multiplication of disease free good
quality seed.
• Propagation of newly released high yielding and high sugared cane
varieties.
• Contribution of funds with cane development councils for
construction/repairing of link roads and culverts for the development of
infrastructure.
• To layout the demonstration/trial plots to demonstrate yield potential and
better/improved cultivation techniques.

The details of various schemes of cane development being undertaken by mill


are enumerated as below:-
» Plantation of High Yield Variety of Sugarcane
» Seed Distribution
» Demonstration Plots
» Technical Assistance to Cane Growers
» Moist Hot Air Treatment
» Irrigation
» Ratoon Management
» Biological Laboratory
» Soil Analysis and Soil Treatment
» Control of Post Harvest Sugar Losses
» Awareness Among Cultivators

PLANT & MACHINARY INTRODUCTION :-


For Triveni, sugar to sugar plant & machinery was a natural diversification.
Triveni entered in this field in mid 60s and has been a major player in this
business area of sugar machinery & turnkey sugar plants.
This division has executed more than 35 sugar plants ranging from 1000 TCD -

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10000 TCD capacity and carried out major expansion, balancing work for over
20 sugar factories.

The mills designed by Triveni are considered by experts to be very robust and
rugged, requires least maintenance and give higher mill extractions.

Triveni got out of the business of complete new sugar units installation as it
started focussing on niche technology and equipment available because of tie up
with SRI, a premier sugar research institute of Australia and industry turning to
low cost small players (at a time when sugar industry was going through bad
phase) started eating away the profits made by this division.

Now, Triveni SRI Limited (TSL), a Triveni Group Company, under a License
Agreement with Sugar Research International, offers the latest models of plants
and machinery available to the Australian industry to the Indian Sugar Industry.

3.2 COMPANY PROFILE :-

TEIL was incorporated in 1932 and has been managed by the Triveni Group, of
which Mr. Dhruv Sawhney is the key promoter. The promoters hold around 70%
of the company’s equity and have over four decades of experience in the sugar
business. Apart from its main business of sugar manufacture, TEIL is also
engaged in the manufacture of small steam turbines and high-speed gears, and in
the execution of water treatment related projects. TEIL is the third largest
domestic sugar manufacturer with a combined capacity of over 61,000 tonnes
crushed per day (tcd). The company’s sugar mills are located at Khatauli
(16,000 tcd), Deoband (14,000 tcd), Sabitgarh (7,000 tcd), Chandanpur (6,000
tcd), Raninagal (5,500 tcd), and Narayanpur (6,000 tcd), all in western UP, and
- 25 -
at Ramkola (6,500 tcd) in eastern UP. Apart from these, TEIL also has a 46 MW
co-generation capacity at its Khatauli sugar mill, a 22 MW cogeneration
capacity at its Deoband sugar mill, and a 160 kilo litres per day (klpd) distillery
at Muzaffarnagar UP. The company’s sugar business, including the co
generation and distillery facilities, is the largest among its businesses in terms of
revenues and capital employed.
TEIL’s steam turbine division, which is in Bangalore, is its second
largest division in terms of revenues and capital employed. This division
manufactures steam turbines of less than 18 MW size, and has recently started
making turbines in higher MW segments of up to 30 MW. TEIL also has a high-
speed gears division in Mysore, Karnataka,and a water projects division at
Noida, UP. While the high-speed gears division supplies gears to the steam
turbine division and to other industries and utilities, the water project division
offers engineered-to-order mechanical equipment relating to water/waste water
treatment. Although these divisions account for a relatively small portion of
TEIL’s revenues, profits and capital employed, the recent growth in them has
been significant.
TEIL’s sugar (including co-generation) and turbines divisions have
remained the main contributors to the overall turnover and profits of the
company , together accounting for over 90% of the company’s turnover and
profits. However, the contributions have varied significantly over the last few
years because of the cyclicality in the sugar business.
TEIL’s sugar and allied businesses account for almost 80% (around Rs.
15 billion) of the total capital employed, and the turbine division for just around
10%. For the 15 months ended June 2007, TEIL reported a PBIT of Rs 1.26
billion, contributed largely by its engineering businesses.

