A

Summer Training Report

On
“TO STUDYING THE EFFECT OF CAPITAL STRUCTURE ON
PROFITABILITY RATIO AT PEPSICO”

Submitted to:

Kurukshetra University, Kurukshetra

In the partial fulfillment of the Degree of Master of Business Administration
(Session 2018-20)

Submitted To: Submitted by:

Kurukshetra University Sudarshan Thaper
Kurukshetra MBA 3rd Semester
Univ. Roll No………….

SETH JAI PRAKASH MUKAND LAL INSTITUTE

OF ENGINEERING AND TECHNOLOGY
(Approved by AICTE, Affiliated to Kurukshetra University, Kurukshetra)

1
 DECLARATION

I, Sudarshan Thaper, Roll no. 201852, MBA (Semester III) of the Seth Jai Parkash
Mukand Lal Institute of Management and Technology, hereby declared that the training
Project entitled “To Studying The Effect Of Capital Structure On Profitability Ratio At
Pepsico” prepared by me and submitted in partial fulfillment of the requirement for the
degree of Master of Business Administration from Kurukshetra University.

This work done by me and the information provided in the study is authentic to the best
of any knowledge. This study has not been submitted to any other instruction or university
for the award of any other degree.

(Sudarshan Thaper)

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 SETH JAI PARKASH MUKAND LAL INSTITUTE OF
ENGINEERING & TECHNOLOGY

A SELF FINANCED ISO 9001:2008 CERTIFIED INSTITUTE

(APPROVED BY AICTE& AFFILIATED TO KURUKSHETRA UNIVERSITY,

KURUKSHETRA)

(CHHOTA BAANS), RADAUR – 135133 (YAMUNANAGAR)

// TO WHOM SO EVER IT MAY CONCERN//

This is to certify that Sudarshan Thaper S/o Mr. Krishan Lal bearing Roll No.
………………….. University Registration No. and class Roll No. 201852 a
bonafide student of MBA (4th semester), has completed his work on Training Project
entitled “To Studying The Effect Of Capital Structure On Profitability Ratio At
Pepsico” under my supervision.
His work is original, satisfactory and fit for the purpose of further evaluation towards the
partial fulfillment for the award to the degree of Master‟s Business Administration.

Ms. Anuja Goel Mr.Parmod Kamboj

Head (Assistant Professor)
Department of Management MBA Department

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 ACKNOWLEGEMENT

With immense pleasure I acknowledgement my gratitude to all persons whose guidance

have helped me in carrying out this project work.

I take this opportunity to express my profound sense of sincere and deep gratitude to
Mr. Parmod Kamboj my mentor his constant supervision and above all extraordinary
encouragement during the entire course of the project.

It is my proud privilege to express my profound gratitude to the Head of Department

Ms. Anuja Goel (H.O.D.) and the entire faculty of department, Seth Jai Prakash Mukand
Lal Institute of Management And Technology and teachers of department for providing me
with opportunity to avail the excellent facilities and infrastructure. The Knowledge and
values inculcated have proved to be of immense help at very start of my career.

I would like to express my gratitude to all my friends for their invaluable support and co-
operation during the course of the project.

Last but not the least I would express my gratitude to all the members of JMIT from
whom I got all the necessary help whenever required.

(Sudarshan Thaper)

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 PREFACE
In order to achieve positive and concrete result with theoretical concept the exposure to
real life situations existing in corporate world is very much needed. In today‟s scenario the
practical knowledge in education especially in professional course is very essential.

Final project in MBA course and study content of such as practical knowledge it makes
the student confident and introduce them about their ability.

I am interested in Finance so I have done my final project on topic – “To Studying The
Effect Of Capital Structure On Profitability Ratio At Pepsico”

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 CONTENTS

Sr. NO. Particulars Page No.

Declaration
Certificate
Acknowledgement
INTRODUCTION
Chapter – 1 1.1 Introduction the Industry
1.2 Introduction to the Company
1.3 Introduction to the Topic

Chapter – 2 Literature Review

Chapter – 3 Research Methodology

3.1 Objectives
3.2 Research Design
3.3 Data Source

Chapter – 4 Data analysis and Interpretation

Chapter – 5 5.1 Findings of Study

5.2 Suggestions
5.3 Limitations of Study
5.4 Conclusion

Chapter – 6 Annexure
Bibliography
Questionnaire

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INDUSTRY PROFILE

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 INTRODUCTION TO INDUSTRY

The Indian FMCG sector is the fourth largest sector in the economy with a total market
size in excess of US 13.1$ billion. It has a strong MNC presence and is characterized by a
well-established distribution network, intense competition between the organized and
unorganized segments and low operational cost. Availability of key raw materials, cheaper labor
costs and presence across the entire value chain gives India a competitive advantage. The
FMCG market is set to tremble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015.
Penetration level as well as per capita consumption in most product categories like jams,
toothpaste, Beverages, skin care, hair wash etc in India is low indicating the untapped market
potential. Burgeoning Indian population, particularly the middle class and the rural segments,
presents an opportunity to makers of branded products to convert consumers to branded
products. Growth is also likely to come from consumer 'upgrading' in the matured product
categories. With 200 million people expected to shift to processed and packaged food by
2010, India needs around US$ 28 billion of investment in the food-processing industry.

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 OVERVIEW OF THE INDUSTRY

THE FMCG INDUSTRY IN INDIA:

Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods
(CPG) is products that have a quick turnover and relatively low cost. Consumers generally
put less thought into the purchase of FMCG than they do for other products.
The Indian FMCG industry witnessed significant changes through the 1990s. Many
players had been facing severe problems on account of increased competition from small
and regional players and from slow growth across its various product categories. As a result,
most of the companies were forced to revamp their product, marketing, distribution and
customer service strategies to strengthen their position in the market.
By the turn of the 20th century, the face of the Indian FMCG industry had changed
significantly. With the liberalization and growth of the Indian economy, the Indian customer
witnessed an increasing exposure to new domestic and foreign products through different
media, such as television and the Internet. Apart from this, social changes such as increase
in the number of nuclear families and the growing number of working couples resulting in
increased spending power also contributed to the increase in the Indian consumers' personal
consumption companies to formulate customer. These changes had a positive impact,
leading to the rapid growth in the FMCG industry. Increased availability of retail space,
rapid urbanization, and qualified manpower also boosted the growth of the organized
retailing sector.
HLL led the way in revolutionizing the product, market, distribution and service formats
of the FMCG industry by focusing on rural markets, direct distribution, creating new
product, distribution and service formats. Unlike other economy sectors, FMCG share float
in a steady manner irrespective of global market dip, because they generally satisfy rather
fundamental, as opposed to luxurious needs. The FMCG sector, which is growing at the rate
of 9%, is the fourth largest sector in the Indian Economy. The main contributor, making up
32% of the sector, is the South Indian region. It is predicted that in the year 2011, the
FMCG sector will be worth Rs.143000 crores. The sector being one of the biggest sectors of
the Indian Economy provides up to 4 million jobs.
The FMCG sector consists of the following categories:

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Personal Care- Oral care, Hair care, Wash (Soaps), Cosmetics and Toiletries,
Deodorants and Perfumes, Paper products (Tissues, Diapers, Sanitary products) and
Shoe care.
Household Care- Fabric wash (Laundry soaps and synthetic detergents), Household
cleaners (Dish/Utensil/Floor/Toilet cleaners), Air fresheners, Metal polish and
Furniture polish.
Branded and Packaged foods and Beverages- Health beverages, Soft drinks,
Staples/Cereals, Bakery products, Snack foods, Chocolates, Ice-creams, Tea, Coffee,
Processed vegetables, Processed meat, Branded flour, Branded rice, Branded sugar
Spirits and Tobacco; the major players being; ITC, Godfrey, Philips and UB.

