A Study on Capital Budgeting Techniques in Ultra Tech Cement Pvt Ltd

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1 A Study on Capital Budgeting Techniques in Ultra Tech Cement Pvt Ltd Mr. Manoj Choudhary MBA Dept, Malla Reddy engineering college Maisammaguda, Secunderabad Ms. Sandhya (Assistant Professor), MBA DeptMalla Reddy engineering s maisammaguda, secunderabad ABSTRACT: Capital budgeting techniques are used in every organization and it plays a major role in making a appropriate decision towards its resources, profitability and financial stability of the organization. Many changes took place in the organization i.e. their tools & techniques.so the organization has to measure its growth in investment or sales. This technique is used to increases the firm s asset and till the firm s exists in the market it has to invest in different asset or the asset which gives high return or long tern asset. The capital budgeting techniques has many different types to calculate which helps to decide which project to be choose or accepted or not.insight of this the study has made on attempt to analyze the efficiency of cement sectors capital budgeting through their financial statement. Keywords: capital budgeting, depreciation, investment, sales, profits. INTRODUCTION: Capital budgeting is used by every organization for increasing their firm s assets and till the firm exists it will invest in assets. At the same time the firm s investing to maximize the wealth of the owner. Its responsibility of firm s manager to identify for any investment opportunities and determine which one provides high return with lesser risk. So the financial manager must be able to make an appropriate decision regarding investment i.e.to select or not and also be able to select the best alternatives out of two or more investment proposals. Capital budgeting decisions regarding long term assets are the part of on-going process of it. Also a manager must have an idea about what projects to invest which can generate the income or wealth to the firm s owner and these are judged on the future events, which are not that easy to conclude. It is hard to assessment the future cash flow of investment. Capital budgeting helps the organization in planning and controlling the firm s capital expenditure. It is one of the techniques which decide whether to choose the resources for a particular long term investment proposals whose return will be realized over a period of time. Capital budgeting is generally used to know the investment decision regarding the firm. As the firm thinks about this technique it should define its corporate strategies. It is the technique through which number of projects can be evaluated known as capital budgeting. It is the process for acquisition and investment of capital. Capital budgeting can be planned by analyzing different projects and in different areas like research & development, engineering, financial institutions and management information system\ for investment opportunities. It also involves investment of its current funds for addition, disposition, modification and replacement of fixed assets. In this process the allocation of Resources for major capital, expenditure and one of the goals of capital budgeting investment is to maximize the wealth of the firm s owner. OBJECTIVES OF THE STUDY: To evaluate Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI) to analyse different projects Mr. Manoj Choudhary, Ms. Sandhya

2 To identify different projects through capital budgeting technique, so that best one can be undertaken. To make suggestions and to develop next process of capital budgeting To calculate profitability of every projects by considering high return project. REVIEW OF LITERATURE: DAYANAND ET AL. (2002): In his research on A study of capital budgeting in ultra tech cement limited capital budgeting technique is used for selecting an investment projects which maximizes shareholder s wealth. BRICKLEY (2006): Capital budgeting is a long term assets which deals with the investment that gives high return. And these aspects are prepared a year advance and these can be extended to five, ten or fifteen years in futures. PETERSONand FABOZZI(2002): He defines that capital budgeting is the method of evaluating and choosing investment opportunities in long term assets where it uses the data for more than one to five years. SEKWAT (1999):capital budgeting technique is used for planning, controlling and allocating limited resources for competing demands of customer. Capital budgeting plays a vital role in planning and making decision towards an investment projects. Hence capital budgeting techniques are able to choose best investment projects among other alternatives. BOWMANand HURRY (1993): capital budgeting decisions are made by the top management as of choosing a best alternatives from the available investment projects. RESEARCH METHODOLOGY The Research can be conducted in two ways they are as follow: 1. Primary data 2. Secondary data PRIMARY DATA Primary data is a Source of data where the information is collected by using some techniques like surveys, questionnaire, interview, personal interview etc. SECONDARY DATA The secondary data can be collected from the following sources like text books, journals, magazines, annual reports of the company and various websites. HYPOTHESIS FORMULATION H 0_ There is no significance difference between fixed investments and the selected internal factors (sales, profits, depreciation) are not significant. H 1_ There is significance difference between fixed investments and the selected internal factors (sales, profits, depreciation) are not significant. STATISTICAL TOOLS USED 1. Payback period: Payback period = Cash outlay (investment) / Annual cash inflow 2. Accounting rate of return method (ARR)/ Average rate of return (ARR): ARR= Average income/average Investment 3. Net present Value (NPV) Method: NPV = Present Value B Present Value C 1420 Mr. Manoj Choudhary, Ms. Sandhya

3 4. Internal Rate of Return (IRR): If Internal Rate of Return > Weighted Average Cost of Capital then the project is profitable. If Internal Rate of Return > cost of capital (ko) = accept If Internal Rate of Return < cost of capital ( ko) = reject 5. Profitability Index (PI): PI = Net Present Value (benefits) / Net Present Value (Costs) SAMPLE SIZE One company Period is limited to five years. RESULTS AND INTERPRETATION: Fixed investment Analysis Statement: During the study period, the aim behind the investment of this organization is for limit development and R&D. We watch that out of 5 years, speculations have been financed by inner source of the company for a long time. Other than the interior sources, this organization have likewise raised assets from outer sources to back their extra settled speculations during Trends in Fixed Investment: Keeping in mind the end goal to find the settled speculation pattern of this organization, the rate of increment in fixed asset during the year has been figured. During the time spent arrangement, these rates are grouped into two classes by thinking about ordinary business rehearses and the discoveries of observational examination. A. Regular/routine Investments: Organization contributes under 10% for every of speculations as customary/routine ventures for maintenance and replacement. B. Growth / expansion oriented Investments: Organization contributes more than 10% considering as development and extension. TABLE-1 YEAR FIXED ASSETS ASSETS INCREASE PERCENTAGE OF INCREASE FIXED ASSETS ASSETS INCREASE PERCENTAGE OF INCREASE Mr. Manoj Choudhary, Ms. Sandhya

