Company Profile

The success story began with the establishment of the Kaleesuwari Refinery
Pvt. Ltd. in 1995. Since then, the company has made incredible strides in the
edible oil market with its flagship brand "Gold Winner". Driven by the goal to
provide quality sunflower oil at competitive prices, Gold Winner within a
short span of time, has become the most preferred brand.
Gold Winner has proved once again that it is aptly named - according to a
report published by The Economic Times Brand Equity on April 21, 2008,
Gold Winner is ranked 63rd among India's hundred biggest Fast Moving
Consumer Goods (FMCG) brands by A.C. Nielsen Retail Audit. This
comprehensive retail audit was done based on a variety of parameters
including sales, top-of-the mind recall and trust. Not long ago, an ORG-MARG
survey also had rated Gold Winner as number one in the FMCG (edible oils)
category in South India. Gold Winner has become a member of the US based
National Sunflower Association (NSA), whose aim is to promote quality
sunflower products across the globe keeping the health of the people in
mind.
Gold Winner finds a place in every discerning home, thanks to the highly
sophisticated and rigorous processes adopted to refine crude sunflower oil. A
unique distribution network ensures that the end consumer always keeps
company with health and happiness. Gold Winner is now available in Sri
Lanka and is all set to establish its presence in Singapore.

Manufacturing
Gold Winner's state-of-the-art production unit is situated at Vengaivasal ,
about 14km from Chennai, India.
The plant uses the automatic and continuous Belgian technology for
processing in order to maintain the highest standards of quality and hygiene.
The Desmet technology used is state of the art and ensures that the refined
oil

produced

is

of

international

standards.

The storage capacity at the plant is 16000 tones. This large tank space
ensures that enough stocks are available to service the ever-growing
demand promptly.
The

crude

oil

is

systematically

purified

in

well-defined

stages

like

Neutralization, Bleaching, Dewaxing and Deodorization. All processes are

monitored and controlled automatically by using PLC based systems.
Untouched

by

hand,

the

oil

produced

here

matches

the

exacting

requirements of our customers.

To keep the processes stable and controlled, we have adopted modern plant
maintenance

practices

including

Preventive

maintenance.

Condition

monitoring of critical equipment is resorted to periodically. In observance to

stipulated standards, calibration of instruments and control devices are done
routinely.
Manpower:

A high-level in-plant safety committee ensures that the prescribed safety

norms are strictly adhered to. Personnel safety has the highest priority. Gold
Winner has employed well qualified and experienced personnel to handle all
its functions. The workforce, largely local, is inducted to work only after a
rigorous training process that includes on the job training. All welfare
measures are in place to ensure that the productive capacity of our people is
maintained at the highest level.
Their caring for the environment:
Gold Winner understands its social responsibilities and the effluent treatment
process is built on the concept of using environment friendly waste disposal
practices. The green environs in and around the factory bear ample
testimony to it.
Quality Assurance
To ensure the highest level of quality in the finished product, all our incoming
raw and other materials are subjected to stringent tests and checks.
The raw material - crude sunflower oil - is procured from reliable sources in
India and abroad and tested using the modern analytical Gas Chromatograph
.The quality at various stages of the processing is also checked and is further
assured

by

using

Good

Manufacturing

Practices

(GMP).

Undesirable

components are removed during the processing.

The good properties of the refined sunflower oil are maintained intact by the
use of appropriate packing. This ensures that the freshness we put in at the
time of manufacturing is the same freshness you get when you open your
pack .Simply put this is the unique FIFO (Freshness In -Freshness Out) benefit
that Gold Winner brings to you.

This ensures that every time you buy Gold Winner, you actually carry home
health and happiness.

Marketing
Vision: We envision that Gold winner should become the most valued and
preferred edible oil brand in our nation by 2007. Kaleesuwari Refinery Private
Limited has dedicated itself to its mission of building a conveniently
available, affordable world class brand that is trusted and preferred by the
consumer for its quality & nutritional value.
Today Gold winner is available in all the southern states of India and
Maharastra. Gold winner is constantly consolidating and expanding its
distribution reach with the single minded objective of coming closer to
customer.

