Company Analysis (1)

8/10/2019 Company Analysis (1)

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Introduction

Fast moving consumer goods (FMCG) sector in India is the fourth largest in theeconomy and has a market size of US$!" #illion" It has #een redicted that theFMCG market %ill reach to US$ !!"& #illion #y ' from US $ #illion "* in '!"+ell,esta#lished distri#ution net%orks- as %ell as intense cometition #et%een theorganised and unorganized segments are the characteristics of this sector" .hemiddle class and the rural segments of the Indian oulation are the mostromising market for FMCG and give #rand makers the oortunity to convert themto #randed roducts" India has lo% er caita consumtion as %ell as lo%enetration level- #ut the otential for gro%th is huge"

.he Indian economy is surging ahead #y leas and #ounds- keeing ace %ith raidur#anization- increased literacy levels- and rising er caita income" .he #ig /rmsare gro%ing #igger and small,time comanies are catching u as %ell" 0ccording to

the study conducted #y 0C 1ielsen- *' of the to #rands are o%ned #ymultinational comanies (M1Cs)- and the #alance #y Indian comanies" Fifteencomanies o%n these *' #rands- and '2 of these are o%ned #y 3industan Unilever4imited (3U4)" 5esi is at third osition follo%ed #y .hums,u- 6ritannia- Colgate-1irma- Coca,Cola and 5arle" 5ersonal care- and soft drinks are the t%o #iggestcategories in FMCG and they account for ! of the to #rands" FMCG industryrovides a %ide range of consuma#les" FMCG sector in India has a strong andcometitive M1Cs resence across the entire value chain as a result of this-investment in FMCG industry is also increasing- seci/cally in India"

7#8ectives of the Study

0nalyze the /nancial statements of #ig FMCG layers in the Indian market"

.o evaluate the erformance of select si9 FMCG stocks"

.o make a regression analysis of the si9 FMCG /rms: caital structure %ith

their ro/ta#ility"

Scoe of the Study

.he scoe of the study has #een limited to the select si9 FMCG stocksNestleIndia, Dabur India, Hindustan Unilever Limited (HUL),Godrej, Procter &Gamble Hyiene and Healt! "are and Indian #obacco "om$any (I#")" .hestudy covers one year eriod from March ' to March '&" .herefore- ite9cludes other comanies and the eriod #efore and after the study eriod"


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Methodology

.he study uses analytical research method" .he study is mainly #ased on the

secondary data and it uses one year data from March ' to March '&"

.he secondary data %as o#tained through internet- magazines- and 8ournals"

;0.0 0104


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Nestl% ''is a S%iss multinational food and #everage comany headAuarteredin Bevey- S%itzerland" It is the largest food comany in the %orld measured #yrevenues"1estlDs relationshi %ith India dates #ack to E'- %hen it #egan tradingas .he 1estl 0nglo,S%iss Condensed Milk Comany (9ort) 4imited- imorting andselling /nished roducts in the Indian market".he Comany insists on honesty-

integrity and fairness in all asects of its #usiness and e9ects the same in itsrelationshis" .his has earned it the trust and resect of every strata of society thatit comes in contact %ith and is ackno%ledged amongst IndiaDs DMost @esectedComaniesD and amongst the D.o +ealth Creators of IndiaD"

P&Gis one of the largest and amongst the fastest gro%ing consumer goodscomanies in India" sta#lished in E*&- 5G India no% serves over * millionconsumers across India" Its resence ans across the 6eauty Grooming segment-the 3ousehold Care segment as %ell as the 3ealth +ell 6eing segment- %ithtrusted #rands that are household names across India" .hese include Bicks- 0riel-

.ide- +hiser- 7lay- Gillette- 0m#iur- 5amers- 5antene- 7ral,6- 3ead Shoulders-+ella and ;uracell" Suerior roduct roositions and technological innovationshave ena#led 5G to achieve market leadershi in a ma8ority of categories it isresent in" 5G India is committed to sustaina#le gro%th in India- and is currentlyinvested in the country via its /ve lants and over nine contract manufacturingsites- as %ell as through the '*- 8o#s it creates directly and indirectly" 5Goerates under three entities in India , t%o listed entities H5rocter Gam#le3ygiene and 3ealth Care 4imited and JGillette India 4imited:- as %ell as one =su#sidiary of the arent comany in the U"S" called J5rocter Gam#le 3ome5roducts:"