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 BEVERAGE INDUSTRY IN INDIA

In India, beverages form an important part of the lives of people. It is an industry, in

which the players constantly innovate, in order to come up with better products to gain more
consumers and satisfy the existing consumers. The beverage industry is vast and there
various ways of segmenting it, so as to cater the right product to the right person. The
different ways of segmenting it are as follows:
Alcoholic, non-alcoholic and sports beverages
Natural and Synthetic beverages
In-home consumption and out of home on premises consumption.

BEVERAGES

Alcoholic Non-Alcoholic

Carbonated Non-Carbonated

Cola Non-Cola Non-Cola

BEVERAGE INDUSTRY IN INDIA

Age wise segmentation i.e. beverages for kids, for adults and for senior citizens
Segmentation based on the amount of consumption i.e. high levels of consumption
and low levels of consumption.
If the behavioral patterns of consumers in India are closely noticed, it could be observed
that consumers perceive beverages in two different ways i.e. beverages are a luxury and that
beverages have to be consumed occasionally. These two perceptions are the biggest
challenges faced by the beverage industry. In order to leverage the beverage industry, it is

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important to address this issue so as to encourage regular consumption as well as and to
make the industry more affordable.
Four strong strategic elements to increase consumption of the products of the beverage
industry in India are:
The quality and the consistency of beverages needs to be enhanced so that
consumers are satisfied and they enjoy consuming beverages.
The credibility and trust needs to be built so that there is a very strong and safe
feeling that the consumers have while consuming the beverages.
Consumer education is a must to bring out benefits of beverage consumption
whether in terms of health, taste, relaxation, stimulation, refreshment, well-being or
prestige relevant to the category.
Communication should be relevant and trendy so that consumers are able to find an
appeal to go out, purchase and consume.
The beverage market has still to achieve greater penetration and also a wider spread of
distribution. It is important to look at the entire beverage market, as a big opportunity, for
brand and sales growth in turn to add up to the overall growth of the food and beverage
industry in the economy.

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COMPANY PROFILE

13
 COMPANY PROFILE
PepsiCo COMPANY
Introduction:

PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana
was acquired in 1998 and PepsiCo merged with the Quaker Oats Company, including
Gatorade, in 2001.
PepsiCo, Inc. founded by Donald M. Kendall, President and Chief Executive Officer of
Pepsi-Cola and Herman W. Lay, Chairman and Chief Executive Officer of Frito-Lay,
through the merger of the two companies.
Pepsi-Cola was created in the late 1890s by Caleb Bradham, a New Bern, N.C.
pharmacist.
Frito-Lay, Inc. was formed by the 1961 merger of the Frito Company, founded by Elmer
Doolin in 1932, and the H. W. Lay Company, founded by Herman W.Lay, also in 1932.
Herman Lay is chairman of the Board of Directors of the new company; Donald M.
Kendall is president and chief executive officer. The new company in that year reports
sales of $510 million and has 19,000 employees.
ABOUT THE COMPANY
PepsiCo entered India in 1989 and has grown to become one of the largest food and
beverage businesses in India.
With an investment of over $1 billion, PepsiCo India has built an expansive beverage and
snack food business supported by 38 Bottling plants and 3 Foods plants.
PepsiCo India‟s extensive portfolio includes iconic brands like Pepsi, Lay‟s, Kurkure,
Tropicana 100%, Gatorade, Quaker, and fast growing brands i.e. Nimbooz and Aliva.
PepsiCo India is driven by its global commitment to sustainable growth, Performance
with Purpose, which works on four planks of replenishing water, partnering with farmers,
waste to wealth and healthy kids.
In 2009, PepsiCo India achieved a significant milestone, by becoming the first business to
achieve „Positive Water Balance‟ in the beverage world. In 2010, PepsiCo India gave
back 4 billion litres more water than what it consumed, a fact verified by Deloitte Touché
Tohmatsu India Pvt. Ltd.

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PepsiCo Asia, Middle East & Africa (“AMEA”) makes, markets and sells a number of
leading snack food brands including Lay‟s, Kurkure, Chipsy, Doritos, Smith‟s, Cheetos,
Red Rock Deli and Ruffles, through consolidated businesses as well as through
noncontrolled affiliates.
Further, either independently or through contract manufacturers, AMEA makes, markets
and sells many Quaker-brand cereals and snacks. AMEA also makes, markets and sells
beverage concentrates, fountain syrups and finished goods, under various beverage brands
including Pepsi, Mirinda, 7UP and Mountain Dew. These brands are sold to authorized
bottlers, independent distributors and retailers.
However, in certain markets, AMEA operates its own bottling plants and distribution
facilities. In addition, AMEA licenses the Aquafina water brand to certain of its
authorized bottlers. AMEA also, either independently or through contract manufacturers,
makes, markets and sells ready-to-drink tea products through an international joint
venture with Unilever (under the Lipton brand name).

Our Mission and Vision

At PepsiCo, we believe being a responsible corporate citizen is not only the right thing to
do, but the right thing to do for our business.

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Our Mission

Our mission is to be the world's premier consumer Products Company focused on

convenient foods and beverages. We seek to produce financial rewards to investors even
as we provide opportunities for growth and enrichment to our employees, our business
partners and the communities in which we operate. And in everything we do, we strive
for honesty, fairness and integrity.

Our Vision

PepsiCo's responsibility is to continually improve all aspects of the world in which we

operate – environmental, social, economic – creating a better tomorrow than today.

Our vision is put into action through programmes and a focus on environmental
stewardship, activities to benefit society and a commitment to build shareholder value by
making PepsiCo a truly sustainable company.

Performance with Purpose

At PepsiCo, we're committed to achieving business and financial success while leaving a
positive imprint on society – delivering what we call Performance with Purpose.

Our approach to superior financial performance is straightforward – drive shareholder

value. By addressing social and environmental issues, we also deliver on our purpose
agenda, which consists of human, environmental, and talent sustainability.

PepsiCo Values & Philosophy

Our values and philosophy are a reflection of the socially and environmentally
responsible company we aspire to be. They are the foundation for every business decision
we make.

Our Commitment

We are committed to delivering sustained growth through empowered people acting

responsibly and building trust.

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What it means

Sustained Growth is fundamental to motivating and measuring our success. Our quest
for sustained growth stimulates innovation, places a value on results and helps us
understand whether today's actions will contribute to our future. It is about the growth of
people and company performance. It prioritizes both making a difference and getting
things done.

Empowered People means we have the freedom to act and think in ways that we feel
will get the job done, while adhering to processes that ensure proper governance and
being mindful of company needs beyond our own.