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MANAGEMENT:-

Management - Triveni Engg

Name Designation
Dhruv M Sawhney Chairman and Managing director
Nikhil Sawhney Executive Director
K K Hazari Director
M K Daga Director
Shekhar Datta Director
Name Designation
Tarun Sawhney Executive Director
F C Kohli Director
K N Shenoy Director
Amal Ganguli Director
R C Sharma Director

GLOBAL CONSUMPTION

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Today, we touch the lives of millions of people globally by serving our
customers in the areas of sugar, turbines, gears & gearboxes and water &

- 28 -
wastewater treatment. While we are amongst the three largest sugar
manufacturers in India, we are also the market leaders in our engineering
businesses, having a global footprint.

Embracing the virtues of integrity, excellence and commitment, we move ahead


to take on the opportunities and challenges offered by the future. We are geared
to transform into a truly global enterprise through a prudent mix of technical
innovation and exceptional customer service delivery. `
Our commitment to excellence and strong corporate governance guides us in this
endeavor, as we look ahead at powerful growth and building a socially
equitable, sustainable future.

VISION

- 29 -
CORE VALUES

CUSTOMER FOCUS

ORGANISATIONAL PRIDE

MUTUAL RESPECT AND TRUST

INITIATIVE AND SPEED

TOTAL QUALITY

The Following diagram Show the service offered by triveni group at khatauli
plant is as follows:

- 30 -
Sugar Businesses:

• Sugar Manufacturing: Triveni plans to expand its sugar manufacturing


capacity to around 52,000 tons of sugarcane crushed per day (tcd) in
fiscal 2006-07. This expansion will include three new sugar factories with
capacities ranging between 5000 to 7000 tcd. All the three factories will
be located in West Uttar Pradesh, allowing the company to operate in a
well irrigated cane growing areas with close access to sugar deficient
markets. The company is also expanding its sugarcane crushing
capacities at its factories in Deoband and Khatauli. The expansions in
capacity and one new sugar factory (at Sabitgarh, district Bulandsher)
will be operational within the financial year 2005-06.

• Cogeneration of Power: Triveni currently produces 74MW of power for


export to the UP State grid through its cogeneration facility at Deoband.

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The company is installing another 47MW cogeneration facility at
Khatauli by September 2005. Therefore the total co generated power
produced by Triveni, for export, will equal 45MW.

Engineering Businesses:

• Turbines: Triveni will double its capacity to manufacture turbines by


March 2006. It will also expand the capacity output of its range of
turbines and focus on exports.

• Gears & Gearboxes: The gears business has expanded its production
capacity three fold and is actively pursuing export opportunities through
its License partner - Lufkin.

• Water & Wastewater Treatment: The water business is pursuing strategic


alliances with various business units of US Filter to expand its already
diverse product portfolio.

TRIVENI KHUSHALI BAZAAR

Triveni Engineering & Industries Limited has a command area of over 1 lakh
ha.under sugarcane cultivation, covering over 1.46 lakh farmers and buys more

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than Rs. 300 Crore of sugarcane per annum from these farmers.

We have a team of over 250 staff in the Cane development who work closely
with these farmers. We are now leveraging our longstanding relationship with
these farmers to provide them with the entire range of Agri inputs and services
under one shop called Triveni Khushali Bazaar.

Triveni Khushali Bazaar will increase the association of rural communities with
us and further strengthen their relationship with us. Such a relationship, coupled
with our track record of timely payment to farmers will enable us to secure the
source of our primary raw material.

TRIVENI KHUSHALI BAZAAR-Future Initiative

Currently Khushali Bazaar has 2 Triveni owned stores and 4 franchise owned
stores. The self owned stores are at Khatauli and Deoband. The franchises are at
Jansath, Sisauli, Ghatain and Badgaon. These stores are operating since
February 2005.