Infact Kaleesuwari Refinery Private Limited is implementing an organization

wide ERP project named c2c or closer to customer. Once completed, "This
project is expected to track the buying behavior closely and help us to
effectively service our customers requirements". The SAP implementation
would also bring in commensurate reduction in lead time to deliver there by
positively impacting our inventory levels.
Gold winner is now an international brand having established its presence in
Sri Lanka. Gold winner would soon be available in Singapore as well. The

range of products has been enlarged to cater to the requirements of our

customer comprehensively.

About EFA
The Secret of a winning formula: EFA
Every glistening drop of Gold Winner comes with the promise of ample
nutrition and unending good health. Just a little Gold Winner can add to your
meal the innumerable benefits of pure refined sunflower oil. Thanks to the
fact that it contains EFA, Gold Winner keeps the winner in you going strong at
all times.

Why EFA?
With the advent of calorie-conscious and healthy eating habits, low fat diets
have become the order of the day. Leading to a curious dilemma - where
does one draw the line between excessive fat and essential fat? This is where
EFA steps in to add the needed sprinkle of health to every recipe.
What is EFA?
EFA (or Essential Fatty Acids) supply the body with vital macronutrients that
are not naturally produced by the human body, and it can be acquired only
from external sources through the food we consume. Sunflower Oil is one
such source, which is EFA rich.
Gold Winner, Refined Sunflower Oil rich in EFA ensures that it turns each
meal into a culinary delight.

Leverage
One of the tough challenges that firms face is to determine the right amount
of leverage. Leveraging decision 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, sign
forward contracts or trade bond swaps. They can also issue dozens of distinct
securities in countless combinations.
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.
The two important points to be considered while making financing decisions
are:
First, debt implies fixed financial obligations for the firm. After the firm breaks
even, meaning its earnings cover its debt obligations, any additional
earnings will be distributed among shareholders. Thus, when times are good
and the firms earnings are high, debt financing results in higher EPS.
However, when times are bad and the firms earnings barely cover its debt
obligations, there is little left for shareholders and, thus, EPS is low under
debt financing. This relationship also shows that EPS exhibits a greater
variation under debt as opposed to equity financing in the two scenarios as
can be seen from the results shown in the last table.
Second, stock financing does not dilute the shares of current owners.
Therefore, in the boom scenario, existing shareholders benefit from a higher

EPS, but, in the bust scenario, they bear the whole burden of the firms poor
performance.

To

the

entrepreneur

and

corporate

Liberalization,

Globalization

and

Privatization are the important issues threatening the existence of a firm. In

such a complex corporate environment, it is a challenge to the Finance
Manager to survive the firm in long run perspective with the objective of
maximizing the owner's wealth. With a view to achieve this objective finance
manager is required to pay his due attention on investment decision,
financing decision and dividend decision.
Assuming that a sound investment policy and opportunity are in place, it is
the intention of this dissertation to optimize the financing decision and
dividend decision in the context of achieving the stated objective. Financing
decision refers to the selection of appropriate financing mix and so it relates
to the capital structure or leverage.
Leverage is used to describe the firm's ability to use fixed cost to increase
the return to its owners. 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 and operating leverage.

Financial Leverage* Operating Leverage=

Combined Leverage
Capital structure refers to proportion of long-term debt capital and equity
capital required to finance investment proposal. There should be an optimum
capital structure, which can be attained by the judicious exercise of financial
leverage.
In order to run and manage a company, funds are needed. Right from the
promotional 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.
This dissertation mainly concentrates on the study of effects of leverage on
Manufacturing and service sector firms.
Types of leverage
There are three type of leverage:
1. Financial Leverage.
2. Operating leverage.
3. Combined or composite leverage.
Financial leverage:
Is primarily concern with the financial activities in which involve rising of
funds from the sources from which a firm has to bear fixed charges. These
sources include long-term dept (e.g.: bonds, debentures, etc) & preferences
share etc. Long-term debt carries a contractual fixed rate of interest &
obligatory. As the debt providers have Prior claim on income &assets of a
firm over equity shareholders their rate of interest is generally lower than
expected return of the equity shareholders.
Further interest on debt capital is tax-deductible expenses. These twophenomenon lead to magnification of rate of return on equity capital & hence
E.P.S goes without saying that effects of changes in E.B.I.T on the earning per
share are shown by the financial leverage. Financial leverage can best be