Responsibility and Trust form the foundation for healthy growth. We hold ourselves
both personally and corporately accountable for everything we do. We earn the
confidence others place in us as individuals and as a company. By acting as good
stewards of the resources entrusted to us, we strengthen that trust by delivering on our
promises and remaining committed to succeeding together.

Guiding Principles

We uphold our commitment with six guiding principles. We must always strive to:

1. Care for our customers, our consumers and the world we live in.
We are driven by the competitive spirit of the marketplace, but we direct this spirit toward
solutions that benefit both our company and our constituents. Our success depends on a
thorough understanding of our customers, consumers and communities. To foster this
spirit of generosity, we go the extra mile to show we care.

2. Sell only products we can be proud of.

The true test of our standards is that we are able, without reservation, to consume and
personally endorse the products we sell. Our absolute endorsement extends to every part
of the business, from the purchase of ingredients to the point where our products reach
consumers.

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3. Speak with truth and candour.
We tell the whole story, not just what is convenient to our individual goals. In addition to
being clear, honest and accurate, we take responsibility for ensuring that our
communications are understood.

4. Balance the short term and long term.

In every decision, we weigh both short-term and long-term risks and benefits.
Maintaining this balance helps sustain our growth and ensures that our ideas and solutions
are relevant both now and in the future.

5. Win with diversity and inclusion.

We embrace people with diverse backgrounds, traits and ways of thinking. Our diversity
brings new perspectives into the workplace and encourages innovation, helps us identify
new market opportunities, develop new products and sustain our commitment to growth
through empowered people.

6. Respect others and succeed together.

We depend on people who can work together, whether in structured teams or through
informal collaboration. Mutual success depends on mutual respect, for both those within
and outside the company. While our company is built on individual excellence, the value
we attach to teamwork and mutual respect turns our goals into accomplishments.

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PEPSICO INDIA- STRUCTURE

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 PepsiCo India Beverages

Beverages

PepsiCo India‟s expansive portfolio includes iconic refreshment beverages Pepsi, 7UP,
Nimbooz, Mirinda, Slice and Mountain Dew, in addition to low-calorie options such as
Diet Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic
sports drink Gatorade and fruit juices such as Tropicana and Tropicana Twister.
Pepsi
7UP
Gatorade
Mountain Dew
Nimbooz
Slice
Tropicana
Mirinda
Aquafina

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PepsiCo India Foods

Foods

PepsiCo‟s foods division Frito-Lay is the leader in the branded salty snack market. All its
products are free of trans-fat and MSG.
It manufactures Lay‟s potato chips, Cheetos extruded snacks, Uncle Chipps and
traditional snacks under the Kurkure and Lehar brands.
The company‟s high-fibre breakfast cereal, Quaker Oats and low-fat and roasted snack
options like Aliva increase the number of healthy choices available to consumers.
Kurkure
Lay‟s
Lehar Namkeen
Quaker Oats
Uncle Chips
Aliva
NourishCo

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NourishCo is a joint venture between Tata Global Beverages Limited and PepsiCo India
Holdings Private Limited which aims to provide meaningful hydration solutions in the
non-carbonated, ready-to-drink beverages segment in India and around the world.
NourishCo will be keenly focused on enhancing the hydration category in India. The
portfolio includes 3 Products which straddle the Top & Bottom End of the Pyramid in the
Beverages space:
•Tata Gluco Plus, a glucose based drink in an affordable cup format

• Himalayan Natural Mineral Water, pristine source water and

•Tata Water Plus, Nutrient Water, an innovative product that seeks to provide essential
micronutrients. NourishCo has built an expansive pipeline of innovations that will be
used to fuel growth and create newer hydration solutions. It has a vision for growth and
has tremendous potential with „good for you‟ products.

Lehar Business

PepsiCo created an arm of its Foods business to compete with un-organised, low price
segment market.

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INTRODUCTION TO TOPIC

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 INTRODUCTION OF CAPITAL STRUCTURE

Finance is a important input for any type of business and is needed for working capital
and for permanent investment. The total funds employed in a business are obtained from
various sources. A part of the funds are brought in by the owners and the rest is borrowed
from others-individuals and institutions. While some of the funds are permanently held in
business, such as share capital and reserves (owned funds), some others are held for a long
period such as long-term borrowings or debentures, and still some other funds are in the
nature of short-term borrowings: The entire composition of these funds constitute the overall
financial structure of the firm. You are aware that short-term funds keep on shifting quite
often. As such the proportion of various sources for short-term funds cannot perhaps be
rigidly laid down. The firm has to follow a flexible approach. A more definite policy is often
laid down for the composition of long-term funds, known as capital structure. More
significant aspects of the policy are the debt equity ratio and the dividend decision. The
latter affects the building up of retained earnings which is an important component of long-
term owned funds. Since the permanent or long-term funds often occupy a large portion of
total funds and involve long-term policy decision, the term financial structure is often used
to mean the capital structure of the firm.

There are certain sources of long-term funds which are generally available to the
corporate enterprises. The main sources are: share capital (owners' funds) and long-term debt
including debentures (creditors' funds). The profit earned from operations are owners' funds-
which may be retained in the business or distributed to the owners (shareholders) as
dividend. The portion of profits retained in the business is a rein-vestment of owners' funds.
Hence, it is also a source of long-term funds. All these sources together are the main
constituents of the capital of the business, that is, its capital structure.
Capital structure

The combination of a company's long-term debt, specific short-term debt, common

equity, and preferred equity; the capital structure is the firm's various sources of funds used
to finance its overall operations and growth. Debt comes in the form of bond issues or long-
term notes payable, whereas equity is classified as common stock, preferred stock, or
retained earnings. Short-term debt such as working capital requirements also is considered
part of the capital structure.

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 This lecture will explore the determinants of the mix of debt and equity the firm uses to
finance its operations We will first explore the situations under which capital structure is
irrelevant to a firms operations. Examining these situations will allow us to explore how the
following factors influence the mix of debt and equity a firm uses to finance its operations.

• TAXES
• RISK
• FINANCIAL SLACK
• ASSET CHARACTERISTIC
• COSTS OF FINANCIAL DISTRESS.

Capital Structure is referred to as the ratio of different kinds of securities raised by a firm
as long-term finance. The capital structure involves two decisions-

Type of securities to be issued are equity shares, preference shares and long term
borrowings (Debentures).
Relative ratio of securities can be determined by process of capital gearing. On
this basis, the companies are divided into two-

Highly geared companies- Those companies whose proportion of equity

capitalization is small.
Low geared companies- Those companies whose equity capital dominates total
capitalization.

For instance - There are two companies A and B. Total capitalization amounts to
be Rs. 20 lakh in each case. The ratio of equity capital to total capitalization in
company A is Rs. 5 lakh, while in company B, ratio of equity capital is Rs. 15 lakh to
total capitalization

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 SWOT ANALYSIS

Strengths –
Internal attributes and resources that support a successful outcome.
WEAKNESS:
The company needs to evolve a comprehensive plan & make strategy to
inroads into a part of middle class & upper middle class.
Lack of production centres in India makes the product costlier as most of the parts
have to be imported.
Lack of R & D centres also makes it difficult to launch new products over here.
OPPORTUNITIES:
The present rate of growth of the Information and technology Industry & a large
potential available in these areas provides excellent opportunity for the company
to widen its market.
With the fast growing economy the pricing strategy needs to be tackled with care
as it can decide upon long term decisions of the company.
Globalization is yet another opportunity, if followed effectively & promptly.
THREATS:
It is natural that threats from the existing as well as new entrants will affect
the present turnover & Market share. The nearest competitors having the identical product
range are the greatest threat to the company.

