INTRODUCTION:

One though challenges that firms face is to determine the right amount of leverage.
Leveraging decisions is important because it affects the financial performance of the firm. The
capital structure of a firm is defined as specific mix of debt and equity that a firm uses to finance
its operations. Firms can choose among many alternative capital structures. For example, firms can
issue a large amount of debt or very little debt. Firms have options of arranging lease financing, use
warrants, issue convertible bonds and etc. When a firm considers its financing options, for example
debt vs. equity, it must ensure that the amount of leverage does not impose an excess burden on the
firm. This means that the firm should be able to meet its financial obligations during both good and
bad times.

Leverage is also used to describe the firms ability to use fixed cost to increase the return
to its owners. It is a tool for measuring business risks, financial risk and overall risk. It is a tool for
measuring Business Risk, Financial Risk and Overall Risk. A company's long term debt in relation
to equity is its capital structure. The larger the long term debt, the higher the leverage. There are 3
types of leverages that are financial leverage and combined leverage A companys long term debt in
relation to equity is its capital structure. The larger the long term debt, the higher the leverage. In
order to run and manage a company, funds are needed. Right from the first stage, finance plays
an important role in a companys life. If funds are inadequate and not properly managed the entire
organization suffers, it is therefore necessary that correct estimation of the current and future need
of capital be made to have an optimal capital structure which shall help the organization to run
smoothly. The capital structure is made up of debt and equity securities and refers to permanent
financing of a firm. On the other hand a general dictionary meaning of the term Leverage refers
to an increase of accomplishing some purpose. In Financial Management the term leverage is used
to describe the firms ability to use fixed cost assets or funds to increase the returns to its owners.
Leverage ratios, which reflect the solvency status of a firm, are covered here in
detail. You will get an idea about the basic concept of leverage and will be exposed
to the role and effects of financial leverage.
Research Methodology:
The objectives for which study has been undertaken are
To conduct the organisation study and understand the practical aspects.
To know the effect on income of the firm due to change in sales volume.
To study the EPS policy of the company.
To analyse the current risk policy of the company in view of leverage.

NEED FOR THE PROJECT
Leverage is an important technique which helps the management to take investment decisions. It
also helps to evaluate business, financial, total risk of any organization. The task of choosing most
suitable combination of different techniques in the light of the firms anticipated securities for
financing fund requirements earnings is facilitated by it. In matters relating to investment also
leverage technique is immensely helpful. It acts as a useful guideline in setting the maximum limits
by which the business of the firm should be expanded. So, from an investor to top level
managements all need to evaluate the risk factor of the organization before any decisions.
Collection of data
This project is totally based on the Secondary Data, So all the data used in the project have been
collected from
1. The annual reports of the companies.
2. The web sites of companies and other web sites.
3. The study material.
The data collected from this source have been used and complied with due care as per requirement
of study.

Limitation of study
1. The study is limited to five years only. Generally twenty years data is ideal to form trend
analysis.
2. This is based on secondary data collected from the annual report of the company. It was not
possible to collect the primary data from the company's office.
3. As it is a secondary data from several web sites therefore there are small variations of
amounts which are assumed same.
4. We get a very short period for our project therefore we can collect a limited data for
The project.


Concept of the Topic:

What is leverage?
The word leverage stands from getting more benefit by the use of a part of capital with fixed rate of
cost. The term leverage is actually taken from the word lever in physics.If the firm's Return On
Assets (ROA) is higher than the interest on the loan, then its Return On Equity (ROE) will be
higher than if it did not borrow. On the other hand, if the firm's ROA is lower than the interest rate,
then its ROE will be lower. In other words, may be defined as, the employment of an asset or
sources of fund has to pay fixed cost or fixed return.
Example: A public corporation may leverage its equity by borrowing money. The more it borrows
the less equity capital it needs. So any profits or losses are shared among a smaller base and
proportionately larger as a result.

