Introduction
Kansai Nerolac Paints Ltd (Bse: 500165, Nse: Kansainer) (Formerly Known As Goodlass
Nerolac Paints Ltd) Is The Largest Industrial Paint And Second Largest Decorative Paint
Company Of India Based In Mumbai. It Is A Subsidiary Of Kansai Paint Of Japan. It Is Engaged
In The Industrial, Automotive And Powder Coating Business. It Develops And Supplies Paint
Systems Used On The Finishing Lines Of Electrical Components, Cycle, Material Handling
Equipment, Bus Bodies, Containers And Furniture Industries.
History[
1920 : It Started As Gahagan Paints & Varnish Co. Ltd. At Lower Parel In Mumbai.
1957 : Goodlass Wall Pvt. Ltd. Grew Popular As Goodlass Nerolac Paints (Pvt.) Ltd.
Also, It Went Public In The Same Year And Established Itself As Goodlass Nerolac Paints
Ltd. .
1976 : Goodlass Nerolac Paints Ltd. Became A Part Of Tata Forbes Group On
Acquisition Of A Part Of The Foreign Shareholdings Byforbes Gokak.
1983 : Goodlass Nerolac Paints Ltd. Strengthened Itself By Entering In Technical
Collaboration Agreement By Kansai Paint Co. Ltd., Japan And Nihon Tokushu Tokyo Co.
Ltd., Japan.
1999 : Kansai Paint Co. Ltd. , Japan Took Over The Entire Stake Of Tata Forbes Group
And Thus Goodlass Nerolac Paints Became Wholly Owned Subsidiary Of Kansai Paint
Company Ltd. 2006 : On 11 July, Goodlass Paint Ltd. Name Has Been Changed To Kansai Nerolac
Paints Ltd.
Company Overview
Kansai Nerolac Paints Has 5 Paint Manufacturing Plants And About 6–7 Contract
Manufacturers. The Nerolac Owned Plants Are At 1. Jainpur (Uttarpradesh) 2. Bawal (Haryana)
3.Lote, Chiplun (Maharastra) 4. Hosur (Tamil Nadu)
Kansai Nerolac Paints Ltd. Has Entered Into Many Technical Collaborations With Other Industry
Leaders Such As E.I. Du-Products.
The Mumbai-Based Company Is The Leader In The Industrial Paints Segment With A Market
Share Of Over 40%. It Is The Third-Largest Player In The Decorative Paints Segment With A
Modest Market Share Of 13%. Nearly 75% Of The Indian Paints Industry Consists Of The
Decorative Segment.
Parent Company
Kansai Paint Was Founded By Katsujiro Iwai In Amagasaki City, Japan In May 1918.[15] Kansai
Paint Is A Comprehensive Manufacturer Of Paints And Coatings. The Products Include-
Automotive Coatings, Industrial Coatings, Decorative Coatings, Protective Coatings And Marine
Coatings.]They Are Also Present In U.K., Turkey, U.S.A, Canada,Mexico, Uae.
Products And Services[
Technologically Innovative Products Are The Company's Hallmark. Kansai Nerolac Paint Offers
Differentiated Products With A Focus On Being Eco-Friendly And Healthy . Kansai Nerolac
Paint’s Key Products And Brands Includes The Following: Decorative Paints: Interior Wall Paints, Exterior Wall Paints, Wood Surface Paints And
Metals Surface Paints.[
Automotive Coatings :Pre-Treatment Chemicals, Electrodepostition. Intermediate
Coats/Primer Surfacers, Topcoats, Clear Coats, Touch Up Paints, Auto Refinishing Products,
Heat Resistant Paints, Underbody Paints & Pvc Sealants & Rapgard Transit Protection Films.
Performance Coatings: Performance Coating Are Available For Wide Range Of Products.
For Household Appliances And Metal Fittings In Factories, There Is A Comprehensive
Range Of General Industrial Coating Systems Like P.T. Chemicals, Primers And Lacquers,
Coil Coat, Heat Resistant Paints & Metal Decoration Coatings. Powder Coating Is Now
Increasing In Popularity Because Of Its High Quality, Resistance To Corrosion, The
Apparent Ease Of Application And The Environmental Friendliness Of The Technology.[
Awards And Achievements
Golden Peacock Environment Management Award, 2000.