These stores will provide to farmers, Agri inputs, Agri implements for sale as
well as rental, Irrigation equipment, Agri extension services, Cement, Cattle
feed, FMCG, Petrol/Diesel, Lubricants, Two wheelers, Tractors and other goods
to complete the farmers' basket of goods. We have established tie-up with a
number of leading companies to sell their products through our stores. We have
also tied up a bank to provide loans to our sugarcane farmers to facilitate their
shopping in our stores.

- 33 -
After stabilising the operations at these stores, we would like to expand our
network to other parts of UP.

BRANDED SUGAR- SHAGUN

on 26 September 2003 Triveni launched its 1kg & 5kg packets of sugar under
the brand name of SHAGUN

Shagun is a premium quality sugar from Triveni, a pioneer in the Indian


sugar industry since 1932. It stands for pure, healthy, superior quality
crystal sugar, which is manufactured using the best technology from
UK & USA, by crushing the juiciest sugarcane from the Ganga-Jamuna
Doab region.

The production of Shagun sugar takes place in a completely hands-free


and sterile environment. We also deploy double micro filtration system
that removes minutest foreign particles to make the sugar pure & healthy.

- 34 -
Objective of branding:-

To get closer to end consumer and provide them with a value added product.

High disposable income.

Better life style.

Springing of departmental stores

Target customer

House wife

25 – 40 years

Upper and middle – middle class

Quality and health conscious

- 35 -
Competition

Last Price Market Cap. Sales Net Profit T


(Rs. cr.) Turnover otal
Assets
Shree Renuka 64.25 4,303.47 2,234.20 143.50 2,563.71
EID Parry 398.00 3,438.64 1,179.43 205.28 1,671.58
Triveni Engg 101.40 2,614.90 1,895.94 169.78 1,756.78
Bajaj Hind 113.85 2,178.60 1,780.71 154.61 5,368.83

- 36 -
Balrampur Chini 79.65 2,058.74 1,704.58 226.51 2,147.28
Bannariamman 847.45 969.46 884.44 143.63 799.32
Andhra Sugar 135.80 368.11 578.34 66.84 639.61
Dhampur Sugar 61.20 329.90 948.04 56.19 1,231.60
KCP Sugar 20.30 230.17 301.55 23.74 208.25
Sakthi Sugars 55.00 202.44 1,374.71 103.49 2,159.63

- 37 -
CHAPTER- IV

DATA ANALYSIS AND INTERPRETATION

A. PBIT-EPS ANALYSIS

PBIT-EPS ANALYSIS FROM 2005-2009 ;-

1. PBIT-EPS ANALYSIS 2005:-

EPS = (PBIT-I)(1-t)/n
EPS=(136.08-30.64)(1-.241)/831.52
EPS=(105.44*.759)/831.52
EPS=.096
- 38 -
2. PBIT-EPS ANALYSIS 2006:-

EPS=(221.17-30.43)(1-.297)/2578.80
EPS=(190.74*.703)/2578.80
EPS=.051

3. PBIT-EPS ANALYSIS 2007:-

EPS=(193.08-93.87)(1+.039)/2578.80
EPS=(99.21*1.039)/2578.80
EPS=.039

4. PBIT-EPS ANALYSIS 2008:-

EPS=(317.29-109.85)(1-.228)/2578.80
EPS=(207.44*.772)/2578.80
EPS=.062

5. PBIT-EPS ANALYSIS 2009:-

EPS=(426.11-115.46)(1-.726)/2578.80
EPS=(310.65*.274)/2578.80
EPS=.033
- 39 -
TABLE -1
PBIT-EPS ANALYSIS

0.1
Year
0.09 EPS
0.08
0.07
2004-2005 .096
0.06
0.05
0.04 2005-2006 PBIT-EPS .051
0.03
0.02
2006-2007 .039
0.01
0
2004- 2005- 2006- 2007- 2008-
2007-2008 .062
2005 2006 2007 2008 2009

