FINANCIAL

MANAGEMENT
CIA 1.1

DIFFERENT SOURCES OF FINANCES AVAILABLE

Submitted To: Prof. Bina Celine Dorathy M

Submitted By: Rohit Goyal 2123531
3 BBA FIB B
INDUSTRY CHOSEN: TYRES MANUFACTURING UNIT

Companies Chosen: MRF Tyres and GoodYear

INTRODUCTION TO MADRAS RUBBER FACTORY (MRF)

Fig: Logo of MRF

Madras Rubber Factory (MRF) is an Indian multinational tyre manufacturing firm that is the
largest tyre producer in India and the world's sixth-largest. Chennai, Tamil Nadu, India is the
company's headquarters. Rubber items, such as tyres, treads, tubes, and conveyor belts, as
well as paints and toys, are manufactured by the firm. The MRF Pace Foundation in Chennai
and the MRF Challenge in motorsport are both operated by MRF. In 1946, K. M. Mammen
Mappillai established the Madras Rubber Factory in Tiruvottiyur, Madras, as a toy balloon
manufacturing plant. In 1952, the firm expanded into tread rubber production. In November
1960, Madras Rubber Factory Limited was established as a private company.

MRF now supplies tyres to over 65 nations throughout the globe, including the United States,
Europe, the Middle East, Japan, and the Pacific area. Its international offices are now located
in Dubai, Vietnam, and Australia.

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VARIOUS SOURCES AVAILABLE FOR RAISING FUNDS

Sources of Finance: -

The money that a firm utilises to fund its activities is referred to as a source or sources of
financing. Equity, debt, debentures, retained earnings, term loans, working capital loans,
letter of credit, euro issuance, venture funding, and other sources of finance are available to
the company. These money are used in a variety of scenarios. They are categorised by time
period, ownership and control, and generation source. Before deciding on a source of capital,
it is essential to assess it.

Sources are divided into three categories based on their duration: long-term, medium-term,
and short-term. Sources of finance are divided into owned and borrowed capital based on
ownership and control.

Owner’s Fund: -

The term "owner's funds" refers to funds obtained by a business's owners, who might be a
lone proprietor, partners, or shareholders. Profits that are re-invested in the firm are also
included. The owner's capital is retained in the business for a longer period of time and is not
needed to be returned over the business's lifetime.

Equity: -

Equity financing is the process of acquiring cash via the sale of shares. Companies seek funds
for a number of reasons, including an immediate need to pay bills or a long-term goal that
requires resources to expand. When a corporation sells shares, it basically sells ownership of
the company in return for cash.

The Equity Share capital of MRF is as follows: -

The Company has only one class of equity shares, each with a par value of $10. Each
shareholder has one vote for each share held. Except in the event of an interim dividend, the
Board of Directors' proposed pay-out is subject to shareholder approval at the next Annual
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General Meeting. In the case of a liquidation, equity owners are entitled to receive the
Company's residual assets after any preferential payments have been distributed, in
proportion to their holdings.

 The company has an authorised capital of 9 crores. The issued share capital is of 4.24
crores. The shares are fully subscribed.
 The Earning per share 3289.16 crores of the year ended 31.03.2020

Borrowed Fund: -

Borrowed capital, often known as debt capital, is money obtained from outside sources. The
borrower has a charge on the business's assets in this kind of capital, which means that in the
case of liquidation, the company will pay the borrower by selling the assets. Another
component of the loaned funds is a monthly set interest payment and capital repayment.

DEBT: -

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Debt financing occurs when a business sells debt instruments to individuals and/or
institutional investors in order to obtain funds for working capital or capital expenditures.
Individuals or institutions become creditors in return for receiving a guarantee that the loan's
principal and interest will be repaid.

The debt of MRF is as follows: -

The borrowings of the company are segregated into two: -

 Non – Current Borrowings

 Current Borrowings

Non-Current Borrowings: -

 It includes 10.09% secured redeemable non-convertible debentures of 180 crores.

 Soft Loan from SPICOT of 61.50 crores.
 Unsecured Term Loans from Bank which include External commercial Borrowings of
382.97 crores.
 Rupee term Loan of 150 crores.
 In other non-current borrowings, it has Deferred Payment Liabilities of 4.56 crores

Current Borrowings: -

 It has loans repayable on demand from banks of 240.58 crore.

 The interest accrued on them is 4.56 crores.