The term leverage in general refers to a relationship between two interrelated variables.
In financial analysis it represents some other related financial variables. These financial variables
may be costs, out-put, sales revenue, earnings before interest & tax (EBIT), EPS etc. There are three
types of leverages.
(1) Operating leverage:
Operating leverage may be defined as the employment of an asset with a fixed cost in the hope that
sufficient revenue will be generated to cover all the fixed and variable costs. The use of assets for
which a company pays a fixed cost is called Operating Leverage

Degree of Operating leverage [DOL]:
A high degree of operating leverage shows the greater impact on the
operatingincome of the company due to variability in its sales, which is also responsible for variabil
ity in its operating profit. It is an important determinant of operation risk. It can be measured by %
change in E.B.I.T. due to percentage change in sale.
It shows relationship between percentage change in Earnings before interest and tax(EBIT) due
to percentage change in Sales


(2) Financial leverage:
Financial leverage may be defined as The use of funds with a fixed cost in order to increase
earnings per share. In other words it is the use of companys funds on which it pays a limited
return. Financial leverage involves the use of funds obtained at a fixed cost in the hope of increasing
the return to common stock holders.
Degree of Financial leverage [DFL]:
It shows the relationship between percentage change in Earnings Per Share[EPS] due to
percentage change in Earnings before interest and tax[EBIT].
The financial leverage measures the responsiveness of the E.P.S. to charge in EBIT If defined as
degree of financial leverage

DFL= (% CHANGE IN EPS)/ (% CHANGE IN EBIT)
Financial leverage





(3) Combined leverage:
Combine leverage may be defined as the potential use of fixed costs, both operating and financial,
which magnifies the effect of sales volume change on the earnings per share of the firm.


Degree of Combined leverage [DCL]:
For one per cent change in sales the actual per cent change in EPS is interpreted by DCL.

Combine leverage


Uses of leverages:
Financial leverage > Financial leverage is primarily concerned with the financial
activities which involves rising of funds from the sources from which a firm has to bear
fixed charges. These sources include long term debt preference shares etc.
unfavourable when the earning capacity of the firm is less than what is expected by the lenders
(i.e.the cost of debt.)
It is referred to state at which a firm has to bear fixed financial cost arising from the use of debt
capital. The firm with high financial leverage will have a relatively high fixed financial cost compared
with low financial leverage. Financial leverage occurs when a company employ the fixed cost of funds
debt or preference share capital with a view to maximising earnings available to Equity Share Holders
by a way of a higher income of funds. This technique also called Trade on equity. Financial leverage
influence the financial risk as long as the companys earnings are greater than its fixed cost it will
enjoy a favourable financial leverage position and make earnings available to equity share holders.
activities (Assets acquisition). It occurs any time when firm has fixed costs that must be met
regardless of volume in operating leverage.
If a company employs operating leverage then itsoperating profit will increase at a faster rate for
any given increase in sale. However, if sales fall the firm with high operating leverage will suffer
more loss than the firm with the no or low operating leverage. Therefore operating
leverage called 2-edged sword.


Combine leverage > A proper combination of both financial & operating leverage is
blessing for the firms growth, while improper combination of both leverages may
provecurse for the growth of company. So company should try to achieve balance of both
leverages.


RELATION OF EBIT WITH EPS:
EBIT = Total revenue Total cost
Again, Total cost = V+F [V= Variable cost and F= Fixed cost]
Now, Total Revenue = Quantity produced * unit selling price
Therefore EBIT = Q * S Q * V F = Q (S - V) F
[Where, Q = Quantity produced and sold .S = Unit selling price]
EPS = PAT / N and EPS per equity = PAT PD / N [PD= Preference dividend]
Now, PAT = [EBIT I] {Tax on (EBIT - I)}
Therefore, EPS for equity = [(EBIT I) (1 - t) PD] / N, t stands for rate of tax.