2008-2009 .033

- 40 -
management and employee and because of strike company is in lose so company
should take serious step regarding employee satisfaction for to improve
shareholder wealth

B. LEVERAGE ANALYSIS:-

1. DEGREE OF OPERATING LEVERAGE (DOL)


2. DEGREE OF FINANCIAL LEVERAGE (DFL)
3. DEGREE OF TOTAL LEVERAGE (DTL)

1. DEGREE OF OPERATING LEVERAGE:-

DOL 2005:-

DOL=GROSS PROFIT / EBIT


DOL=882.45/136.08
DOL=6.484

DOL 2006:-

DOL= GROSS PROFIT / EBIT


DOL=1161.21/221.17
DOL=.5254

DOL 2007:-

DOL=GROSS PROFIT / EBIT


- 41 -
DOL=1895.53/193.08
DOL=9.817

DOL 2008:-

DOL= GROSS PROFIT / EBIT


DOL=1704.72/317.29
DOL=5.372

DOL 2009:-

DOL=GROSS PROFIT / EBIT


DOL=1668.90/426.11
DOL=3.916

TABLE-2
DEGREE OF OPERATING LEVERAGE:

Year DOL

2004-2005 6.484

2005-2006 .5254

2006-2007 9.817

2007-2008 5.372

2008-2009 - 42 - 3.916
CHART-2
DOL:

10
9
8
7
6
5
4 DOL

3
2
1
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

Interpretation and Analysis:

The above table and diagram shows the operating leverage during
the study period except in the year 2006-2007 is more than previous year but in
year 2007-08 it again decreased and year 2008-09 it again come down
The DOL is an index number which measures the effect
of a change in sales on operating income, or EBIT. It shows that

- 43 -
company is giving less amount and bear less depritiation charge it is
good for company.

2. DEGREE OF FINANCIAL LEVERAGE:-

DFL 2005:-

DFL=PBIT / PBT
DFL=136.08/86.76
DFL=1.568

DFL 2006:-

DFL=PBIT/PBT
DFL=221.17/161.20
DFL=1.372

DFL 2007;-

DFL=PBIT/PBT
DFL=193.08/72.48
DFL=2.663

DFL 2008:-

DFL=PBIT/PBT
DFL=317.29/140.74
DFL=2.254

- 44 -
DFL 2009:-

DFL=PBIT / PBT
DFL=426.11/247.26
DFL=1.723

TABLE-3
DEGREE OF FINANCIAL LEVERAGE:

Year DFL

2004-2005 1.568

2005-2006 1.372

2006-2007 2.663

2007-2008 2.254

2008-2009 1.723

- 45 -
CHART-3
DFL:-

- 46 -
3

2.5

1.5
DFL

0.5

0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

Interpretation and Analysis:


The above table and diagram shows the student period 2004-05 to 2008-
09.in the year 2006-07it was very high it was nit good for the company because
during this period company is paying fixed interest on debt but in year 2008-09
It comes down it mean company is is paying less interst so it is good for
company or company is improving its position.

3. DEGREE OF TOTAL LEVERAGE:-

- 47 -
DTL 2005:-

DTL=DOL*DFL
DTL=6.484*1.568
DTL=10.17

DTL 2006:-

DTL=DOL*DFL
DTL=.5254*1.372
DTL=.720

DTL 2007:-

DTL=DOL*DFL
DTL=9.817*2.663
DTL=26.14

DTL 2008:-

DTL=DOL*DFL
DTL=5.372*2.254
DTL=12.108

DTL 2009:-

- 48 -
DTL=DOL*DFL
DTL=3.916*1.723
DTL=6.747

TABLE-4
DEGREE OF TOTAL LEVERAGE:

30
Year DTL

25 2004-2005 10.17

20 2005-2006 .720

15 2006-2007 26.14
DTL

10 2007-2008 12.108

5
2008-2009 6.747

0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

- 49 -
CHART-4
DTL

B) LEVERAGE RATIOS:

Many financial analyses are interested in the relative use of debt and
equity in the firm. The term ‘solvency’ refers to the ability of a concern to meet
its long-term obligation. Accordingly, long-term solvency ratios indicate a
firm’s ability to meet the fixed interest and costs and repayment schedules
associated with its long-term borrowings. (E.g.) debt equity ratio, proprietary
ratio, etc….

i) DEBT EQUITY RATIO:

It expresses the relationship between the external equities and


internal equities or the relationship between borrowed funds and ‘owners’
capital. It is a popular measure of the long-term financial solvency of a firm.
This relationship is shown by the debt equity ratio. This ratio indicates the
relative proportion of dept and equity in financing the assets of a firm. This ratio
is computed by dividing the total debt of the firm by its equity (i.e.) net worth.

- 50 -
Outsider’s funds
Debt equity ratio = ------------------------------
Proprietor’s funds

TABLE-5
DEBT EQUITY RATIO:

Year Outsider’s funds Proprietor’s funds Ratio


in Rs. Cr in Rs. Cr
2004-2005 175.71 450.09 .39

2005-2006 512.16 402.61 1.27

2006-2007 674.85 1001.55 .67

2007-2008 766.85 1168.70 .65

2008-2009 906.45 833.80 1.08

- 51 -
CHART-4
DEBT EQUITY RATIO:

1.4
1.2
1
0.8
0.6 DEBT-EQU
0.4
0.2
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

Interpretation and Analysis:


The above table and diagram shows the debt equity relationship of the
company during the study period. It was 0.4 in the 2004-05 and then reached its
- 52 -
highest in the next year and from there it began to slope downwards and
ultimately came to 1.08 in the year 2008-09.
In all the years the equity is more when compared with borrowings.
Hence the company is maintaining its debt position

ii) PROPRIETARY RATIO:


Proprietary ratio relates to the proprietors funds to total assets. It
reveals the owners contribution to the total value of assets. This ratio shows the
long-time solvency of the business it is calculated by dividing proprietor’s funds
by the total tangible assets.

Proprietor’s funds
Proprietary ratio = ---------------------------
Total tangible assets

TABLE-5
PROPRIETARY RATIO:

- 53 -
Year Proprietor’s funds Total assets Ratio
in Rs. Cr in Rs. Cr
2004-2005 450.09 317.55 1.41

2005-2006 402.61 312.97 1.28

2006-2007 1001.55 374.77 2.67

2007-2008 1168.70 638.11 1.83

2008-2009 833.80 444.60 1.87

CHART-5
PROPRIETARY RATIO:

- 54 -
3

2.5

1.5
Proprietary
1 Ratio

0.5

0
2004- 2006- 2008-
2005 2007 2009

Interpretation and Analysis:


The above table and diagram shows the proprietary ratio during the study
period. In all the years the owner's contribution to the total assets was appropriate
and they maintain their share in the company's assets.
Except 2005-06 in all the years the proprietor's contribution in to the total
assets is more than the 2/3. During 2006-07 it is more than 50%

C. ROI-ROE ANALYSIS:-

ROE= [ROI+(ROI-r)D/E](1-t)

- 55 -
RETURN ON INVESTMENT = Net profit /capital employed × 100
(ROI)