Short Listed For The Best Managed Company Award From Business Today & A.T.
Kearney 2005
.
Best Vendor Award From Customers Like Toyota Kirloskar Motors Ltd.(Tkml) For Cost And
From Maruti Udyog Ltd.(Mul) On Overall Commendation .Awards For Marketing Initiatives
Like Cannes 2007 Bronze For Press. Reader's Digest Trusted Brands Gold Awards, 2008
.Product Of The Year Award 2010 For Nerolac Excel April 2010. Product Of The Year Award 2011 For Nerolac Excel Total With Heat-Guard Technology
April 2011.
Sustainability Award For Outstanding Contribution By Mahindra & Mahindra – October
2011.
Best Vendor Performance Award In Paint Supplier's Category By Honda Motors Cycles
& Scooters At Their Annual Conference 2012.
Asapp Media Information Group – Construction World Magazine Ranked Kansai Nerolac
Paints First. Balance Sheet
14-15 13-14
Sources Of Funds Total Share Capital 53.89 53.89 Equity Share Capital 53.89 53.89 Share Application Money 0.00 0.00 Preference Share Capital 0.00 0.00 Reserves 1,542.93 1,369.30 Networth 1,596.82 1,423.19 Secured Loans 0.90 0.90 Unsecured Loans 40.60 50.81 Total Debt 41.50 51.71 Total Liabilities 1,638.32 1,474.90
Application Of Funds Gross Block 1,389.00 1,328.34 Less: Revaluation Reserves 0.00 0.00 Less: Accum. Depreciation 484.00 418.76 Net Block 905.00 909.58 Capital Work in Progress 43.94 48.16 Investments 215.58 56.47 Inventories 541.67 645.66 Sundry Debtors 496.34 454.84 Cash and Bank Balance 34.05 54.87 Total Current Assets 1,072.06 1,155.37 Loans and Advances 106.78 85.55 Fixed Deposits 0.00 0.00 Total CA, Loans & Advances 1,178.84 1,240.92 Deferred Credit 0.00 0.00 Current Liabilities 582.95 672.92 Provisions 122.09 107.30 Total CL & Provisions 705.04 780.22 Net Current Assets 473.80 460.70 Miscellaneous Expenses 0.00 0.00 Total Assets 1,638.32 1,474.91
Contingent Liabilities 8.31 6.32 Book Value (Rs) 29.63 264.08
Profit And Loss
14-15 13-14
Income 4,006.5 Sales Turnover 3,154.35 6 Excise Duty 457.50 0.00 3,549.0 Net Sales 3,154.35 6 Other Income 21.79 10.33 Stock Adjustments -62.03 80.70 Total Income 3,508.8 3,245.38 2 Expenditure 2,320.0 Raw Materials 2,231.61 5 Power & Fuel Cost 65.22 66.68 Employee Cost 143.30 135.88 Other Manufacturing Expenses 0.00 0.00 Selling and Admin Expenses 0.00 0.00 Miscellaneous Expenses 513.64 438.79 Preoperative Exp Capitalised 0.00 0.00 3,042.2 Total Expenses 2,872.96 1
Operating Profit 444.82 362.09 PBDIT 466.61 372.42 Interest 0.02 0.45 PBDT 466.59 371.97 Depreciation 67.69 64.98 Other Written Off 0.00 0.00 Profit Before Tax 398.90 306.99 Extra-ordinary items 0.00 0.00 PBT (Post Extra-ord Items) 398.90 306.99 Tax 127.23 100.42 Reported Net Profit 271.67 206.57 Total Value Addition 722.16 641.35 Preference Dividend 0.00 0.00 Equity Dividend 75.45 59.28 Corporate Dividend Tax 15.78 10.08 Per share data (annualised) 5,389.2 Shares in issue (lakhs) 538.92 0 Earning Per Share (Rs) 5.04 38.33 Equity Dividend (%) 140.00 110.00 Book Value (Rs) 29.63 264.08
Calculation Of Ratios
Current Ratios
Current Assets/ Current Liabilities=1.67
Quick Ratios
Current Assets-Inventory/Current Laibilities=0.90
Inventory Ratio
Cost Of Goods Sold/Inventory=7.40
Fixed Assets Turnover
Sales/Total Assets=2.56 Total Debt Ratio
Total Debt /Toatal Assets=0.03
Debt Equity Ratio
Total Debt/Shareholders Equity=0.03
Gross Profit Margin
Gross Income/Sales=10.62
Operating Profit Margin
Operating Income /Sales=12.53
Net Profit Margin
Net Income/Sales=7.65
Dividend Per Share