QUESTIONS WHILE MAKING FINANCIAL DECISION

How should the investment project be financed

Does the way in which the investment projects are financed matter?
How does financing affect the shareholders risk return and value?
Does the exits an optimum financing mix in terms of the maximum value to the
firm‟s shareholders?
Can the optimum financing mix be determined in practise for a company?
What factors in practise should a company consider in designing its financing
policy?

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 FORMS OF CAPITAL STRUCTURE

Complete equity share capital.

Different proportions of equity and preference share capital
Different proportions of equity and debt capital
Different proportions of equity, preference and debt capital.

In Financial Management book, you would read the topic theories of capital structure.
Here, I have made these theories simplified. I hope, you can study these theories here and
use these theories as reference.

We all know that capital structure is combination of sources of funds in which we can
include two main sources' proportion. One is share capital and other is Debt. All four
theories are just explaining the effect of changing the proportion of these sources on the
overall cost of capital and total value of firm.

If I have to write theories of capital structure in very few lines, I will only say that it
propounds or presents the effect on overall cost of capital and market or total value of firm,
if I change my capital structure from 50: 50 to any other proportion. First 50 represent the
share capital and second 50 represent the Debt. Now, I am ready to explain these four
theories of capital structure in simple and clean words.

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 1st Theory of Capital Structure
Name of Theory = Net Income Theory of Capital Structure
This theory gives the idea for increasing market value of firm and decreasing overall cost
of capital. A firm can choose a degree of capital structure in which debt is more than equity
share capital. It will be helpful to increase the market value of firm and decrease the value of
overall cost of capital. Debt is cheap source of finance because its interest is deductible from
net profit before taxes. After deduction of interest company has to pay less tax and thus, it
will decrease the weighted average cost of capital.
For example if you have equity debt mix is 50:50 but if you increase it as 20: 80, it will
increase the market value of firm and its positive effect on the value of per share.

High debt content mixture of equity debt mix ratio is also called financial leverage.
Increasing of financial leverage will be helpful to for maximize the firm's value.

2nd Theory of Capital Structure

Name of Theory = Net Operating income Theory of Capital Structure
Net operating income theory or approach does not accept the idea of increasing the
financial leverage under NI approach. It means to change the capital structure does not affect
overall cost of capital and market value of firm. At each and every level of capital structure,
market value of firm will be same.

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 3rd Theory of Capital Structure
Name of Theory = Traditional Theory of Capital Structure
This theory or approach of capital structure is mix of net income approach and net
operating income approach of capital structure. It has three stages which you should
understand:

Ist Stage
In the first stage which is also initial stage, company should increase debt contents in its
equity debt mix for increasing the market value of firm.
2ndStage

In second stage, after increasing debt in equity debt mix, company gets the position of
optimum capital structure, where weighted cost of capital is minimum and market value of
firm is maximum. So, no need to further increase in debt in capital structure.

3rdStage

Company can gets loss in its market value because increasing the amount of debt in capital
structure after its optimum level will definitely increase the cost of debt and overall cost of
capital.

4th Theory of Capital Structure

Name of theory = Modigliani and Miller
MM theory or approach is fully opposite of traditional approach. This approach says that
there is not any relationship between capital structure and cost of capital. There will not
effect of increasing debt on cost of capital.
Value of firm and cost of capital is fully affected from investor's expectations. Investors'
expectations may be further affected by large numbers of other factors which have been
ignored by traditional theorem of capital structure.

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Capital Structure Planning

Decision regarding what type of capital structure a company should have is of critical
importance its because of its potential impact on profitability and solvency. The small
companies often do not plan their capital structure. The capital structure is allowed to
develop without any formal planning. These companies may do well in the short-run,
however, sooner or later they face considerable difficulties. The unplanned capital
structure does not permit an economical use of funds for the company. A company should
therefore plan its capital structure in such a way that it derives maximum advantage out of
it and is able to adjust more easily to the changing conditions.

Instead of following any scientific procedure to find an appropriate proportion of different

types of capital which will minimise the cost of capital and maximise the market value, a
company may just either follow what other comparable companies do regarding capital
structure or may consult some institutional lender and follow its advice.

Theoretically, a company should plan an optimum capital structure in such a way that the
market value of its shares is maximum. The value will be maximised when the marginal
real cost of each source of funds is the same. In general, the discussion on the issue of
optimum capital structure is highly theoretical. The determination of an optimum capital
structure in practice is a formidable task, and we have to go beyond the theory. That is
why, perhaps, significant variations among industries and among' different companies
within the same industry regarding capital structure are found. A number of factors
influence the capital structure decision of a company. The judge-ment of the person or
group of persons making the capital structure decision plays a crucial role. Two similar
companies can have different capital structures if the decision makers differ in their
judgement about the significance of various factors. These factors are highly
psychological, complex and qualitative and do not always follow the accepted theory.
Capital markets are not perfect and the decision has to be taken with imperfect knowledge
and consequent risk. You might have become inter-ested in identifying some of the
important factors which influence the planning of the capital structure in practice.
However, before we discuss these factors let us examine the features of an appropriate
capital structure in the next section.

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 FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE

Capital structure is usually planned keeping in view the interests of the ordinary
shareholders. The ordinary shareholders are the ultimate owners of the company and have
the right to elect the directors. While developing an appropriate capital structure for his
company, the financial manager should aim at maximising the long-term market price of
equity shares. In practice, for most companies within an industry, there would be a range of
appropriate capital structures within which there are not many differences in the market
values of shares. A capital structure in this context can be determined empirically. For
example, a company may be in an industry that has an average debt to total capital ratio of
60 per cent. It may be empirically found that the shareholders in general do not mind the
company operating within a 15 per cent range of the industry's average capital structure.
Thus, the appropriate capital structure for the company ranges between 45 per cent to 75 per
cent debt to total capital ratio. The management of the company should try to seek the
capital structure near the top of this range in order to make maximum use of favourable
leverage, subject to other requirements such as flexibility, solvency, etc.

A sound appropriate capital structure should have the following features:

Profitability: The capital structure of the company should be most advantageous, within
the constraints. Maximum use of leverage at a minimum cost should be made.

Solvency: The use of excessive debt threatens the solvency of the company. Debt should
be used judiciously.

Flexibility: The capital structure should be flexible to meet the changing conditions. It
should be possible for a company to adapt its capital structure with minimum cost and delay
if warranted by a changed situation. It should also be possible for the company to provide
funds whenever needed to finance its profitable activities.