ROI OF 2005
ROI=99.52/644.22*100
ROI=15.44

ROI OF 2006
ROI=131.50/932.85*100
ROI=14.09

ROI OF 2007
ROI=75.43/1693.59*100
ROI=4.45

ROI OF 2008
ROI=111.52/1952.42*100
ROI=5.71

ROI OF 2009
ROI=169.78/1756.79*100
ROI=9.66

ROI-ROE ANALYSIS:- 2005

ROE=[ROI+(ROI-r)D/E](1-t)
ROE=[15.44+(15.44-10 )*.39](1-.24)
- 56 -
ROE= 13.34

ROI-ROE ANALYSIS:- 2006


ROE=[ROI+(ROI-r)D/E](1-t)
ROE=[14.09+(14.09-12 )*1.27](1-.29)
ROE= 12.59

ROI-ROE ANALYSIS:- 2007


ROE=[ROI+(ROI-r)D/E](1-t)
ROE=[4.45+(4.45-10 )*.67](1-.039)
ROE=o.88

ROI-ROE ANALYSIS:- 2008


ROE=[ROI+(ROI-r)D/E](1-t)
ROE=[5.71+(5.71-12 )*.65](1-.228)
ROE= 1.25

ROI-ROE ANALYSIS:- 2009


ROE=[ROI+(ROI-r)D/E](1-t)
ROE=[9.66+(9.66-11 )*1.08](1-.726)
ROE=2.25

- 57 -
16
Year ROI ROI-ROE
14 RELATION
12
2004-2005 15.44 2004-2005 13.34
10
2005-2006
8
2006-2007
6 2005-2006 14.09 2007-2008 12.59
2008-2009
4

2 2006-2007 4.45 .88


0
ROI ROI-ROE RELATION
2007-2008 5.71 1.25

2008-2009 9.66 2.25

INTERPRETATION:-

IN the study of 2004-05 to 2008-09 the return on equity from 2005-2006 was
good but in year 2007-09 it was not good its mean investment is not up to the
mark it’s a drawback for shareholder so company should work hard to control
this low graph.

- 58 -
Balance Sheet of Triveni
------------------- in Rs. Cr. -------------------
Engineering
Mar '05 Mar '06 Sep '07 Sep '08 Sep '09

12
12 mths 12 mths 12 mths 12 mths
mths

Sources Of Funds
Total Share Capital 10.30 25.79 25.79 25.79 25.79
Equity Share Capital 8.32 25.79 25.79 25.79 25.79
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 1.99 0.00 0.00 0.00 0.00
Reserves 165.41 486.37 649.06 741.06 880.66
Revaluation Reserves 18.42 18.08 17.19 16.87 16.54
Networth 194.13 530.24 692.04 783.72 922.99
Secured Loans 429.96 369.80 931.13 1,079.84 758.75
Unsecured Loans 20.13 32.81 70.42 88.86 75.05
Total Debt 450.09 402.61 1,001.55 1,168.70 833.80
Total Liabilities 644.22 932.85 1,693.59 1,952.42 1,756.79
Mar '05 Mar '06 Sep '07 Sep '08 Sep '09

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 387.68 710.07 1,503.60 1,556.92 1,634.87
Less: Accum. Depreciation 116.92 139.78 218.94 295.81 370.17
Net Block 270.76 570.29 1,284.66 1,261.11 1,264.70
Capital Work in Progress 30.04 46.74 21.11 39.67 19.20
Investments 22.98 1.86 10.83 11.62 26.98
Inventories 435.28 404.79 419.72 539.79 458.14
Sundry Debtors 66.65 100.34 94.28 213.45 242.88
Cash and Bank Balance 17.36 20.36 20.91 14.92 15.65
Total Current Assets 519.29 525.49 534.91 768.16 716.67
Loans and Advances 68.76 87.36 346.83 385.71 416.52
Fixed Deposits 5.42 5.56 4.52 3.78 11.67
Total CA, Loans & Advances 593.47 618.41 886.26 1,157.65 1,144.86
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 222.21 256.68 459.96 435.20 602.99
Provisions 53.71 48.76 51.53 84.34 97.27
Total CL & Provisions 275.92 305.44 511.49 519.54 700.26
Net Current Assets 317.55 312.97 374.77 638.11 444.60
Miscellaneous Expenses 2.88 0.96 2.24 1.92 1.30
Total Assets 644.21 932.82 1,693.61 1,952.43 1,756.78