#!e Godrej Grou$is an Indian conglomerateheadAuartered in Mum#ai- Maharashtra-India- managed and largely o%ned #y theGodre8 family" It %as founded #y 0rdeshirGodre8 and 5iro8sha Godre8 in ?E2- and oerates in sectors as diverse as real estate-consumer roducts- industrial engineering- aliances- furniture- security and agriculturalroducts"K!LSu#sidiaries and aliated comanies include Godre8 Industries and itssu#sidiaries Godre8 Consumer 5roducts- Godre8 0grovet- and Godre8 5roerties- as %ell as therivate holding comany Godre8 6oyce"

I#" Limitedor I.C is an IndianconglomerateheadAuartered in Nolkata- +est 6engal" Itsdiversi/ed #usiness includes /ve segmentsO Fast Moving Consumer Goods(FMCG)- 3otels-

5aer#oards 5ackaging- 0gro 6usiness Information .echnology" sta#lished in E asthe Imerial .o#acco Comany of India 4imited- the comany %as renamed as the Indian

.o#acco Comany 4imited in E2 and further to I"."C" 4imited in E2&" .he eriods in thename %ere removed in Setem#er ' for the comany to #e renamed as I.C 4td" .hecomany comleted years in 'and as of '',!- had an annual turnover ofUS$?"! #illion and a market caitalizationof US$& #illion" It emloys over '-eole at more than * locations across India and is art of For#es 'list"
http://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Godrej_Group#cite_note-3http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Kolkata,_West_Bengalhttp://en.wikipedia.org/wiki/Fast-moving_consumer_goodshttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Forbes_2000http://en.wikipedia.org/wiki/Mumbai,_Maharashtrahttp://en.wikipedia.org/wiki/Godrej_Group#cite_note-3http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Kolkata,_West_Bengalhttp://en.wikipedia.org/wiki/Fast-moving_consumer_goodshttp://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Forbes_2000http://en.wikipedia.org/wiki/Conglomerate_(company)


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Financial Ney 5erformanceIndicators Used

EPS

Book Value

Dividend payout ratio

Retention Ratio

EBIT Ratio

EAT Ratio

Return on Capital Employed Ratio

Return on Net Assets Ratio

Debt/Euity Ratio

Intrinsi! Value o" S#ares

Parameters o" Risk $

oBeta

o%ACC

o&ro't# in euity


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Gro%th rate in 0nnual Sales

Godrej P&G I#" Dabur HUL Nestle**+ ,!= ,2= 'E= E= = =** ,'= ,= '*= != E= &=**- = '= &= '= != '&=**. '= '= 2= = &?= '&=*/* = 2= '&= E= ,!= E=*// != = &= &= = ''=*/ !*= != E= = '= '=*/0 '= != E= *= 2= =*/1 ,= ''= = '= E= E=

'* '2 '? 'E ' ' '' '! '&

,"!

,"'

,"

"

"'

"!

"&

"

"*

Gro%th rate of 0nnual Sales

Godre8 5G I.C ;a#ur 3U4 1estle


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5S

Godrej P&G I#" Dabur HUL Nestle

**2 15.58 38.39 88.28 5.17 5.44 26.13**+ 14.62 42.98 5.95 3.3 6.4 32.11** 2.65 27.67 7.18 2.92 8.41 32.68

**- 3.33 40.48 8.28 3.67 8.12 42.92

**. 0.58 55.1 8.65 4.32 11.47 55.39

*/* 2.55 55.38 10.64 4.99 10.09 67.94*// 4.2 46.48 6.45 2.71 10.68 84.91*/ 6.35 55.85 7.88 2.66 12.45 99.73

*/0 2.89 62.6 9.39 3.39 17.56 110.76

*/1 3.57 93.04 11.05 3.85 17.88 115.87

' '* '2 '? 'E ' ' '' '! '&

'

&

*

?