4 Interpretation: From the above table-i, in the yearly rate we can see growth in fixed Investment statement and their classification. In the time of , for every year the investment speaks to routine speculations class for normal maintenance and replacement no investment year represents dependable development and extension. The measure of incremental speculations expanded its height in 2015 with Rs crs and slightlyincreasesin the year 2016and 2017 i.e. to and crs.the most elevated rate of growth is found in the year 2016 with for each percent and there is huge decrease in percentage change in the year 2017 i.e TABLE -2 Statement of Descriptive Statistics & Selected variables Year INVESTMENTS SALES PROFIT DEPRICIATION TOTAL MEAN CORRELATION INVESTMENTS SALES PROFIT DEPRICIATION INTERPRETATION: Fixed Investments and sales: Trends of fixed speculation and the business demonstrate a similar trend however the % of change fluctuates during the investigation time period. The coefficient of correlation amongst sales and fixed investment is observed to be poor connection b/w variables (see table 3) which is statistically limited at 5% level of significance, recommending that the connection between the variable is direct. Capital budgeting decisions may build the sales through incremental in production, and advertisement of programs hikes the demand to the item goes up in the market. This has been demonstrated by this organization as it involves the great position in the market. From the study, the fixed investment and sales have the nearby and direct connection between each other Mr. Manoj Choudhary, Ms. Sandhya

5 Fixed investments and profit: As we specified above, increment in fixed investment is to upgrade the earning limit of the organization. It is obvious from the table 3 where we can discover a move from loss into profit. There are number of changes with generously high and low levels of the fixed investment and profit during the study time period. The coefficient of correlation amongst profits and fixed investment is observed to be (see table 3) which is statistically limited at 5% level of significance, showing poor relationship between the variables. This is because of improper usage of fixed investment. Subsequently the administration needs to enhance its use of fixed investment. Fixed investments and depreciation charges: This is another vital inner factor thought to be related with fixed investment. In our study, we observed that extremely poor connection between the variables and this coefficient is statistically insignificant at 5% level of significance. Typically, more the investment in fixed asset, the higher will be the devaluation charges which help the organization for extra investment in fixed asset. A fitting strategy for devaluation on fixed assets not just encourages the organization to hold the profits and for an appropriate tax planning. But the present condition of organization s usage is exceptionally poor. TABLE-3 Simple Correlation Analysis Variables between Correlation T - Value INVESTMENTS &SALES INVESTMENTS &PROFIT INVESTMENTS & DEP INTERPRETATION: From the above data analysis the calculation value of Investment and Sale i.e., and table value is V=3 at 5% level of significance is 0.8. Hence, the calculated value is less than the table value so, we accepted H 0 hypothesis. From the above data analysis the calculation value of Investment and Profit i.e., and table value is V=3 at 5% level of significance is 0.8. Hence, the calculated value is less than the table value so, we accepted H 0 hypothesis. From the above data analysis the calculation value of Investment and Depreciation i.e., and table value is V=3 at 5% level of significance is 0.8. Hence, the calculated value is less than the table value so, we accepted H 0 hypothesis. FINDINGS: There is an increase in investment of fixed investment demonstrate an expansion trend during study time which frames with an average of Rs crs and standard deviations of Rs Anyhow, the speculations are not uniform all through the study period. In this finding, we found that the coefficient of correlation between incremental fixed assets and sales are efficient and effective. So likewise, the coefficient of correlation between settled hypotheses and sales have the immediate relationship and statistically huge. Nevertheless, the association between the fixed investment and depreciation have the poor relationship and quantifiably insignificance. If we have to maintain the same position of the company in the market with same products and quality. Therefore the company has to invest regularly in different projects so that they can get higher return and for maintaining these there are two aspects i.e. daily routine and expectations. And every company follows these aspects for their routine investment Mr. Manoj Choudhary, Ms. Sandhya

6 CONCLUSION: The basic testing task of fixed investment decisions lies in the search for profitable investment and to induce the favorable circumstances in the instability condition in quantitative terms. From the test examination, this present association's fixed investment decisions are discriminating and exhibits better save organization The planning exercise in ULTRATECH likewise covers the long term capital budgeting technique, including yearly budget and gives long term plan to utilization of internal assets and debt modernized interpretation made into the corporate budgets. REFERENCE: 1. DAYANAND ET AL. (2002)Research Journal of Finance and Accounting ISSN (Paper) ISSN (Online) Vol.7, No.1, BRICKLEY (2006) Research Journal of Finance and Accounting ISSN (Paper) ISSN (Online) Vol.7, No.1, PETERSON and FABOZZI(2002) Research Journal of Finance and Accounting ISSN (Paper) ISSN (Online) Vol.7, No.1, SEKWAT (1999) Research Journal of Finance and Accounting ISSN (Paper) ISSN (Online) Vol.7, No.1, BOWMAN and HURRY (1993) Research Journal of Finance and Accounting ISSN (Paper) ISSN (Online) Vol.7, No.1, Mr. Manoj Choudhary, Ms. Sandhya

CAPITAL BUDGETING TECHNIQUES IN BHEL PVT LTD

CAPITAL BUDGETING TECHNIQUES IN BHEL PVT LTD A. Lohitha 1, Mrs. A. Latha 2 MBA (2nd year), Malla Reddy Engineering college(a),maisammaguda, Dhulapally, Secunderabad (India) Associate Professor, Department