Contingent Liabilities 111.30 177.64 43.67 58.89 42.40


Book Value (Rs) 20.89 19.86 26.17 29.74 35.15
- 59 -
- 60 -
Profit & Loss account of
------------------- in Rs. Cr. -------------------
Triveni Engineering
Mar '05 Mar '06 Sep '07 Sep '08 Sep '09
12
12 mths 12 mths 12 mths 12 mths
mths
Income
1,023.0
Sales Turnover 1,270.30 2,053.06 1,703.04 1,967.64
8
Excise Duty 58.15 70.95 144.82 116.75 59.87
Net Sales 964.93 1,199.35 1,908.24 1,586.29 1,907.77
Other Income -35.64 10.54 6.34 9.60 -10.19
Stock Adjustments -46.84 -48.68 -19.05 108.83 -228.68
Total Income 882.45 1,161.21 1,895.53 1,704.72 1,668.90
Expenditure
Raw Materials 630.85 805.39 1,405.02 1,134.07 968.34
Power & Fuel Cost 4.72 9.91 17.00 10.72 11.95
Employee Cost 54.06 72.24 146.53 120.13 135.89
Other Manufacturing Expenses 17.77 22.93 59.22 46.80 46.91
Selling and Admin Expenses 28.58 35.03 76.73 47.83 50.44
Miscellaneous Expenses 15.06 22.61 49.85 29.38 30.56
Preoperative Exp Capitalised -4.67 -28.07 -51.90 -1.50 -1.30
Total Expenses 746.37 940.04 1,702.45 1,387.43 1,242.79
Mar '05 Mar '06 Sep '07 Sep '08 Sep '09
12
12 mths 18 mths 12 mths 12 mths
mths
Operating Profit 171.72 210.63 186.74 307.69 436.30
PBDIT 136.08 221.17 193.08 317.29 426.11
Interest 30.64 30.43 93.87 109.85 115.46
PBDT 105.44 190.74 99.21 207.44 310.65
Depreciation 12.35 23.64 81.28 79.68 75.78
Other Written Off 5.97 5.85 -61.78 -14.95 -11.76
Profit Before Tax 87.12 161.25 79.71 142.71 246.63
Extra-ordinary items -0.36 -0.05 -7.23 -1.97 0.63
PBT (Post Extra-ord Items) 86.76 161.20 72.48 140.74 247.26
Tax 24.10 29.77 -3.92 22.81 72.68
Reported Net Profit 99.52 131.50 75.43 111.52 169.78
Total Value Addition 115.52 134.65 297.43 253.37 274.44
Preference Dividend 0.24 0.00 0.00 0.00 0.00
Equity Dividend 8.32 12.89 15.47 15.47 25.79
Corporate Dividend Tax 1.11 1.81 2.36 2.63 4.38

Per share data (annualised)

- 61 -
CHAPTER- V

FINDINGS AND SUGGESTIONS

Contents:

5.1 Findings
5.2 Suggestions

5.1 FINDINGS:-

- 62 -
 In all the years the debt equity is more, when compared with borrowings.
Hence the company is maintaining its debt position.
 The proprietary ratio during the study period to the total assets is more than
the 2/3. During 2004-05 it is more than 50%
 In all the years the equity is more when compared with borrowings.
Hence the company is maintaining its debt position
 Earning per share of the company is decreasing
 Degree of financial leverage is decreasing
 Intangible assets of the company is increasing 38 to 100
 Liabilities on company is increasing from 3736 to 5096
 Net current assets of the company is decreasing 6962 to 5379
 Triveni canecrush is decreased by 36 %

5.2 SUGGESTION

 The company's profit over the years has been decreasing when
compared to previous years and even it incurred loss in the last year.
The company must increase the profit in future. The company must
take steps to increase the profit level.

 A Non-operating expense of the company is high. So the management


should take necessary steps to reduce the non-operating expenses. The
management should take steps to reduce the borrowed capital.