'

&

.rend of 5S



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Cost of Caital

Godrej P&G I#" Dabur HUL NestleGodrej P&G I#" Dabur HUL Nestle

Cost of ;e#t ?"!!= "= !"?E= "= = =Cost ofAuity "2E= "&*= "*= "&= "'&= "&*=

+0CC "&'= E= *"&!= "?!= ?= 2"!=

Godre8 5G I.C ;a#ur 3U4 1estle"=

'"=

&"=

*"=

?"=

"=

'"=

&"=

*"=

?"=

Cost of Caital

Cost of ;e#t Cost of Auity +0CC

#rend nalysis3


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@etention @atio

Godrej P&G ITC Dabur HUL Nestle

200577.23 -41.23 54.41 50.28 4.79 7.3

200645.34 6.86 55.96 46.41 14.36 21.97

200741.58 35.71 56.19 49.7 12.2 23.26

200848.1 51.59 55.53 58.01 -17.91 23.83

20090 58.09 56.13 57.36 30.34 23.71

2010-192.53 60.93 3.69 58.69 32.57 30.04

2011-98.99 52.83 28.64 56.53 32.81 43.52

2012 62.9 59.72 41.48 54.82 37 53.03

20134.03 60.07 44.08 55.77 -25.45 57.52

201-46.44 70.45 45.69 54.65 22.74 57.62

' '* '2 '? 'E ' ' '' '! '&

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,'

,

,

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4etention 4atio


#rend nalysis3


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;ividend 3istory

Dividend Payout Ratios

Godrej P&G ITC Dabur HUL Nestle

200525.67 104.19 35.28 48.36 91.92 93.76

200634.19 58.16 44.51 53.05 78.16 77.86

200737.73 72.27 43.19 48.44 71.43 78.02

200837.53 49.4 42.27 40.91 111.7 76.88

2009213.99 40.83 42.79 40.52 65.36 76.72

201058.87 40.62 94.02 40.06 64.39 71.39

201141.65 48.4 69.04 42.46 61.17 57.11

201227.6 40.28 57.09 48.88 60.22 48.63

201360.66 39.93 55.92 44.23 105.35 43.78

201449.05 29.55 54.31 45.4 72.69 41.85

' '* '2 '? 'E ' ' '' '! '&

'

'

Dividend Payout 4atio



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Godre8 5G I.C ;a#ur 3U4 1estle"=

"=

'"=

!"=

&"=

"=

;ividend


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' '* '2 '? 'E ' ' '' '! '&

"'

"&

"*

"?

"'

"&

;P @atio


Nestle(est!)*s a#erage !ong term debt to equit ratio o#er the !ast ten %inan"ia! ears has been 0!00whi"h

indi"ates that the Compan is operating with "o le$el o% debt.

*+(+,*s a#erage !ong term debt equit ratio o#er the ten %inan"ia! ears has been 0!00 times whi"hindi"ates that the Compan operates with lose to 'ero debtand is p!a"ed we!! to withstand e"onomi"

s!owdowns.

DAB+Rabur*s a#erage !ong term debt to equit ratio o#er the !ast ten %inan"ia! ears has been 0!0times whi"h

indi"ates that the Compan operates with lo( le$el o% debtand is p!a"ed we!! to withstand e"onomi"

s!owdowns.

ITC

$/C*s a#erage !ong term debt equit ratio o#er the ten %inan"ia! ears has been 0!01 times whi"hindi"ates that the "ompan operates with e)tre*el+ lo( le$el o% debtand a""ording! is p!a"ed we!! to

withstand e"onomi" s!owdowns

&odre,


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odre Consumers a#erage !ong term debt to equit ratio o#er the !ast ten %inan"ia! ears has been 0!61

times whi"h indi"ates that the Compan operates with o"s,derate le$el o% debt!

P-&ro"ter amb!e*s a#erage !ong term debt to equit ratio o#er the !ast ten %inan"ia! ears has been 0!00times whi"h indi"ates that the Compan operates with 'ero le$el o% debtand is p!a"ed we!! to withstand

e"onomi" s!owdowns.