described as the ability of firm to use fixed financial charges in E.B.I.T. on the
firm earning per share.
Financial leverage helps to know the responsiveness of E.P.S. to change in
the EBIT. It involves use of funds obtained at fixed cost in the capital
structure in such a way that it increase the return for common shareholders.
It is referred to a state at which a firm has to bear fixed financing cost arising
from the use of debt capital. The firm with high financial leverage will have a
relatively high fixed financing 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 maximizing earning available
to equity shareholder 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
favorable financial leverage position and make earning available to equity
shareholders.
Financial leverage can measure with the help of the following formula:Financial leverage
=
EBIT
PBT
Financial leverage will have a favorable
impact on earnings per share a
return of equity only. When the firms return on investment exceeds the
interest cost of debt. The impact will be unfavorable if the return on
investment is less than interest.
The financial leverage measures the relationship between the E.B.I.T. & E.P.S.
And it reflect the effect of change in E.B.I.T.

On the level of E.P.S. The

financial leverage measures the responsiveness of the E.P.S. to charge in

E.B.I.T. If defined as dividend by % change in E.B.I.T.

Degree of financial leverage

% Change in EPS
% Change in EBIT

Operating leverage
Operating

leverage

associated

with

investment

activities

(Assets

acquisition). It occurs anytime when firm has fixed costs that must be met
regardless of volume in operating leverage, when fixed cost remain constant
the percentage change in profit accompanying a change in volume is greater
than the percentage change in volume A firm with high operating leverage
will have a relatively high fixed cost in comparison with a firm with low
operating leverage. If a company employs operating leverage then its
operating profit will increase at a faster rate for any given increase in sale.
However I 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. It can be ascertained by the help of
following formula

Operating leverage =
Contribution
EBIT
Degree of operating leverage
A high degree of operating leverage shows the greater impact on the
operating income of the company due to variability in its sales, which is also
responsible for variability 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.
Degree

of

operating

leverage

Favorable leverage is said to occur when the firm earns more on the assets
purchased with the funds than their opportunity use. It is unfavorable when
firm doesnt earn equivalent to the cost of funds.

Composite leverage or combined leverage or Total Leverage

When financial leverage is combined with operating leverage the effect of
change in revenues or earning per share is magnified Composite / combined
leverage refers to extent to which firm has fixed operating cost as well as
financial cost.
The degree of operating and financial leverage can be combined to show the
effect of total leverage on E.P.S associated with given change in sales.
Operating and financial leverage together wide fluctuation in E.P.S for given
change in sales if company employs high level of operating leverage and
financial leverage even a small change in level of sales will have a dramatic
effects on earning per share
It can be calculate by the help of following formula:-

Combined

leverage

Significance:A proper combination of both financial & operating leverage is blessing for
firm growth, while improper combination of both leverage may prove curse
for the growth of company. So company should try to achieve balance of
both leverage.

Implications, Applications and Utility of Leverages

Financial leverage is primarily concerned with the financial activities, which
involve raising of funds from the sources for which a firm has to bear a fixed
charge. These sources include long-term debt (e.g. bonds, debenture etc.)
and preference share capital. Long-term debts capital carries a contractual
fixedrate of interest and its payment is obligatory. As the debt provides have
prior claim on income and assets of a firm over equity shareholders, their
rate of interest is generally lower than the expected return on equity
shareholders.
Further interest on debt capital is a tax-deductible expense. These two
phenomenons lead to the magnification of rate of return on equity capital
and hence EPS. It goes without saying that the effects of changes in EBIT on
the earnings per share are shown by the financial leverage. Financial
leverage can best be described as the ability of a firm to use fixed financial
charges to magnify the effect of changes in EBIT on the firms earnings per
share.
Financial leverage helps to known the responsiveness of the earnings per
share (EPS) to the changes in earnings before interest and taxes (EBIT). It
involves the use of funds obtained at a fixed cost in the hope of increasing
the return to common shareholders.
Financial leverage refers to the extent to which a firm has fixed financing
cost arising from the use of debt capital. The firm with financial leverage will
have a relatively high fixed financing cost compared to the firm with a low
financial leverage.
Financial leverage will occur when a company employs the fixed cost of
funds, debt or preference share capital with a view to maximizing earnings

available to equity shareholders by way of a higher income than the cost of

funds.
These techniques also called trading on equity. Financial leverage
influences the financial risk of a company. If the earnings are insufficient for
covering the fixed cost burden then the company has to face financial risk.
As long as the companys earnings are greater than its fixed costs, It will
enjoy a favorable financial leverage position and a make use of the earnings
available to equity shareholders.
The behaviors of Degree of Financial Leverage (DFL) reveals that:
1.
2.
3.
4.