DATA ANALYSIS
COMPANY PROFILE:
GENERAL INFORMATIONS





OIL & NATURAL GAS CORPORATION LTD: An Overview
OIL AND NATURAL GAS CORPORATION LTD, (ONGC) today is the premier Indian industry
effectively participating in efficient implementation of both the economic as well as the social
mission of a national industry. Its growth has been one of consistent stability and ascending
productivity, matching international performance makers, through innovative approach and
participative management.
ONGC operates in the upstream sector of the petroleum industry on the unstructured premises of
accepting the intellectual softwares, geological thoughts and perceptions of the petroleum
geoscientists, as its basic raw materials until today, there has been no tool or technique that can
directly oil with in the earth crust, consequently, oil exploration has over been a highly probabilistic
cannot be defined within the confine of the scales and measures of the conventional engineering.
Input & Output ratios. In oil explorations activity, inputs are deterministic, but output is
probabilistic. It is a high reward business.
Further , oil exploration and production activities are multi-disciplinary, and the industrial
constantly operates under a syndrome of high-value high technology(of high rate of obsolescence )
that mostly create compulsions for massive investment in exploration increases exponentially
because the New Finds of oil deposits progressively become more and more scarce and recovery
from old fields become costlier.
Impressions often are focused in the form that ONGC is an Island of prosperity, and thus is,
expected to provide high measures of various subsidies to all in various types of industries in the
nationals as well as the private sector. Willing or otherwise ONGC has been providing such
support services to many Indian Industries, often at the cost of depletions of its logically earned
income & profits.
ONGC is a performing national industry constantly achieving commanding heights of performance
its attitudinal orientation in TO DO BETTERTHE THINGS BEING DONE WELL. In this
document, its structural fabrics management perceptions practices and performance have been
briefly profited. ONGC assures the nation than it business like support of the govt. its main aim is
to accelerate the progress of the Indian petroleum industry that would lead to the consolidation of
the Indian Energy Security.
Oil and natural gas corporation ltd, a maharatna public sector enterprise is Indias highest profit
making company with record profit exceeding Rs. 18000 corers in the financial year 2011. ONGC
has its headquarter at Dehradun and registered office at New Delhi. Its operation is spread all over
India and employees over 33000 trained man power.
The activities includes, grants in aid to agencies educational institutes, social welfare organizations
development of infrastructure by constructing roads , bridges and plantation of trees etc.
ONGC has two subsidiaries as ONGC VIDESH LTD. (OVL) and MANGALORE REFINARY
AND PETROCHEMICAL LTD. (MRPL).


History: (1947 1960)
During the pre-independence period, the Assam Oil Company in the northeastern and attock Oil
company in northwestern part of the undivided India were the only oil companies producing oil in
the country, with minimal exploration input. The major part of Indian sedimentary basins was
deemed to be unfit for development of oil and gas resources.
After independence, the national Government realized the importance oil and gas for rapid
industrial development and its strategic role in defense. Consequently, while framing the Industrial
Policy Statement of 1948, the development of petroleum industry in the country was considered to
be of utmost necessity. Until 1955, private oil companies mainly carried out exploration of
hydrocarbon resources of India. In Assam, the Assam Oil Company was producing oil at Digboi
(discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of India and
Burma Oil Company)was engaged in developing two newly discovered large fields Naharkatiya and
Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between
Government of India and Standard Vacuum Oil Company of USA) was engaged in exploration
work. The vast sedimentary tract in other parts of India and adjoining offshore remained largely
unexplored.
In 1955, Government of India decided to develop the oil and natural gas resources in the various
regions of the country as part of the Public Sector development. With this objective, an Oil and
Natural Gas Directorate was set up towards the end of 1955, as a subordinate office under the then
Ministry of Natural Resources and Scientific Research. The department was constituted with a
nucleus of geoscientists from the Geological survey of India.
A delegation under the leadership of Mr K D Malviya, the then Minister of Natural Resources,
visited several European countries to study the status of oil industry in those countries and to
facilitate the training of Indian professionals for exploring potential oil and gas reserves. Foreign
experts from USA, West Germany, Romania and erstwhile U.S.S.R visited India and helped the
government with their expertise. Finally, the visiting Soviet experts drew up a detailed plan for
geological and geophysical surveys and drilling operations to be carried out in the 2nd Five Year
Plan (1956-57 to 1960-61).
In April 1956, the Government of India adopted the Industrial Policy Resolution, which placed
mineral oil industry among the schedule 'A' industries, the future development of which was to be
the sole and exclusive responsibility of the state.
Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it would
not be possible for the Directorate with its limited financial and administrative powers as
subordinate office of the Government, to function efficiently. So in August, 1956, the Directorate
was raised to the status of a commission with enhanced powers, although it continued to be under
the government. In October 1959, the Commission was converted into a statutory body by an act of
the Indian Parliament, which enhanced powers of the commission further. The mainfunctions of the
Oil and Natural Gas Commission subject to the provisions of the Act, were "to plan, promote,
organize and implement programs for development of Petroleum Resources and the production and
sale of petroleum and petroleum products produced by it, and to perform such other functions as the
Central Government may, from time to time, assign to it ". The act further outlined the activities
and steps to be taken by ONGC in fulfilling its mandate.
(1961 1990)
Since its inception, ONGC has been instrumental in transforming the country's limited upstream
sector into a large viable playing field, with its activities spread throughout India and significantly
in overseas territories. In the inland areas, ONGC not only found new resources in Assam but also
established new oil province in Cambay basin (Gujarat), while adding new proliferous areas in the
Assam-Arakan Fold Belt and East coast basins (both in land and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High,
now known as Mumbai High. This discovery, along with subsequent discoveries of huge oil and gas
fields in Western offshore changed the oil scenario of the country. Subsequently, over 5billion tons
of hydrocarbons, which were present in the country, were discovered. The most important
contribution of ONGC, however, is its self-reliance and development of core competence in E&P
activities at a globally competitive level.
(After 1990)
The liberalized economic policy, adopted by the Government of India in July 1991, sought to
deregulate and de-licenses the core sectors (including petroleum sector) with partial disinvestments
of government equity in Public Sector Undertakings and other measures. As a consequence thereof,
ONGC was re-organized as a limited Company under the Company's Act, 1956 in February 1994.
After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil
&Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its shares
through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent by
offering shares to its employees.
During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas Authority
of India Limited (GAIL) - the only gas marketing company, agreed to have cross holding in each
other's stock. This paved the way for long-term strategic alliances both for the domestic and
overseas business opportunities in the energy value chain, amongst themselves. Consequent to this
the Government sold off 10 per cent of its shareholding in ONGC to IOC and 2.5 per cent to GAIL.
With this, the Government holding in ONGC came down to 84.11 per cent. Imbibe high standards
of business ethics and organizational values. Abiding commitment to safety, health and
environment to enrich quality of community life. Strive for customer delight through quality
products and services.
GLOBAL RANKING
ONGC ranks as the Numero Uno Oil and Gas Exploration and Production (E&P) Company
in Asia, as per Platts 250 Global Energy Companies List for the year 2008.
ONGC ranks 23
rd
Leading Global Energy Major amongst the Top 250 Energy Majors of
The World in thePlatts List based on outstanding performance in respect of Assets,
Revenues, Profits and Return on Invested Capital (RIOC) for the year 2008.
ONGC has 9th position in the Industry of Mining, crude oil production.
ONGC ranks 239
th
position in the prestigious Forbes Global 2000 and Numero Uno
Ranking amongst Indian companies.