Sources of Investment

Nestle

$n its !atest sto" e"hange %i!ing dated 31 ar"h 2014& (est!e reported a promoter ho!ding o% 62.76 .

arge promoter ho!ding indi"ates "on#i"tion and sin"erit o% the promoters. 'e be!ie#e that a greater than

35 promoter ho!ding o%%ers sa%et to the retai! in#estors.

t the same time& institutiona! ho!ding in the Compan stood at 18.97 :;$$


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S#are#oldin) .ar!# 010 .ar!# 011 .ar!# 01 .ar!# 012 .ar!# 013

Promoter 750 7577 7570 7536 4857

9IIs 13536 1854 1:532 511 13510

DIIs 13510 1527 10521 6504 351

;t#ers 1:530 18563 18584 18527 13572

$n its !atest sto" e"hange %i!ing dated 31 ar"h 2014& +, reported a promoter ho!ding o% 67.25 .

arge promoter ho!ding indi"ates "on#i"tion and sin"erit o% the promoters. 'e be!ie#e that a greater than

35 promoter ho!ding o%%ers sa%et to the retai! in#estors.



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Promoter 4856 4856 425:8 42571 42521

9IIs 1:536 1:536 7521 65 6531

DIIs 154: 154: 1588 1518 1588

;t#ers 11577 11577 65:7 8510 4571

$n its !atest sto" e"hange %i!ing dated 31 ar"h 2014& odre Consumer reported a promoter ho!ding o%

63.31 . arge promoter ho!ding indi"ates "on#i"tion and sin"erit o% the promoters. 'e be!ie#e that a

greater than 35 promoter ho!ding o%%ers sa%et to the retai! in#estors.



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Imact of Caital Structure on5ro/ta#ility #y regression

7#8ectives of the Study.o study the imact of caital structure on ro/ta#ility shareholders: value ofFMCG comanies"

;ata Collection

Secondary dataO

years 0nnual @eorts of the comanies"

+e#site of Caital 4ine

;ata 0nalysis .ools

017B0(F test)"

Correlation" @egression 0nalysis"

3yothesis

Follo%ing are the hyothesis to #e tested

Ho/Q .here is no signi/cant deendence of 5S on de#t,eAuity ratio of I.C"

HoQ is no signi/cant deendence of 5S on de#t,eAuity ratio of 3U4 Ho0Q is no signi/cant deendence of 5S on de#t,eAuity ratio of ;a#ur

Ho1Q is no signi/cant deendence of 5S on de#t,eAuity ratio of 1estle

Ho2Q is no signi/cant deendence of 5S on de#t,eAuity ratio of Godre8

.


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Capital Structure Theories

/' #raditional $$roac!

.he main roositions of the traditional aroach areO

.he cost of de#t caital- remains more or less constant u to a certain degree

of leverage #ut rises thereafter at an increasing rate" .he cost of eAuity caital- remains more or less constant or rises only

gradually u to a certain degree of leverage and rise sharly thereafter" .he average cost of caital- as a conseAuence of the a#ove #ehaviour of cost

of eAuity and cost of de#t- (i) decreases u to a certain ointR (ii) remains

more of less unchanged for moderate increases in leverage thereafterR and

(iii) rises #eyond a certain oint"

.he rincial imlication of the traditional osition is that the cost of caital is

deendent on the CS and there is an otimal CS %hich minimises the cost of caital"Staking and 6a##el (E) /ndings also suorts this aroach as their result sho%that the market value of eAuity at /rst gro%s #ut then later declines as leverageincreases"


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'5odiliani65iller Pro$osition

Modigliani and Miller (MM)- in their original roosition advocated that the

relationshi #et%een leverage and the cost of caital is e9lained #y the net

oerating income aroach" .hey make a formida#le attack on the traditional

osition #y oering #ehavioural 8usti/cation for having the cost of caital- r0-remain constant throughout all degrees of leverage"

.he theory assumed a erfect caital market %here there is no ro#lem ofasymmetric informationO there are no transaction costsR no #ankrutcy cost and thesecurities are in/nitely divisi#le" Managers act in the interest of shareholders andthe /rms can #e groued into eAuivalent risk classes on the #asis of their #usinessriskR and they assumed that there is no ta9"

In their roosition I they considered the value of the /rm to #e indeendent of its