Dividend Paid To Shareholders/No Of Shares Outstanding=1.40 Dividend Payout Ratios
Dividends/Earning=27.7
Capital Structure Ratio
Basically, Capital Structure Can Be Defined As In What Proportion Company
Holds Debt And Equity For Their Smooth And Effective Operation And To
Support Their All Asset Maintenance And Further Expansion. Equity Includes
Common Equity And Preferred Equity Plus Retained Earnings Or Net Loss
And In Debt, Company Considers The Borrowed Fund, Usually The Long
Term Liability Company Borrows From Other Party Or Lenders.The Eutiy
Share Capital Has Remained Same And The Reserves Has Incressed From
1369 In 2013-14 To1542 In 2014-15.
And The Debt Haves Decreased From 50 To 40 In 14-15.Hence The Capital
Structure Of The Company Is Good.
Profitability Ratios
A Profitability Ratio Is A Measure Of Profitability, Which Is A Way To Measure A
Company's Performance. Profitability Is Simply The Capacity To Make A Profit, And A Profit Is What Is Left Over From Income Earned After You Have Deducted All Costs And
Expenses Related To Earning The Income.
Gross Margin =10.62 And And Operating Profit Margin =12 Which Has Increased From
9% In 13-14
And 11 % .So Overall The Profitability Is Good.The Company Has Shown The Better
Performance By Increasing The Sales And Curtailing The Expenses.
Liquidity Ratios
Liquidity Ratios Are The Ratios That Measure The Ability Of A Company To Meet Its
Short Term Debt Obligations. These Ratios Measure The Ability Of A Company To Pay
Off Its Short-Term Liabilities When They Fall Due.
The Liquidity Ratios Are A Result Of Dividing Cash And Other Liquid Assets By The
Short Term Borrowings And Current Liabilities. They Show The Number Of Times The
Short Term Debt Obligations Are Covered By The Cash And Liquid Assets. If The Value
Is Greater Than 1, It Means The Short Term Obligations Are Fully Covered.
Generally, The Higher The Liquidity Ratios Are, The Higher The Margin Of Safety That
The Company Posses To Meet Its Current Liabilities. Liquidity Ratios Greater Than 1 Indicate That The Company Is In Good Financial Health And It Is Less Likely Fall Into
Financial Difficulties.
The Ccurrent Ratio Is 1.67 But Still The Compant Must Be Able To Raise It By
Paying Some Debts.
Increasing Your Current Assets From Loans Or Other Borrowings With
A Maturity Of More Than One Year.
Converting Non-Current Assets Into Current Assets.
Increasing Your Current Assets From New Equity Contributions.
Putting Profits Back Into The Business
Difference Between Operating And Financial Leverage
Leverage In Its Most General Sense Means The Ability To Magnify Results At A
Relatively Low Cost. In Business, You Make Decisions About Leverage That Affect Your
Profitability. When You Evaluate Whether You Can Increase Production Profitably, You
Are Addressing Operating Leverage. If You Are Contemplating Taking On Additional
Debt, You Have Entered The Realm Of Financial Leverage. Both Types Are Crucial To
Business Success And Have Different, Though Related, Meanings. Operating Leverage
Operating Leverage Compares Sales To The Costs Of Production. Fixed Costs Involve
The Property, Plant And Equipment You Use To Create Products. These Costs Are
Independent Of The Number Of Units You Produce. Variable Costs Are The Additional
Costs Required To Produce A Unit Of Marketable Inventory, Such As The Costs Of Raw
Materials, Electricity, Packaging And Transportation. You Can Measure Operating
Leverage As The Ratio Of Fixed Costs To Variable Costs Or Fixed Costs To Total Costs.