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The sources of funds that the company had accessed to were majorly, long term Borrowings,
Loans from micro and small enterprises, deferred payments and term loan.

INTEREST RATES AND REPAYMENT OPTIONS FOR THE

AVAILABLE SOURCES

• Bank loans that are repayable on demand are secured by hypothecation of inventories and
book debts in an amount equal to the outstanding amount, with interest rates ranging from
6.60 percent to 8.85 percent (Previous year - 7.40 percent to 8.45 percent)

• The principal number of Debentures, interest, remuneration to Debenture Trustees, and all
other costs, charges, and expenses payable by the company in respect of Debentures are
secured by a legal mortgage of the company's land at Taluka Kadi, District Mehsana,
Gujarat and hypothecation by way of a first charge on Plant and Machinery at the company's
plants at Perambalur, near Trichy, Tamil Nadu, equal to the outstanding amount.

• 1800 (Previous year 3400), 10.09% Non-convertible Debentures of ` 10,00,000 each are to
be redeemed at par in three instalments.

• • USD 20 million ECB (Unsecured) from MUFG Bank, Ltd. (Old name: Bank of Tokyo-
Mitsubishi UFJ, Ltd) in May 2015 is for capital expenditures. Interest is paid half annually at
a rate equivalent to six months USD LIBOR plus 1.00 percent margin (previous year-six
months USD LIBOR + 1.00 percent margin). Beginning in May 2019, the stated Loan is
completely hedged and repayable in three equal yearly instalments at the conclusion of the
fourth, fifth, and sixth years.

• ECB (Unsecured) from the HSBC Bank

a) The USD 20 million that was made available in October of 2015 was for capital
expenditures. Interest is paid half annually at a rate equal to the six-month BBA LIBOR +
1.25 percent margin (previous year- six-month BBA LIBOR plus 1.25 percent margin).

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Beginning in October 2019, the stated Loan is completely hedged and repayable in three
equal yearly instalments at the conclusion of the fourth, fifth, and sixth years.

b) The USD 45 million in December 2017 was set aside for capital expenditures. Interest is
paid half annually at a rate equivalent to the six-month BBA LIBOR plus a 0.80 percent
margin (Previous year six months BBA LIBOR plus margin of 0.80 percent). The
aforementioned Loan is fully hedged and will be repaid in full in December 2022.

• In February 2019, HSBC Bank provided a 150-crore rupee term loan for capital
expenditure. Interest is paid monthly at a rate equal to the three-month T-Bill rate plus a 1.49
percent margin (previous year: 1.49 percent). In February 2024, the stated Loan will be
repaid in full.

INFERENCES

Summary of Sources of Funds –

 Equity Capital – 4.2 Cr

Borrowings –

 Non-Current borrowings – 1021.02 Cr

A. Debentures (secured) – 241.5 Cr
B. Unsecured borrowings – 532.97 Cr
C. Total Involving all other non-current borrowings – 779.3 Cr
 Current borrowings – 241.99 Cr
A. Current secured borrowings – 240.58 Cr
B. Interest accrued on above loans – 1.41 Cr

The share holding pattern for MRF (in percentages) is –

March 2021
Promoters 27.84%
FIIs 13.48%
DII’s 14.28%
Public 44.40%

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MRF has 4825 crores in unsecured bank loans, 450 crores in corporate bank loans (long term
and current), and 1565 crores in borrowings from various sources. Long-term borrowings,
loans from micro and small businesses, deferred payments, and term loans have all been
employed by MRF. It has been able to keep its leverage at a safe level of serviceability. The
interest coverage ratio has been good, which indicates that the company is robust.

Key Financial Ratios of MRF (in Rs. MAR 2019 MAR2021

Cr.)
Basic Earnings Per Share 2586.26 3289.16
Debt to Equity 0.14 0.09

The financial decisions taken and the optimum combination of debt and equity has led to an
increase in Earnings Per Share i.e., the firm is able to attain the goal of wealth maximization
for its stake holders under the period of consideration that is from March 19 to March 20.

Debt to Equity ratio = Debt (Total Liabilities) / Equity (Total Shareholder’s Equity, which
implies that is the firm has higher debt to equity ratio, it has more borrowings as a source of
fund which can be risky and the interest rates are an obligation obviously. The decrease of
D/E ratio from 0.14 to 0.09 shows that the MRF is sourcing its funds majorly by the issue of
equity capital which is a positive sign, as a high debt to equity ratio indicates that a company
may not be able to generate enough cash to satisfy its debt obligations. Investors usually
prefer low D/E ratios because their interests are better protected in the event of a business
decline. This capital structure helps as a point guiding rule for financial decisions and hence
the growth of EPS and wealth maximization reflects the changes in the ratio to some extent.