ONGC retains Numero Uno position from India in terms of Profits with overall global
ranking of 121
st
.
ONGC ranks 21st among the top 50 publicly traded Companies in Oil & Gas Industry,
Based on the year-end market Capitalization by PFC Energy.
CRISIL and ICRA also reaffirmed ONGC the highest credit rating of AAA and LAAA









ONGC GROUP COMPANIES
ONGC VIDESH LIMITED (OVL)
MANGALORE REFINERY AND PETROCHEMICALS LIMITED (MRPL)
ONGC NILE GANGA BV (ONG BV)
ONGC MITAL ENERGY LIMITED (OMEL)
ONGC MITTAL ENERGY SERVICE LIMITED (OMESL)
ONGC TRIPURA POWER COMPANY PVT.LTD. (OTPCL)
KAKINDA REFINERY & PETROCHEMICALS LIMITED (KRPL)
KAKINDA SEZ LIMITED
MANGLORE LIMITED
DAHEJ SEZ LIMITED
RAJASTHAN REFINERY LIMITED (RRL)



CORPORATE INFORMATIONS

From the above table it is notified that EPS is falls from 71.66 to 22.12 during the period of 2007 to
2011. It does not mean any financial default. As the company increase their issued share capital
from 2,138.89 to 4277.76 and increase the no. of shares from 158,57,40,673 to 634,29,62,692 from
2010 to 2011 the EPS is low in 2011. We can also see EBIT is all most same or near around from
2007 to 2011. Also it can be noted that there is a fall in the cost of Purchase Goods Treaded in 2010
to 2011. It may cause of a very good management of Treaded Goods.


EBIT from 2007 to 2011




EPS from 2007 to 2011
21,000.00
22,000.00
23,000.00
24,000.00
25,000.00
26,000.00
27,000.00
28,000.00
year 2007 2008 2009 2010 2011
R
S
.

EBIT
EBIT
EBIT







0
10
20
30
40
50
60
70
80
90
year 2007 2008 2009 2010 2011
a
m
o
u
n
t
(
R
S
.
)

years
EPS
EPS