Higher Values Of This Ratio Indicate High Operating Leverage.
Effects Of Operating Leverage
A High Operating Leverage Means You Are In A Position To Increase Production
Without Investing In Additional Fixed Costs. As Production Rises, You Are In Effect
Spreading Fixed Costs Across A Greater Number Of Units, So The Additional Units
Have A Lower Ratio Of Fixed Costs To Total Costs. The Degree Of Operating Leverage
-- The Percent Change In Earnings Before Interest And Taxes, Or Ebit, Divided By The
Percentage Change In Sales -- Gives You A Means To Gauge How Earnings Will
Respond To Sales Activity. When Demand For Your Product Increases, You Can Easily
Ramp Up Production By Increasing Variable Costs; Your Fixed Assets Allow You To
Magnify Production. You Can Increase Production As Long As Your Higher Variable
Costs Don’t Cause Total Costs To Exceed Your Sales Revenues. However, In A
Recession, High Operating Leverage Is Risky, As It Saddles You With High Fixed Costs
Even When You Cut Production. Financial Leverage
Financial Leverage Is A Measure Of Debt, Usually Defined As Total Debt Divided By The
Owners’ Equity, Which Is Assets Minus Liabilities. By Increasing Financial Leverage
Instead Of Issuing Stock, You Can Use The Additional Funds To Increase Production
Without Diluting Earnings Among A Greater Number Of Shareholders. In This Sense, It
Magnifies Your Profits Per Share. You Can Measure This Effect With The Formula For
Degree Of Financial Leverage: Ebit Divided By Earnings Before Taxes. However,
Additional Leverage Increases Your Interest Expense, Which Cuts Into Net Income,
Even Though Interest Is Tax Deductible. If You Are Overleveraged And Sales Fall, You
Might Find Yourself Short Of Cash And Face Default On Your Debt.
Combined Leverage
The Degree Of Combined, Or Total, Leverage Is Defined As The Percentage Change In
Earnings Per Share Divided By The Percentage Change In Sales. It Is The Product Of
The Degree Of Financial Leverage And The Degree Of Operating Leverage. As Such, It
Is A Measure Of The Overall Riskiness Of Your Business. A High Combined Leverage
Indicates High Fixed Costs And Heavy Debt. In Good Times, These Factors Can
Increase Profits As You Increase Sales. Should Business Falter, These Same Factors
Mean You Cannot Cut Total Costs Substantially By Decreasing Production, Putting A
Strain On Cash Flow And Your Ability To Pay Interest And Repay Debt.
How To Compute Operating Leverage
As Mentioned On The Preface, “Operating Leverage” Is A Measure Of Operating Risk
And Arises From Fixed Operating Costs. A Simple Indication Of Operating Leverage Is
The Effect That A Change In Sales Has On Earnings. The Formula Is:
“Operating Leverage” At A Given Level Of Sales (X)
= Percentage Change In Ebit/Percentage Change In Sales = (P-V)X/(P-V)(X- Fc)
Where:
Ebit = Earnings Before Interest And Taxes = (P-V)X – Fc
Case Example
From The First Example, Assume That The Lie Dharma Company Is Currently Selling
6,000 Doors Per Year. Its Operating Leverage Is:
= [(P – V)X]/ (P – V) (X –Fc)
= [($25 – $15)(6,000)]/ [($25- $15) (6,000)- $50,000]
= $60,000 / 10,000 = 6
Which Mean If “Sales” Increase By 10 Percent, The Company Can Expect Its “Net
Income” To Increase By Six Times That Amount, Or 60 Percent.
How To Calculate Financial Leverage
“Financial Leverage” Is A Measure Of Financial Risk And Arises From Fixed Financial
Costs. One Way To Measure Financial Leverage Is To Determine How ‘Earnings Per
Share [Eps]” Are Affected By A Change In Ebit (Or Operating Income). The Formula Is:
“Financial Leverage” At A Given Level Of Sales (X)
= Percentage Change In Eps / Percentage Change In Ebit
= [(P – V)X – Fc] / [(P – V)X – Fc – Ic]
Where Eps Is Earnings Per Share, And Ic Is “Fixed Finance Charges”, I.E.,
“Interest Expense” Or “Preferred Stockdividends”. [Note: Preferred Stock Dividend Must
Be Adjusted For Taxes I.E., Preferred Stock Dividend/(1-T).]