Caital Structure(CS)" .his roosition %as more or less similar to that of the net

oerating income aroach" .hey vie%ed the value of a /rm as a function of

e9ected oerating income divided #y the discount rate aroriate to its risk class-and roved that the average cost of caital %ithin a given class is indeendent of

the degree of leverage"

.he roosition II held that /nancial leverage increases to e9ected earnings er

share (5S) %hile the share rice remains constant" .his is #ecause the change in

the e9ected earnings is oset #y a corresonding change in the return reAuired #y

the shareholders"

.heir roosition III made an attemt to develo the .heory of Investment- %hereinthey concluded that an investment /nanced #y common stock is advantageous to

the current stockholders if and only if its yield e9ceeds the caitalization rate" +hena cororate income ta9- under %hich interest is a deducti#le e9ense- is considered-gain can accrue to stockholders from having de#t in the CS- even %hen caitalmarkets are erfect"

5erton 5iller rument

Merton Miller argued that the original MM roosition- %hich says that /nancialleverage does not matter in a ta9 free %orld- is valid in a %orld %here #othcororate and ersonal ta9es e9ist" 3e stated that changes in CS have no eect on

the /rm:s total valuation" .his osition is the same as Modigliani,miller:s originalroosition in a %orld of no ta9es- #ut it contrasts sharly %ith their EE cororateta9 ad8ustment article- in %hich they found that de#t had su#stantial advantage-comanies %ill issue de#t till the ta9 rate for the marginal #ondholder- td - is thesame as the cororate ta9 rate- tc" 6eyond this oint- there is no ta9 advantage tocomanies from issuing de#t" Miller:s eAuili#rium has the ersonal ta9 eectentirely osetting the cororate ta9 advantage" 0ccordingly- his model imlies thatat the margin- the ersonal ta9 rate on de#t income- td- must eAual the cororate


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ta9 rate- tc" +hen td Q tc changes in the roortion of de#t in the CS do notchange the total after,ta9 income to investor" 0s a result- CS decisions #y thecororation %ould #e irrelevant"

#rade6o7 #!eory

.he term trade,o theory is used #y dierent authors to descri#e a family of relatedtheories" Management running a /rm evaluates the various costs and #ene/ts ofalternative leverage lans and strives to #ring a trade,o #et%een them" 7ften it isassumed that an interior solution is o#tained so that marginal costs and marginal#ene/ts are #alanced" .hus- trade,o theory- imlies that comany:s CS decisioninvolves a trade,o #et%een the ta9 #ene/ts of de#t /nancing and the costs of/nancial distress" +hen /rms ad8ust their CS- they tend to move to%ard a targetde#t ratio that is consistent %ith theories #ased on tradeos #et%een the costs and

#ene/ts of de#t" 3ovakimian- 7ler- and .itman (') emirical %ork- e9licitlyaccount for the fact that /rms may face imediments to movements to%ard theirtarget ratio- and that the target ratio may change over time as the /rmDsro/ta#ility (5) and stock rice change"

tatic #rade6o7 #!eory

In a static trade,o frame%ork the /rm is vie%ed as setting a target de#t to valueratio and gradually moving to%ards it (Myers E?&)" .he theory says that every /rmhas an otimal de#tTeAuity ratio that ma9imizes its value" .he theory arms that/rms have otimal CSs- %hich they determine #y trading o the costs against the#ene/ts of the use of de#t and eAuity" .he #ene/ts from de#t ta9 shield are thusad8usted against cost of /nancial distress" 0gency cost- informational asymmetryand transaction cost are some of the other costs to #e mitigated" .he theoryredicts that an otimal target /nancial de#t ratio e9ists- %hich ma9imizes thevalue of the /rm" .he otimal oint can #e attained %hen the marginal value of the#ene/ts associated %ith de#t issues e9actly osets the increase in the resentvalue of the costs associated %ith issuing more de#t (Myers ')"