- 63 -
 The liquidity position of the company is quite satisfactory. And this
must be improved further for the purpose of proper utilization of the
liquid assets of the company.

 The EPS position of the company is not satisfactory for the last five
years. It is fluctuating over the years and there is no standard ration
maintained. So the management should take steps to improving the
position of the company.

 Debt equity ratio has satisfactory for the past years. So the company
has enough scope for the more long-term borrowings from the
outsiders as its current ratio is also good and has a sufficient amount
of current assets..

 The sales of the organization can be further increased by improving


the quality through optimum utilization of company's resources (i.e.
assets, raw materials, credit system, etc.) and that in turn will increase
the overall profits of the organization.

 The Management must find out the reasons for the decrease in sales
and must take appropriate measures.

 The Management must also study the market position and it also find
the demand prevailing in the market for the products and thus this will
guide them to enhance their sales volume.

- 64 -
CONCLUSION AND BIBLIOGRAPHY

Contents:

6.1 Conclusion

6.2 Bibliography

- 65 -
6.1 CONCLUSION:-

On studying the financial performance of Triveni engineering &


industries Ltd. for a period of five years from 2004-05 to 2008-09, the study
reveals that the financial performance is better. Triveni engineering & industries
Ltd has been able to maintain optimal cost positioning. Despite price drops in
various products, the company has been able to maintain and grow its market
share to make strong margins in market, contributing to the strong financial
position of the company. The company was able to meet its entire requirements
for capital expenditures and higher level of working capital commitment with
higher volume of operations and from its operating cash flows.
. The company should now give more importance to exports because it
provides good net sales realization but also export benefits.

- 66 -
6.2 BIBLIOGRAPHY

 Annual Reports Of TRIVENI ENGINEERING & INDUSTRIES


LTD.
 General Articles and Magazines Of TRIVENI ENGINEERING &
INDUSTRIES LTD.
 T.S Reddy and Y. Hariprasad Reddy, Financial management, New
Delhi: Tata Mc Graw hill Publishing company Ltd., 1999, 3rd edition
 M.A Sahaf Management and Accounting 4th Edition, Tata McGraw
Hill Publishing Company Ltd, 5th Reprint - 2006 - New Delhi.
 Pandey, Financial Management 8th Edition, Vikas Publishing house Pvt
Ltd, 6th Reprint -2006- New Delhi.
 Sharma R.k & S.K. Gupta, Financial Management
 Rustagi, Financial Management

Website:
http://money.newkerala.com/company-profile-id-16020114.00.html

www.indianinfoline.com

Books:

Survey of Indian industry- The Hindu

Newspapers:

The Hindu, Deccan Chronicle.

- 67 -
Literature Review Bibliography

1. Environmental and Financial Performance Literature, by Donald P.


Cram, on March 27, 2000

Source: http://web.mit.edu/doncram/www/environmental/envir-fin-
literature.html

2. Journal of Industrial Technology • Volume 19, Number 2 • February


2003 to April 2003 Page2, by Dr. Devang P. Mehta

Source: http://72.14.235.132/search?
q=cache:EIGjtsUJQeEJ:www.nait.org/jit/Art
icles/mehta011603.pdf+review+of+literature+on+financial+performance&h
l=en&ct=clnk&cd=2

3. Journal of International Business Studies (1995), Vol 26, Page 181–202,


By Janet Y. Murray, Masaaki Kotabe & Albert R. Wildt

Source: http://www.palgrave-
journals.com/jibs/journal/v26/n1/abs/8490171a.html

- 68 -
4. Implications for financial performance and corporate social
responsibility, by Philippe Jacquart, Catherine Ramus & John
Antonakis, on May 23, 2004.

Source: http://www1.icp2008.org/guest/AbstractView?ABSID=10821

5. Journal of the Operational Research Society (2003) Vol-54,Pages 48–


58,
By E H Feroz
Source: http://www.palgrave-
journals.com/jors/journal/v54/n1/abs/2601475a.html

- 69 -