Case Example
Using The Data In The Operating Leverage, The Lie Dharma Company Has Total
Financial Charges Of $2,000, Half In “Interest Expense” And Half In “Preferred Stock
Dividend”. The “Corporate Tax Rate” Is 40 Percent. What Is Their Financial Leverage? First, Calculate The “Fixed Finance Charge [Ic]”:
Ic = $1,000 + ($1,000/1- 0.4) = $1,000 + $1,667 = $2,667
Therefore, Lie Dharma’s Financial Leverage Is Computed As Follows:
= [(P-V)X –Fc] / [(P-V)X-Fc-Ic]
= [($25 – $15) 6,000- $50,000] / [($25-$15)6,000 – $50,000 -$2,667]
= $10,000 / $7,333
= 1.36
Which Mean That If Ebit Increases By 10 Percent, Lie Dharma Can Expect Its Eps To
Increase By 1.36 Times, Or By 13.6 Percent.
Impact Of Financial Leverage On Shareholders Earnings Financial Leverage Reflects The Debt Amount Used In The Capital Structure Of The Firm.
Financial Leverage Is An Impact On Returns Of A Change In The Extent To Which The Firm’s
Assets Are Financed With Borrowed Money. Other Things Remaining Same, Lower The
Amount Borrowed, Lower The Interest, Lower Will Be The Profit, Where As Greater The
Amount Borrowed, Lower The Interest, Greater Will Be The Profit. Debt Carries A Fixed
Service Obligation Of Payments Of Interest. There Is An
Opportunity To Greatly Magnify The Results At Various Levels Of Business Operations By
Using Financial Leverage Financial Leverage Measures Firm’s Exposure To The Financial
Risk. So, Degree Of Financial Leverage Indicates The Percentage Change In Eps Resulting
From A Unit Percentage Change In Ebit. Financial Leverage Can Accelerate Eps Under
Favourable Economic Conditions But Depresses Eps When The Economic Goings Is Not Good
At Economy And For The Firm. The Unfavourable Effect Of Financial Leverage On Eps Is
More Severe With More Debt In The Capital Structure When Ebit Is Negative. Similarly,
Financial Leverage Can Increase Shareholders’ Return And As Well Can Increase The Firm’s
Risk Also. The Financial Leverage Employed By A Firm Is Intended To Earn More On The
Fixed Charges Funds Than Their Relative Costs . Financial Leverage Is The Final Component
Of Return On
Equity. Financial Leverage Is A Measure Of How Much Firm Uses Equity And Debt To
Finance Its Assets. As Debt Increases, Financial Leverage Increases. Management Tends To
Prefer Equity Financing Over Debt Since It Carries Less Risk. The Financial Leverage Ratio Is
Calculated By Dividing Assets By Shareholder Equity (Matt, 2000). When The Surplus
Increases And Deficit Decreases, The Return On The Owners’ Equity, Referred To As A Double-Edged Sword, Financial Leverage Provides The Potentials Of
Increasing The Shareholders’ Wealth As Well As Creating The Risks Of Loss To Them. The
Financial Leverage Is A Prerequisite For Achieving Optimal Capital Structure. An Optimal
Capital Structure Can Influence The Value Of Firm And Wealth Of Shareholder’s Through
Reduced Cost Of Capital. Hence, Determination Of Optimal Debt Level And Its Impact On The
Firm’s Over All Capital Structure Is Regarded As An Integral Part Of A Firm’s Financial
Decision (Franklin And Muthusamy, 2011). Financial Leverage, Or An Increase In Financial
Efficiency, Called The Variation Of Return On Equity, Depends On The Return On Assets And
The Cost Of Credit I.E., Interest Rate. Financial Lever Also Expresses The Impact Of Financial
Expenses Due To Loans On The Return On Equity Of An Enterprise (Brezeanu, 1999).