INTRODUCTION TO GOODYEAR

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 Fig: Logo of GoodYear

Frank Seiberling established the Goodyear Tire & Rubber Company, an international
American tyre manufacturer, in 1898. The company is headquartered in Akron, Ohio. As of
2017, Goodyear, Bridgestone (Japan), Michelin (France), and Continental are the top four
tyre manufacturers (Germany).
Charles Goodyear (1800–1860), an American who developed vulcanised rubber, inspired the
name of the business. Due to their simplicity of removal and low maintenance requirements,
the original Goodyear tyres quickly gained popularity.
When Goodyear decided to invest in a tyre production facility in Dalian in 1994, it became
the first international tyre producer to enter China.

VARIOUS SOURCES AVAILABLE FOR RAISING FUNDS

Sources of Finance: -

The money that a firm utilises to fund its activities is referred to as a source or sources of
financing. Equity, debt, debentures, retained earnings, term loans, working capital loans,
letter of credit, euro issuance, venture funding, and other sources of finance are available to
the company. These money are used in a variety of scenarios. They are categorised by time
period, ownership and control, and generation source. Before deciding on a source of capital,
it is essential to assess it.

Sources are divided into three categories based on their duration: long-term, medium-term,
and short-term. Sources of finance are divided into owned and borrowed capital based on
ownership and control.
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Owner’s Fund: -

"Owner's funds" refers to money that firm owners—who could be a sole proprietor, partners,
or shareholders—have acquired. Included are profits that are put back into the business. Over
the course of the business's existence, the owner's capital is kept in the company for a longer
period of time and is not required to be returned.

Equity: -

Acquiring money through the sale of shares is the process of equity financing. Companies
look for funding for a variety of reasons, such as an urgent need to pay bills or a long-term
objective that necessitates resources for expansion. When a corporation sells shares, it
essentially transfers control of the business in exchange for money.

The Equity Share capital of GoodYear is as follows: -

The Company has only one class of equity shares, each with a par value of $. Each
shareholder has one vote for each share held. Except in the event of an interim dividend, the
Board of Directors' proposed pay-out is subject to shareholder approval at the next Annual
General Meeting. In the case of a liquidation, equity owners are entitled to receive the
Company's residual assets after any preferential payments have been distributed, in
proportion to their holdings.

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  The company has an authorised capital of 233 million. The issued share capital is of
181 million. The shares are fully subscribed.
 The Earning per share $ 4545 million of the year ended 31.12.2019

Borrowed Fund: -

Borrowed capital, often known as debt capital, is money obtained from outside sources. The
borrower has a charge on the business's assets in this kind of capital, which means that in the
case of liquidation, the company will pay the borrower by selling the assets. Another
component of the loaned funds is a monthly set interest payment and capital repayment.

DEBT: -

Debt financing occurs when a business sells debt instruments to individuals and/or
institutional investors in order to obtain funds for working capital or capital expenditures.
Individuals or institutions become creditors in return for receiving a guarantee that the loan's
principal and interest will be repaid.

INTEREST RATES AND REPAYMENT OPTIONS FOR THE

AVAILABLE SOURCES

 Bank loans that are repayable on demand are secured by hypothecation of inventories and
book debts in an amount equal to the outstanding amount, with interest rates ranging from
6.60 percent to 8.85 percent

 By increasing our availability under the facility by about $230 million as of December 31,
2020, we added the value of the eligible machinery and equipment. Based on our current
liquidity, the interest rate for loans under the facility rose by 50 basis points to LIBOR +

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 175 basis points, and undrawn sums under the facility will be subject to a 25 basis point
annual commitment charge.

 We updated and restated our $2.0 billion first lien revolving credit facility on April 9,
2020. The term of the facility has been changed to April 9, 2025, and the borrowing base
has been increased by $100 million in addition to the value of eligible machinery and
equipment and the amount attributable to the value of our key trademarks. Based on our
current liquidity, the interest rate for loans under the facility rose by 50 basis points to
LIBOR + 175 basis points, and undrawn sums under the facility will be subject to a 25
basis point annual commitment charge..