In other words, from the solvency point of view we need to approach capital structuring
with due conservation. The debt capacity of the company which depends on its ability to
generate future cash flows should not be exceeded. It should have enough cash to pay
periodic fixed charges to creditors and the principal sum on maturity. Financial Decisions

The above are the general features of an appropriate capital structure. The particular
characteristics of a company may reflect some additional specific features. Further, the
emphasis given to each of these features may differ from company to company. For
example, a company may give more importance to flexibility than to retaining the control
31
which could be another desired feature, while another company may be more concerned
about solvency than about any other requirement. Furthermore, the relative importance of
these requirements may change with changing conditions.

Factors Determining Capital Structure

Trading on Equity- The word “equity” denotes the ownership of the company.
Trading on equity means taking advantage of equity share capital to borrowed
funds on reasonable basis. It refers to additional profits that equity shareholders
earn because of issuance of debentures and preference shares. It is based on the
thought that if the rate of dividend on preference capital and the rate of interest on
borrowed capital is lower than the general rate of company‟s earnings, equity
shareholders are at advantage which means a company should go for a judicious
blend of preference shares, equity shares as well as debentures. Trading on equity
becomes more important when expectations of shareholders are high.
Degree of control- In a company, it is the directors who are so called elected
representatives of equity shareholders. These members have got maximum voting
rights in a concern as compared to the preference shareholders and debenture
holders. Preference shareholders have reasonably less voting rights while
debenture holders have no voting rights. If the company‟s management policies
are such that they want to retain their voting rights in their hands, the capital
structure consists of debenture holders and loans rather than equity shares.
Flexibility of financial plan- In an enterprise, the capital structure should be such
that there is both contractions as well as relaxation in plans. Debentures and loans
can be refunded back as the time requires. While equity capital cannot be refunded
at any point which provides rigidity to plans. Therefore, in order to make the
capital structure possible, the company should go for issue of debentures and other
loans.
Choice of investors- The company‟s policy generally is to have different
categories of investors for securities. Therefore, a capital structure should give
enough choice to all kind of investors to invest. Bold and adventurous investors
generally go for equity shares and loans and debentures are generally raised
keeping into mind conscious investors.

32
Capital market condition- In the lifetime of the company, the market price of the
shares has got an important influence. During the depression period, the
company‟s capital structure generally consists of debentures and loans. While in
period of boons and inflation, the company‟s capital should consist of share
capital generally equity shares.
Period of financing- When company wants to raise finance for short period, it
goes for loans from banks and other institutions; while for long period it goes for
issue of shares and debentures.
Cost of financing- In a capital structure, the company has to look to the factor of
cost when securities are raised. It is seen that debentures at the time of profit
earning of company prove to be a cheaper source of finance as compared to equity
shares where equity shareholders demand an extra share in profits.
Stability of sales- An established business which has a growing market and high
sales turnover, the company is in position to meet fixed commitments. Interest on
debentures has to be paid regardless of profit. Therefore, when sales are high,
thereby the profits are high and company is in better position to meet such fixed
commitments like interest on debentures and dividends on preference shares. If
company is having unstable sales, then the company is not in position to meet
fixed obligations. So, equity capital proves to be safe in such cases.
Sizes of a company- Small size business firms capital structure generally consists
of loans from banks and retained profits. While on the other hand, big companies
having goodwill, stability and an established profit can easily go for issuance of
shares and debentures as well as loans and borrowings from financial institutions.
The bigger the size, the wider is total capitalization.

33
 DETERMINANTS OF CAPITAL STRUCTURE

Capital structure has to be determined at the time a company is promoted. The initial
capital structure should be designed very carefully. The management of the company should
set a target capital structure and the subsequent financing decisions should be made with a
view to achieve the target capital structure. Once a company has been formed and it has been
in existence for some years, the financial manager then has to deal with the existing capital
structure. The company may need funds to finance its activities continuously. Every time the
funds have to be procured, the financial manager weighs the pros and cons of various
sources of finance and selects most advantageous sources keeping in view the target capital
structure: Thus the capital structure decision is a continuous one and has to be taken
whenever a firm needs additional finance.

Generally, the factors to be considered whenever a capital structure decision is taken are:

(i) Leverage or Trading on equity,

(ii) Cost of capital,

(iii) Cash flow,

(iv) Control,

(v) Flexibility,

(vi) Size of the company,

(vii) Marketability, and

(viii) Floatation costs. Let it‟s briefly explain these factors.

The company know about to correct estimate of the current and future need of capital be
made to have an optimum capital structure .which help the company to run its work
smoothly and without any stress

34
 FACTORS AFFECTING CAPITAL STRUCTURE:
INTERNAL SOURCES:
 Financial leverage
 Risk
 Growth and stability
 Retaining control
 Cost of capital
 Cash flow
 Flexibility
 Purpose of finance
 Asset structure
EXTERNAL SOURCES:
Size of the company
Nature of the industry
Investors
Cost of inflation
Legal requirement
Period of finance
Level of interest rate
Level of business activity
Availability of funds
Taxation policy

35
 HOW TO CALCULATE CAPITAL STRUCTURE

Capital structure refers to the sources of your company's financing. Some of the money
that keeps your business afloat may have come from loans from the bank, some may have
come from equity investors who own a piece of the business and some capital may be
retained in the company from prior net profits. Understanding the capital structure of your
business is the first step in determining the cost to the company of that capital and being
able to minimize that cost.

HOW TO CALCULATE MARKET VALUE CAPITAL STRUCTURE

When companies are analyzed, investors often calculate the company's market value
capital structure. This is done primarily by using a ratio called the debt-to-equity ratio. A
company's capital structure is made up of several key items including long-term debt, short-
term debt, common equity and preferred equity. Capital structure tells whether a company is
financed more through debt or through equity. Investors usually seek companies that are
financed primarily through equity more so than companies financed through debt.
How To Calculate Capitalisation Ratio
The capitalization ratio measures the debt component of a company's capital structure, or
capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support
a company's operations and growth.
Long-term debt is divided by the sum of long-term debt and shareholders' equity. This
ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key
insight into a company's use of leverage.
There is no right amount of debt. Leverage varies according to industries, a company's
line of business and its stage of development. Nevertheless, common sense tells us that low
debt and high equity levels in the capitalization ratio indicate investment quality.

36
 CHAPTER- II
LITERATURE REVIEW

37
 LITERATURE REVIEW
Raiyani R.Jagdish,(November 2011),Vol.4 (11), “The impact of Financial
Analysis on Capital Structure Decisions in Selected Indian Industries”
“Advances in Management”:
Researcher has studied the Impact of Financial Risk on Capital Structure
Decisions
BRAV OMA,( February 2009)Vol. LXIV, No.1, “Access to Capital, Capital
Structure and Funding of the Firm” “Journal of Finance”.

Researcher has studied Access to Capital, Capital Structure and Funding of

the Firm
Gill Amarjit, (December 2011)”, Vol. 28 No.4, “The effect of Capital
Structure on Profitability” “International Journal of Management”. -
Researcher has studied Effect of Capital Structure on Profitability.

Pindado Julia And Chabela De La Torre;(2010), “Capital Structure: New

Evidence from the Ownership Structure” “International Review of Finance”.-
Researcher has studied Empirical Evidence Supporting a complimentary
perspective on capital structure based on corporate ownership structure.