Dynamic #rade6o7 #!eory

Imlementing the role of time is very signi/cant in identifying the otimal CS" In adynamic model- the correct /nancing decision tyically deends on the /nancing

margin that the /rm anticiates in the ne9t eriod" Some /rms e9ect to ay outfunds in the ne9t eriod- %hile others e9ect to raise funds" Stiglitz (E2') took thedrastic ste of assuming a%ay uncertainty" .he /rst dynamic models to consider theta9 savings versus #ankrutcy cost trade,o are Nane- Marcus- and Mac;onald(E?&) and 6rennan and Sch%artz (E?&)" .heir models took into considerationOuncertainty- ta9es- and #ankrutcy costs- #ut no transaction costs" .hese /rmsmaintain high levels of de#t to take advantage of the ta9 savings and to ad8ust toshocks %ithout any cost as there is no transaction cost" Stre#ulaev ('2) analyzed


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a model Auite similar to that of Fischer- 3einkel- and echner (E?E) and Goldstein-Vu- and 4eland (')" 0gain- if /rms otimally /nance only eriodically #ecause oftransaction costs- then the de#t ratios of most /rms %ill deviate from the otimummost of the time" In the model- the /rmDs leverage resonds less to short,run eAuityWuctuations and more to long,run value changes"

87ects o9 :an;ru$tcy "ost

0nother imortant imerfection aecting CS decision is the resence of #ankrutcycost" +hen a /rm is una#le to meet its o#ligations it results in /nancial distress thatcan lead to #ankrutcy #ecause a ma8or contri#utor to /nancial distress is de#t" .hegreater the level of de#t- the larger the de#t servicing #urden associated %ith it- thehigher the ro#a#ility of /nancial distress" If there is a ossi#ility of #ankrutcy- andif administrative and other costs associated %ith #ankrutcy are signi/cant- thelevered /rm may #e less attractive to investors than that of the unlevered one" 0s aresult- the investors are likely to enalize the rice of the stock as leverageincreases"

9ected #ankrutcy cost rise %hen 5ro/t- 5 declines- and the threat of this costushes less ro/ta#le /rms to%ard lo%er leverage targets" Similarly- e9ected#ankrutcy cost is higher for /rms %ith more volatile earnings- %hich should drivesmaller- less,diversi/ed /rms to%ard fe%er targets leverage" .a9es have t%oosetting eects on otimal CS" .he deducti#ility of cororate interest aymentsushes /rms to%ard more target leverage- %hile the higher ersonal ta9 rate onde#t- relative to eAuity- ushes them to%ard less leverage" 6a9ter (E*2) used theconcet of #ankrutcy costs to argue for the e9istence of an otimal caitalstructure" 9ected #ankrutcy cost deends on the cost of #ankrutcy (eg"- legal

fees- loss of sales- emloyees and suliers) and the ro#a#ility of occurrence"Increased de#t /nancing %ill increase the ro#a#ility of #ankrutcy and %ill in turnincrease e9ected #ankrutcy costs" .he otimal de#t ratio is reached %hen themarginal ta9 savings from de#t /nancing is eAual to the marginal loss frome9ected #ankrutcy costs"

ency "osts

Vensen and Meckling (E2*) ut for%ard the concet of agency costs" .here is anagency relationshi #et%een the shareholders and creditors of /rms that have

su#stantial amounts of de#t" In such /rms shareholders have little incentive to limitlosses in the event of a #ankrutcy" 0gency theory recognizes that the interests ofmanagers and shareholders may conWict and that- left on their o%n- managers maymake ma8or /nancial olicy decisions- such as the choice of a CS- that aresu#otimal from the shareholdersD standoint" .he theory also suggests- ho%ever-that comensation contracts- managerial eAuity investment- and monitoring #y the#oard of directors and ma8or shareholders can reduce conWicts of interest #et%eenmanagers and shareholders Mehran (EE')" It is also suggested that CS models that


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ignore agency costs are incomlete" ;e#t /nancing is another crucial factor thatlimits the free cash Wo% availa#le to managers and there#y hels to control thisagency ro#lem Vensen and Meckling

inallin #!eory

.he ioneering study of ;onaldson (E*) e9amined ho% comanies actually

esta#lish their CS"

Firms refer to rely on internal accruals- that is- on retained earnings and

dereciation cash Wo%" 9ected future investment oortunities and e9ected future cash Wo%s

inWuence target dividend ayout ratios" Firms set the target ayout ratios at

such a level that caital e9enditures- under normal circumstances are

covered #y internal accruals"