NBFC’S And Development Agencies

● There are several NBFC’S providing collateral free loan to businesses such as HDFC
Business Loan, SBI Small Business Loan, Fullerton India Business Loan, Kotak
Mahindra Business Loan.
● Interest Rate 9.15% to 10.15%

Repayment Options

● As the interest rate of term loan and working capital from the Bank is the highest, our
priority will be to repay this loan first.
● As Debentures have a fixed maturity period, it is less of a concern. Though we
understand that interest would need to be paid at regular intervals.
● At last, we would recommend paying the IREDA loan as it has a long tenure of 10
Years and lowest interest rate among all.

INFERENCES

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The Sources of Funds tell us where the company got their money from whereas the
application of funds tells us how the money was spent. Few examples of the application of
funds are: Purchase of Fixed Assets, Investments, payment of dividend and taxes, increase in
working capital, repayment of loans, etc.

GoodYear sources of funds were mainly Retained earnings, equity capital and debt capital.
The application of these funds are:

Gross Block

Capital work in progress

Investments

Gross Block- The total value of all of the assets that a company owns is known as Gross
block. Here, the value of the given assets is determined by the total amount it costs for
acquiring these assets. The depreciation on those assets is not excluded. Identifying the gross
block helps a company to understand the exact investment that has been made in each of the
assets that are currently held.

Capital work in progress- CWIP i.e. Capital work in progress, is used to record current
costs related to long-term projects, such as constructing a new building which is an asset
account on the balance sheet. It is a work that is still under construction and not yet complete
but its amount has already been paid. Sometimes these payments are found to be used as a
diversion and thus cause forensic audit.

Investments- Funds used for investments are known as investment funds. Each investor has
their supply of capital which is used to collectively purchase securities while also retaining
control of his own shares and ownership in the company. This fund helps the company by
providing a wide range of investment opportunities. These funds can generate higher returns
with reduced risks. Companies aim to achieve individual or organizational profits through
these funding activities.

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Conclusion

The financial situation of a company plays an important role in determining the quality of
product or services the company provides. Funding is the fuel that powers a business. To
attain funding, a company can use different routes and channels which depend on the type of
the business, current position of the company and the objectives the company plans to
achieve. However, there are some other inevitable procedures a company must follow such as
the eligibility criteria and documents required for acquiring funds.

Thus, from the report we can conclude that MRF and GoodYear, being the largest Tyre
Manufacturing company and a public limited company, uses various sources of funds,
predominantly, Retained earnings, Equity capital and Debt capital for various applications.
The company is expected to repay the term loan and working capital from the bank due to
high interest rates. Being a public company helps these companies generate more capital as
anyone can invest in the company.

REFERENCES:

1. Limited, M. MRF Ltd financial results and price chart - Screener, from
https://www.screener.in/company/MRF/consolidated/

2. MRF Share Price, MRF Stock Price, MRF Ltd. Stock Price, Share Price, Live BSE/NSE,
MRF Ltd. Bids Offers. Buy/Sell MRF Ltd. news & tips, & F&O Quotes, NSE/BSE Forecast
News and Live Quotes, from
https://www.moneycontrol.com/india/stockpricequote/tyres/mrf/MRF

3. Stock Share Price | Get Quote | BSE, from

https://www.bseindia.com/stock-share-price/mrf-ltd/mrf/500290/

4. MRF – Investor Relations – Shareholder Info, from

https://www.mrftyres.com/shareholder-info

5. Debt Financing, from https://www.investopedia.com/terms/d/debtfinancing.asp

6. e- Finance Management, from https://efinancemanagement.com/sources-of-finance

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7. How Equity Financing Works, from
https://www.investopedia.com/terms/e/equityfinancing.asp

8. Requirements to Obtain Bank Financing for Your Business, from

https://gatewaycfs.com/bff/bank-loan-requirements-businesses

9. From http://www.iepf.gov.in/IEPF/Eligibility_norms.html

10. From https://www.paisabazaar.com/business-loan/eligibility/

11. MRF (company) - Wikipedia, from https://en.wikipedia.org/wiki/MRF_(company)

12. Meaning of Capital Work in Progress | Bizfluent. https://bizfluent.com/about-7221654-

capital-work-progress-meaning.html
13. Goodyear Share Price https://www.moneycontrol.com/financials/goodyearindia/balance-
sheetVI/GI11

14 Goodyear annual report 2020 https://www.goodyear.co.in/wp-content/uploads/Goodyear-

India-Limited-Annual-Report_2020-21.pdf

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