Lemmon L.Michael and Zender F.Jaime,(2010),Vol. 45(5), “Debt Capacity

and Capital Structure Theories” “Journal of Financial & Quantitative
Analysis”.
Researcher has examine the impact of explicitly incorporating a measure of
debt capacity in recent tests of competing theories of capital structur
Varadi Kata, (2009), “Relationship Between Industry and Capital structure
from an Asymmetric Information Perspective” “International Journal of
Management Cases”.
Researcher has studied Relationship between Industry capital structure
from an Asymmetric Information.

Dhankar S Raj and Boora S Ajit, (July-September 1996), “Cost of Capital,

Optimal Capital Structure and Value of Firm” “The Journal Of Finance”.

38
 Researcher has studied Cost Of Capital, Optimal Capital Structure and
Value of Firm.
Muzir Erol, (August 2011).Vol.11 No.2, “Triangle Relationship among Firm
Size, Capital Structure Choice and Financial Performance” “Journal of
Management Research”
M.S. Narayanan (1994) examined the performance of BIFR by analyzing 472
cases disposed of by BIFR during 1987-1991.The study attributed the
prolonged decision making process of BIFR, its nature of power which are
more of a persuasive than of directive and to the approach of respective state
governments as the prominent stake holder. The study opined that BIFR may
be viewed as successful institution by evaluating and apprehending its
performance in terms of disposal of cases that have been successfully
survived.

Reena Aggarwal (1999) analyzed the market performance of 131 sample

firms emerging from bankruptcy during 1980 to 1993. The study was mainly
based on the controlled firm approach indicated that firms emerging from
bankruptcy generated abnormal returns varying from 24.6% to 138.8%
depending on various expected returns models.

Rahel Falk (2005) studied the sickness in the Indian manufacturing industry
and tested the theoretical model which has addressed the political economy of
industrial sickness in India. According to this study politicians benefit from,
and accordingly pay for sickness. More so he has concluded that sickness law
certainly provides several ways for the firm/stake holders to find advantages in
sickness and thereby to get rid of their financial responsibility.

The study by Rosemary and Omkarnath (2006) documented the trends and
patterns of industrial sickness during pre and post reform period and critically
evaluated the performance of BIFR, in line with changed policy framework.
The study revealed that the massive sickness in SSI sector during pre reform
period but it has shown significant reduction during the post reform period
except a spurt during 1997 due to recession. The study also found out that

39
there has been a significant rise in the sickness of non SSI units after recession
in 1997. The study further observed that introduction of SARFAESI Act 2002
gives exclusive rights to the banks regardless of reference to BIFR and has
undermined the role of BIFR in reorganizing the viable industrial units which
in turn, has exposed that a structural change in BIFR function is needed.

Surendra Komera and Jijo Lukose (2009), undertook an empirical analysis

of post bankruptcy performance. They have examined stock returns and
operating performance of 101 firms that emerged as “no longer sick” from the
BIFR proceedings during the period 1992 to 2006.

As per the short term and long term analysis of market performance using
various expected return models and estimates, shows no sign of significant
abnormal returns in comparison to the results from the US market. The US
market analysis indicates that the market for stocks of four quarters earning of
the similar kind of company is informationary efficient. On the other hand, the
analysis of operating performance of the Indian sample firms is evident that
they are neither making superior operating margin nor utilizing the assets
efficiently after emerging from BIFR proceedings. They had also raised
doubts about the efficiency of BIFR proceedings and it may be possible that
the proceedings may allow inefficient firm to reorganize and survive.

In a study undertaken by Useem (1990), restructuring should be viewed as

part of a broader transformation in the organization of ownership and
managerial control of the corporation. A conclusion is drawn that considerable
managerial discretion remains in shaping company response to the
restructuring pressure. Although market and organizational factors are sure to
act as constraints, top management, whether relatively autonomous non-
owning management group or an owner – dominated management, retains an
important independent capacity to exercise strategic choice.

Christopher and Neill Marshal (1992) conducted a study on Corporate

Restructuring in the Financial Services Industry and contended that large firms

40
transmit the dynamics of contemporary restructuring and in turn, establish a
symbolic relationship with places. The paper concludes that closer market
integration results in divergent organizational forms, with district geographical
expressions.

In a study conducted by John, Lang and Netter (1992) found that in 1980s,
the market for corporate control had an enormous impact on management
decision making and the restructuring of firms in response to changing
economic conditions. They found that 37% of a sample of large firms with
poor performance underwent a change in corporate control in the 1980s.
However, for various reasons, it is unlikely that in the foreseeable future the
market for corporate control will be a major force in disciplining management.

Further in a study conducted by Bowman and Harbir Singh (1993) on

Corporate Restructuring, they have concluded that Financial restructuring,
when accompanied with investment in key strategic activities, can be effective
for the firm.

In another study carried out by Bethel and Liebeskind (1993), they concluded
that block holder ownership is associated significantly with corporate
restructuring, suggesting that many managers restructured their corporations
during the 1980s only when pressured to do so by large shareholders.

41
OBJECTIVES OF THE STUDY

42
 OBJECTIVES OF THE STUDY

To Identify Optimal Capital Structure i.e. Best Debt-Equity Ratio for the Firm,
and its impact on Profitability position of the company
To Analyze Capital Structure of PepsiCo.. On the Basis of Proportion of Debt
Ratios.
To identify the financial position of the company through various ratio analysis.

43
RESEARCH METHODOLOGY

44
 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the problem. In it we study the
various steps that are generally adopted by a researcher in studying his research problem
along with the logic believed them.
This study of research gives the necessary - training in gathering materials and arranging,
participation in the field work when required, also training in techniques for collection of
data, use, of statistics, questionnaires.

THE RESEARCH PROCESS

1
OBSERVATION
Broad area of
research interest
identified

3
PROBLEM 4 5 7
6
DEFINITION THEORETICAL GENERATION DATA COLLECTION,
SCIENTIFIC
Research FRAMEWORK OF HYPOTHESES ANALYSIS AND
RESEARCH
Problem Delineated Variables clearly INTERPRETATION
DESIGN
identified and
labelled

8
DEDUCTION
2
Hypotheses
PRELIMINARY
substantiated?
DATA GATHERING
Research question
Interviewing
NO Yes
answered?
Literature Survey

9 10 11
Report Report Managerial
writing Presentatio decision making
n

45
 RESEARCH DESIGN
Decision regarding what, where, when, how much, by what means concerning an inquiry
or a research study constitute a research design.
Research design includes many questions;-
What is the study about?
Why is the study being made?
Where will the study be carried out?
What type of data is required?
Where can be required data be found?
What period of time will the study include?
What will be sample design?
What techniques of data collection will be used?
How will the data be analyzed?
In what style will the report be prepared?
At the outset may be noted that there are several ways of studying and tackling a problem.
The formidable problem that follows the task of defining the research problem is the
preparation of the design of research project popularly known as research design.

46
EXPLORATORY RESEARCH DESIGN
Exploratory research design is termed as formulating research studies. The main
purpose of study is that of formulating a problem. The major emphasis in such
study is on discovery of new idea‟s and insights. As such the research design
appropriate for such studies must be flexible enough to provide opportunity for
considering different aspects of problem.

