1.2 OBJECTIVES OF STUDY:
The objectives of the study are as under:
• To study the impact of leverages on ROA (Return On Asset) and EPS (Earning Per Share).
a) To study the impact of operational leverage on ROA & EPS.
b) To study the impact of combined leverage on ROA &EPS.
c) To study the impact of financial leverage on ROA & EPS.
• To ascertain the effect of adjustments in those leverages on return to equity of share holders.
• To assess the impact on profitability.
1.3 SCOPE& NEED OF THE STUDY
• To analyze the overall profitability of the firm.
• To know the financial position or growth of the firm.
• We need to calculate capital structure.
• To understand the debt effect of the firm.
• To understand the meaning, significance and limitation of the leverage analysis.
• To calculate financial, operating, combined leverages of the organization.
• To know how debt and profitability are related.
• Positives and negatives effects on profitability.
1.4 METHODOLOGY OF THE STUDY
The information for the study has been obtained from two sources viz., Primary and Secondary sources. The primary data are obtained from the discussions with the company executives and employees. Personal observation also helped in extracting the data. Interviews have been conducted with the company officials after taking prior permission from them. The secondary data are obtained from the company reports, records, manuals and bulletins also business magazines, text books and web sources have been used in obtaining the relevant data
And using various statistical tools to analyze and get the desired output which will be a fruitful result for the project I have used CORRELATION, REGRESSION, And DESCRIPTIVE STATISTICS and found out the relation between the dependent and independent variables.
Secondary data studies whole company records and company’s balance sheet in which the project work has been done. In addition, a number of reference books, journals and report were also used to formulate the theoretical model for the study. And some information was also drawn from the websites. The data is collected from the following sources:
• Financial statements referred from annual report of Srujana Elite Engineering Solutions Pvt Ltd.
• The data is collected from NSIC.
• Various books preferred about leverages.
The data is collected directly from the company. Primary data is the first hand information that is collected during the period of research. Primary data has been collected through discussions held with the staffs in the accounts department. Some types of information were gathered through oral conversations with the cashier.
1.5 FRAME WORK OF THE STUDY
The project report entitled “Debt Effect on Profitability” in Srujana Elite Engineering Solutions Pvt Ltd, Hyderabad, is organized in five chapters.
1. The First chapter gives the theoretical aspects of capital structure and financial leverage and contains objectives, methodology, frame work and limitations of the study.
2. The Second chapter comprises the profile of engineering industry in India and the profile of NSIC and Srujana Elite Engineering Solutions Pvt Ltd.
3. The Third chapter deals with review of literature.
4. The Fourth chapter carries the analysis of the debt effect on profitability.
5. The Last chapter concludes the study with findings and some suggestive measures for better performance.
1.6LIMITATIONS OF THE STUDY
• The present study is confined to Srujana Elite Engineering Solutions Pvt Ltd.
• The major limitation of the project under study was time. Since it was to be completed within a short period of time, a comprehensive study could not be made.
• The analysis was restricted to the data available in the balance sheet of Srujana Elite Engineering Solutions Pvt Ltd from the year 2012-2017.
Capital structure decision making has become one of the most difficult task for the fate of a firm. Capital structure decision plays a virtal role for any business organization which aims at maximizing returns and makes it able to compete in its competive environment.The relationship between debt and profitability of firm has been a center of attention for many researchers over decades, however there is difference of opinion between different researcher about the role of debt, some researcher found negative, some found positive. While some found mixed result of debt on profitability.
This difference of opinion is due to many reasons including different types of variables (Capital structure, Financial leverage, Operating leverage, combined leverage, Return on Assets, Earing Per Share).This study focuses on finding the impact of debt on profitability srujana. This study focuses on expanding the existing empirical knowledge on the impact of debt on profitability of srujana. Different sets of variables have been used to investigate the relationship between debt and profitability of firm using data of five years i.e., 2012-2013 to 2016-2017.
Financial leverage: – Financial leverage exists due to the existence of fixed financial charges which do not depend on the operating profits of the company. This financial leverage is mainly deals with the mix of debt and equity in the capital structure of the firm.
Operating leverage: – Operating leverage is one of the important type of investment activities of the organization which includes the fixed operating costs of the organization in its income stream. The operating costs are classified into 3 types as: Fixed cost, variable cost and semi-variable or semi-fixed cost.
Combined leverage: – The changes in sales will give a relative change in the earnings per share of the firm if the company uses both the financial and operating leverages. It expresses the relationship between the revenue of sales and taxable income.