;ividends tend to #e sticky in the short run" ;ividends are raised only %henthe /rm is con/dent that the higher dividend can #e maintainedR dividends

are not lo%ered unless things are very #ad" If a /rm:s internal accruals e9ceed its caital e9enditure reAuirements- it %ill

invest in marketa#le securities- retire de#t- raise dividend- and resort to

acAuisitions or #uy#ack its shares" If a /rm:s internal accruals are less than its non,ostona#le caital

e9enditures- it %ill /rst dra% do%n its marketa#le securities ortfolio and

then seek e9ternal /nance" +hen it resorts to e9ternal /nance- it %ill /rst

issue de#t- then converti#le de#t- and /nally eAuity stock- thus- there is a

ecking order of /nancing"


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;0.0 0104


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Findings:Coefficient of Debt-Equity is insignificant at #2 l.o.s therefore 3e can conclude on

the basis of last 1! year data that DE in case of ITC doesn4t affect it EPS.

Ho2= There is no significant dependence of EPS on debt-equity ratio of 567

Correlation Coefficient

EPS D/E

EPS 1

DE

!.#%))&!"

& 1

Regression Statistics

'ultiple ( !.#%)

( Square !.$

+d,usted (

Square !.)*!$

Standard

Error &."!"%

bserations 1!.!!!!

+/0+

df SS MS F

Significan

ce F

(egression 1 #".$!

#".$

! $.&$ !.!*

(esidual 1!$.!

1&.!

1

Total % 1"!.$*


25/28

Coefficient

s

Standard

Error

t

Stat

P-

valu

e

Lower

95%

!!er

95%

Intercept %."%* 1.)"

*."$

!.!!

! ".**& 1).")1

DE 11.$1$ #.$)).!

)!.!*

1 -1.)) )$.!#"


the basis of last 1! year data that DE in case of 567 doesn4t affect it EPS.

Ho3=There is no significant dependence of EPS on debt-equity ratio of Dabur


EPS D/E

EPS 1

DE

-

!.!"#)%))

% 1


'ultiple ( !.!"#

( Square !.!!$*

+d,usted (

Square -!.11%*

Standard Error !.%$&

bserations 1!.!!!!

+/0+

df SS MS F

Significanc

e F

(egression 1.!!! !.!&$

!.!&

$ !.!& !.#1


26/28

(esidual .!!! *.1)#

!.%

1

Total %.!!! *.1#%

CoefficientsStandardError t Stat

P-value Lower 95%

!!er95%

Intercept &.*% !.#* "."& !.!! ).$* #.11

DE -!.* $.!$ -!.1% !.# -1!.!% .#)


the basis of last 1! year data that DE in case of Dabur doesn4t affect it4s EPS.

Ho4= There is no significant dependence of EPS on debt-equity ratio of /estle


EPS D/E

EPS 1

DE !.** 1


'ultiple ( !.**

( Square !."1&%

+d,usted (

Square !.#"#*)

Standard Error )).$&&&

bserations 1!.!!!!!

+/0+

df SS MS F

Significance

F

(egression 1 "$&).!$$ "$&).!$$ 1).*)$ !.!!*

(esidual $!$$.!!) #!#.#!!

Total % 1!$*".!$"


27/28

Coefficients

Standard

Error t Stat

P-

value Lower 95%

!!er

95%

Intercept $%.))! ."# #."# !.!!! )%.)## "%.1"

DE %!.&* )#.&&* &.#"* !.!!* &1.%#) 1$.!$

Findings:The alue of 8 significant is less than !.!# so there is re,ection of null hypothesis.

Therefore there is a significant i9pact of DE on EPS of /estle.

Ho5= There is no significant dependence of EPS on debt-equity ratio of :odre,


EPS D/E

EPS 1

DE !.&!%1!"%" 1


'ultiple ( !.&!%

( Square !.!%#$

+d,usted ( Square -!.!1*"

Standard Error #.)$#!

bserations 1!.!!!!

+/0+

df SS MS F

Significance

F


28/28

Date post:	02-Jun-2018
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