DESCRIPTIVE AND DIAGNOSTIC RESEARCH DESIGN

Descriptive research designs are those design which are concerned with
describing the characteristics of particular individual or of the group. Whereas
diagnostic research studies determine the frequency with which something
occurs or its association with some else. In descriptive and diagnostic study the
researcher must be able to define clearly what he wants to measure and must
find adequate method for measuring it.

EXPERIMENTAL RESEARCH DESIGN

These are those studies where the researcher tests the hypothesis of casual
relationship between variables. Such study requires procedure that will not only
reduce biasness and increase reliability but will permit drawing influence about
causality. Usually experiments meets this requirement, hence these research
designs are prepared for experiment.
RESEARCH DESIGN IN STUDY

In the study the researcher will apply descriptive research design. As

descriptive research design is the description of state of affairs, as it exists at
present. In this type of research the researcher has no control over the variables;
he can only report what has happened or what is happening.

47
 Time Horizon

Cross-
Longitudinal
sectional
study
study

Cross- sectional study - A study in which data are gathered just once, perhaps over a
period of days or weeks or months in, in order to answer a research question. Such studies
are called Cross-sectional study.
Longitudinal study- In some cases however, the researcher might want to study
phenomena at more than one point in time in order to answer the research question. Such
studies are called longitudinal study.
Now as researcher has gathered data once in this study so it is Cross-sectional study.

48
 Study Setting

Contrived Non contrived

 Contrived
 Non Contrived
Research which can be done in natural environment where work proceeds normally is
called non contrived studies, in contrast research which is done in artificial setting are called
contrived studies.
The study which researcher has conducted is in natural environment, so it is non
contrived study.

49
 SAMPLE AND SAMPLING DESIGN

A sample design is a definite plan for obtaining a sample from the sampling frame. It
refers to the technique or the procedure that is adopted in selecting the sampling units from
which inferences about the population is drawn. Sampling design is determined before the
collection of the data.
Several decisions have to be taken in context to the decision about the appropriate sample
selection so that accurate data is obtained and efficient results are drawn.
Following questions have to be considered while sampling design:
 What is the relevant population?
 What is the parameter of interest?
 What is the sampling frame?

50
 SAMPLE DESIGN
A sample design is a definite plan for obtaining a sample from the sampling frame. It
refers to the technique or the procedure that is adopted in selecting the sampling units from
which inferences about the population is drawn. Sampling design is determined before the
collection of the data.
Several decisions have to be taken in context to the decision about the appropriate sample
selection so that accurate data is obtained and efficient results are drawn.

Following questions have to be considered while sampling design

1. What is the relevant population?

2. What is the parameter of interest?
3. What is the sampling frame?
4. What is the type of sample?
5. What sample size is needed?
6. How much will it cost?

51
 DATA COLLECTION

After the research problem has been identified and selected the next step is to gather the
requisite data. While deciding about the method of data collection to be used for the
researcher should keep in mind two types of data i.e. primary and secondary.

PRIMARY DATA

SECOUNDARY
DATA

TYPES OF DATA

Primary Data
The primary data are those, which are collected afresh and for the first time, and thus
happened to be original in character. We can obtain primary data either through observation
or through direct communication with respondent in one form or another or through personal
interview.

52
 OBSERVATION
METHOD

METHODS
QUETIONAIRE OF INTERVIEW
METHOD PRIMARY METHOD
DATA

SCHEDULE
METHOD

Secondary Data
The secondary data on the other hand, are those which have already been collected by
someone else and which have already been passed through the statistical processes. When
the researcher utilizes secondary data then he has to look into various sources from where
he can obtain them. For eg. Books, magazine, newspaper, Internet, publications and
reports.

53
Methods Used In Study

BOOKS INTERNET

SECOUNDARY
SOURCES

MAGAZINES NEWSPAPERS

54
DATA ANALYSIS AND
INTERPRETATION

55
 DATA ANALYSIS INTERPRETATION
PROFITABILITY RATIOS:

Operating Profit Margin

Particular 2019 2018 2017 2016 2015

Operating 5.051472 6.38894 7.043148 11.46629 10.87991
profit(%.)
Table 5.1,operating profit margin.

Operating profit(%.)
14

12

10

8
Operating profit(%.)
6

Figure No.5.1, operating profit margin

INTERPRETATION:
The operating Profit margin is reducing year by year due to operational inefficiency in
organization but the company expects it to increase in 2018-19

56
 Gross Profit Margin

particular 2019 2018 2017 2016 2015

Gross profit 3.56 4.76 5.28 9.8 9.22
margin(%)
Table No.5.2,Gross profit margin.

Gross Profit Margin

12

10

6 Gross Profit Margin

Figure No.5.2,Gross profit margin.

INTERPRETATION:
The Gross Profit is Decreasing Year After Year but still the company is still incurring Net
Profit and never been in Losses in the last 5 years.

57
 NET Profit Ratio:

2019 2018 2017 2016 2015

Net profit ratio(%) 2.62954 3.19362 4.69486 3.00775 2.11956
Table No.5.3,Net profit ratio.

Net profit ratio(%)

5
4.5
4
3.5
3
2.5 Net profit ratio(%))
2
1.5
1
0.5
0

Figure No.5.3,Net profit ratio.

INTERPRETATION:
The company earned a good percentage of net profit margin in the year 2017-18 if
compared to 2015-16 but still is trying to improve the net profit margin

58
 DEBT EQUITY RATIO:
2019 2018 2017 2016 2015
DEBT EQUITY 0.35374 0.42703 0.43226 0.40507 0.78724
RATIO
Table no.5.4,Debt equity ratio.

DEBT EQUITY RATIO

0.9
0.8
0.7
0.6
0.5
DEBT EQUITY RATIO
0.4
0.3
0.2
0.1
0

Figure No.5.4,debt equity ratio.

INTERPRETATION:
The Total Debt was 0.40 in 2016-17 but it increased in 2017-19 to 0.43 because the Long
Term Loans Increased as the Total Debt includes both Short Term Debt and Long Term
Debt.

59
 Long Term Debt Ratio

2019 2018 2017 2016 2015

Long Term debt 0.231 0.177 0.175 0.169 0.373
equity ratio
Table no.5.5,Long term debt ratio.

Long Term debt equity ratio

0.4

0.35

0.3

0.25
Long Term debt equity
0.2
ratio
0.15

0.1

0.05

Figure no.5.5,long term debt ratio.

INTERPRETATION:
The Long Term Debt-Equity Ratio is Satisfactory as the Total Debt Equity Ratio is Less
than 2:1 and which is treated as safe or Financially Sound. But in 2017-18 the Long Term
Debts of the company have increased more if compared to the previous years Long Term
Debts but still the company is performing well due to efficient management of use of Debt
and Equity.

60
 CHAPTER-VII
FINDINGS, SUGGESATIONS

61
 FINDINGS
The operating Profit margin is reducing year by year due to operational
inefficiency in organization but the company expects it to increase in 2018-19
The Gross Profit is Decreasing Year After Year but still the company is still
incurring Net Profit and never been in Losses in the last 5 years.
The Gross Profit is Decreasing Year After Year but still the company is still
incurring Net Profit and never been in Losses in the last 5 years.
The Total Debt was 0.40 in 2016-17 but it increased in 2017-19 to 0.43 because
the Long Term Loans Increased as the Total Debt includes both Short Term Debt
and Long Term Debt.
The Long Term Debt-Equity Ratio is Satisfactory as the Total Debt Equity Ratio
is Less than 2:1 and which is treated as safe or Financially Sound. But in 2017-18
the Long Term Debts of the company have increased more if compared to the
previous years Long Term Debts but still the company is performing well due to
efficient management of use of Debt and Equity.