Each level of EBIT has distinct DFL.

DFL is undefined at financial BEP.
DFL will be negative when the EBIT level goes below the financial BEP.
DFL will be positive for all values of EBIT that are above the financial
Break-even point. This will however starts to decline as EBIT increases
and will reach to a limit of one.

By assembling DFL one can understand the impact of a change in EBIT on

the EPS of the company. It helps in assessing the financial risk of the
company. It also explain the impact of market risk on financial risk.
Greater the financial leverage, wider the fluctuation in return on equity and
greater is the financial risk.
Implications
1. High operating leverage combined with high financial leverage will
consolidate risky situation.

2. Normal situation is one should be high and another should be low. If a

company has a low operating leverage, financial leverage can be
higher and vice versa.
3. Ideal situation is when both the leverages are low.

Application and Utility of Leverage:

To understand the applications and utility of leverage in financial analysis it is
important to understand the behavior of degree of operating leverage. It is to
be noted that:
1. For each level of output there is a distinct Degree of Operating
Leverage (DOL).
2. At BEP, DOL is undefined.
3. If quantity is less than BEP, the DOL will be negative. (But there is no
such direct relationship that less quantity leads to decrease in EBIT no
such connection to be formed.)
4. If quantity is greater than BEP the DOL will be positive (but there is no
such direct relationship. DOL may start declining after increasing
quantity beyond certain level and will limit to one.
5. A large DOL indicates that small fluctuation in the level of operation
will produce large fluctuation in the level of operating income.

Why leverage is possible?

PROFITABILITY A CATALYST IN THE LEVERAGE:
Profitability is the ability of a company to generate profit. It is an overall
measure, which depicts the efficiency and efficiency and effectiveness at
which the company has been operating. It indicates the overall result of the
management's decision. Further, it reflects how best the company has put to
use its scarce resources to generate a higher rate of profitability.
Profitability is also taken as a criterion to measure and assess the relative
efficiency of the management of a company to generate profit. A company,
which generates a higher rate of profitability, is considered to be more
efficient than other companies. Profitability is represented by the return on
investment (ROI). It is the overall measure of a company's performance.
According to Du-Pont control chart, variability in profitability is explained by
taking into consideration its two components viz profit margin and asset
turnover. As per this part, an overall control is exercised on the various
resources of a company and necessary corrective action for further
improvement in profitability is suggested.

Profitability

is

ascertained from

the income

statement. The various

components of an income statement and their inter-relationship embrace the

profitability status of the firm. This can be shown from the following table:-

INCOME STATEMENT:
Total Revenue
-

Variable cost

Fixed Expenses

= Earnings before Interest and Tax (EBIT)

-

Interest on Debt

= Profit before Tax (PBT)

-

Tax

= Profit after Tax (PAT)

-

Preference Dividend

= Equity Earnings
EBIT = Total revenue Total cost} Total cost = V +F
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
V = Variable cost per unit
F = Total fixed cost.
EPS = PAT / N and EPS per equity = PAT DP / N

Now PAT = EBIT I Tax on (EBIT - I)

Therefore EPS for equity = [ (EBIT I )(1 - T) DP] / N
Thus we can see that EBIT is related S, Q.V, and F and EPS is related to EBIT.
This relationship can be used to understand movement in related items with
reference movement in certain items.
The relationship between quantity of production sold and earning capacity
established operating leverage. The operating hints that when we change
the level of operation it results in the change in earning capacity.
The relationship between organizations total earning capacity and earning by
the individual investors establish financial leverage. The financial leverage
hints that when earning capacity changes it results in the corresponding
change the earning by the individual investor.
The relationship between the two leverage brings out the total leverage. The
total leverage hints that when there is a change in level of operation it
results in the corresponding change in the earnings by the individual
investor.

Thus this relationship can be shown as:

QUANTITY

Levels of operation

EBIT

EPS

Earning capacity
Earnings per share

Op. leverage

Fin. leverage

Total Leverage