62
SUGGESTIONS

63
 SUGGESTIONS

The company should limit its debts to that extent that the liquidity position of the firm
cannot be impacted and this does not create any hindrance
.
The company should issue preference share capital also.

Company should control over all expenses so that profit would be more.
.
Company should do more long term investment so that in the times to come, it would
be more benefit able for the company

o Company should also utilize their all recourses very efficiently which leads to
increase in sales of the organization.

64
LIMITATIONS OF THE STUDY

65
 LIMITATIONS OF THE STUDY
Inspire of best efforts of the investigator the study was subjected to following
limitations:-
Less Time Period: The time period given to researcher for the completion
of the project was short in such a short span of time it is difficult to
complete any project in detail.
Less Response from officers: Some officers were too busy to give a
sincere response to investigators & hence their response may not relate to
real picture.
Difficulty to availability of primary data: Manager some time denied
disclosing some important financial matters, which can be helpful in this
study.
Secondary data: The data used for the analysis was secondary in nature as
it was taken from the annual reports of the company
Limited Area of Study: Researcher has studied only a single firm of the
industry. So, Researcher got knowledge about just a minor player in the
team.

66
CONCLUSION

67
 CONCLUSION
Company should use debt in limited amount to reduce the financial risk. As Researcher
have found that company is much more dependent on the debt and equity is being constant
from last five years so at time of contingencies there will be more burdens on the shoulders
of the shareholders. So, company should reduce its dependency on the debt. Company
should also try to increase its profitability. Company should try to using an optimal capital
structure by which company can minimizes the cost of capital and maximize wealth of
shareholders Company's ratio of short and long-term debt should also be considered when
examining its capital structure.

68
BIBLIOGRAPHY

69
 BIBLIOGRAPHY
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4. Mittal R.K, (Edition-6th) “Management Accounting & Financial Management”,
N.K. Publishers.
5. James C. Van Horne, (Edition 5th) “Financial Management Policy”, Tata
McGraw Hill Publications, New Delhi.
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70
JOURNALS:
16 Raiyani R.Jagdish ,Vol.4 (11) (November 2011) “Advances in Management”:
17 BRAV OMAR,( February 2009)Vol. LXIV, No.1 “Journal of Finance”
18 Gill Amarjit, (December 2011)”, Vol. 28 No.4 “International Journal of
Management”. -
19 Pindado Julia And Chabela De La Torre ;(2010), “International Review of
Finance”.-
20 Lemmon L.Michael and Zender F.Jaime ,(2010),Vol. 45(5) “Journal of
Financial and Quantitative Analysis” .
21 Varadi Kata , (2009), “International Journal Of Management Cases”.
22 Dhankar S Raj and Boora S Ajit, (July-September 1996), “The Journal Of
Finance”.
23 Muzir Erol, (August 2011). Vol. 11 No.2 ”Journal of Management
Research”
Magazines:-
24 Shah Rashesh, “Business World”(26April2010)
25 Dubey Rajiv, “Business World” (20sept2010)
26 Gajra Rajesh, “Business World(Sept. 2007)”
27 Seth Meera , , “Business World “15 Mar 2010).
28I CFAI Reader,( Oct 2005)”
29 Dungore Parizad , “ICFAI (AUG 2008)”
30 Grag Chand Mahesh, “Management Accountant”
31 Oswal Motilal, “Business World ” (April 2010)”

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 Annexure
Balance Sheet of PEPSICO ------------------- in Rs. Cr. ---------------
Mar '19 Mar '18 Mar '17 Mar '16 Mar '15
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 111.10 111.10 111.10 111.10 55.55
Equity Share Capital 111.10 111.10 111.10 111.10 55.55
Reserves 3,201.52 2,866.95 2,293.81 1,975.60 1,732.97
Networth 3,312.62 2,978.05 2,404.91 2,086.70 1,788.52
Secured Loans 4,382.12 5,577.27 5,961.78 5,151.10 5,582.14
Unsecured Loans 2,710.80 3,135.09 2,220.25 2,290.68 1,820.03
Total Debt 7,092.92 8,712.36 8,182.03 7,441.78 7,402.17
10,405.5
Total Liabilities 11,690.41 10,586.94 9,528.48 9,190.69
4
Mar '19 Mar '18 Mar '17 Mar '16 Mar '15
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 559.93 586.47 660.32 626.96 538.22
Less: Accum. Depreciation 281.49 277.65 316.87 295.40 264.11
Net Block 278.44 308.82 343.45 331.56 274.11
Capital Work in Progress 0.00 2.06 3.20 0.32 20.29
Investments 1,836.24 1,521.48 1,447.27 1,044.30 764.00
Cash and Bank Balance 552.56 676.72 674.75 874.36 429.09
Total Current Assets 552.56 676.72 674.75 874.36 429.09
14,725.3
Loans and Advances 14,252.13 12,946.25 12,387.05 11,450.56
2
15,277.8
Total CA, Loans & Advances 14,928.85 13,621.00 13,261.41 11,879.65
8
Current Liabilities 6,708.94 4,769.82 4,514.76 4,895.91 3,564.10
Provisions 278.08 300.96 313.23 213.19 183.27
Total CL & Provisions 6,987.02 5,070.78 4,827.99 5,109.10 3,747.37
Net Current Assets 8,290.86 9,858.07 8,793.01 8,152.31 8,132.28
10,405.5
Total Assets 11,690.43 10,586.93 9,528.49 9,190.68
4
Contingent Liabilities 116.60 125.60 111.85 115.39 109.00
Book Value (Rs) 298.16 268.04 216.46 187.82 321.95
Source : Dion Global Solutions Limited

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 I
Previous Years »
TC
Standalone Profit & Loss
------------------- in Rs. Cr. -------------------
account
Mar '19 Mar '18 Mar '17 Mar '16 Mar '15
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 2,312.44 2,254.66 2,215.48 2,063.02 1,701.43
Net Sales 2,312.44 2,254.66 2,215.48 2,063.02 1,701.43
Other Income 162.58 114.41 98.43 68.76 60.45
Total Income 2,475.02 2,369.07 2,313.91 2,131.78 1,761.88
Expenditure
Employee Cost 212.59 195.88 181.25 161.93 145.36
Miscellaneous Expenses 277.26 263.13 230.01 213.59 159.86
Total Expenses 489.85 459.01 411.26 375.52 305.22
Mar '19 Mar '18 Mar '17 Mar '16 Mar '15
12 mths 12 mths 12 mths 12 mths 12 mths
Operating Profit 1,822.59 1,795.65 1,804.22 1,687.50 1,396.21
PBDIT 1,985.17 1,910.06 1,902.65 1,756.26 1,456.66
Interest 1,217.74 1,167.57 1,163.74 1,082.15 877.43

73