B. Share Holders Return
The Return On Equity Is A Result Of The Efficiency Of All Commercial, Operational And
Financial Activity Of The Enterprise (Niculescu, 1997). Shareholders’ Return (Sr) Is A Concept
Used To Compare The Performance Of Different Companies’ Stocks And Shares Over Time.
The Absolute Size Of The Total Share Holders’ Return Will Vary With Stock Markets, But The
Relative Position Reflects The Market Perception Of Overall Performance Relative To A
Reference Group. It Can Be
Expressed As Follows:
With Pricebegin = Share Price At Beginning Of Period, Priceend = Share Price At End Of
Period, And Sr = Shareholders’ Return,
Sr Is Computed As Follows: Sr = (Priceend - Pricebegin) X No. Of Shares. Whereas Total Shareholders’ Return (Tsr)
Combines Share Price Appreciation And Dividends Paid To Show The Total Return To The
Shareholder
Difference Between Buisness And Financial Risk The Two Primary Risks That Every Company Has To Face On A Daily Basis Are
Business Risk And Financial Risk, And Contrary To Common Belief, They Are Not One
In The Same. Understanding These Two Types Of Risk Is Critical For Keeping Your
Company Profitable And Manageable, Especially During Times Of Economic
Uncertainty.
Knowing The Difference Between Financial Risk And Business Risk Is Also Important
When It Comes To Speaking With Investors, Financial Institutions, And Other People Or
Organizations That May Have A Financial Interest In Your Company.
What Is Business Risk?
Business Risk Usually Involves All Of The Risks Attributed To The Business’s Strategic
Decisions, With The Exception Of The Company’s Financial Decisions. Such Risks
Could Include The Decision To Introduce A New Product Or Service Into The Market, Or
A Potential Partnership With Another Company. In Estimations Of Business Risk,
Internal Efficiency And Production Quotas Are Commonly Measured To Determine
Whether Or Not A Key Business Decision Is Worth The Risk. Business Risk Is The
Probability To Earn Comparatively Low Profit Or Even Suffer Losses Because Of
Changes In The Market Conditions, Customer Demands, Government Regulations And
Economic Environment Of Business. Due To Such Risk The Firm Will Not Generate Enough Profit To Meet Out Its Day To Day Expenses. The Risk Is Unavoidable In
Nature.
Every Business Organization Operates In An Economic Environment. The Economic
Environment Includes Both Micro And Macro Environment. The Changes In The
Factors Of The Two Environments Directly Influence The Business And The Risk Arises.
Some Of Those Factors Are Change In Customer Tastes And Preferences, Inflation,
Change In The Policies Of Government, Natural Calamities, Strikes Etc. The Business
Risk Is Divided Into Various Categories:
Compliance Risk: The Risk Arising Due To The Change In Government Laws.
Operational Risk: The Risk Originating Due To The Machinery Break Down,
Process Failure, Lockouts By Workers Etc.
Reputation Risk: The Risk Emerging As A Result Of Any Misleading
Advertisement, Lawsuit, Criticism Of Bad Products Or Services Etc.
Financial Risk: The Risk Arising Due To The Use Of Debt Capital.
Strategic Risk: Every Business Organization Works On A Strategy, But Due To
The Failure Of Strategy The Risk Arises.
What Is Financial Risk? A Company’s Financial Risk Is Predominantly Targeted At Its Shareholders And Those
Who Own Or Buy The Company’s Stocks As This Type Of Risk Is Based On How A
Company’s Finances Are Structured, And Traditionally Focuses On Corporate Debt.
Companies That Rely Heavily On Business Financing Are Often Considered Risky.
Financial Risk Is The Uncertainty Arising Due To The Use Of Debt Finance In The
Capital Structure Of The Company. The Capital Structure Of The Company Can Be
Made Up Of Equity Capital Or Preference Capital Or Debt Capital Or The Combination
Of Any. The Firm, Whose Capital Structure Contains Debt Finance Are Known As
Levered Firms Whereas Unlevered Firms Are The Firms Whose Capital Structure Is
Debt Free.
Now, You May Wonder That Debt Capital Is One Of The Cheapest Sources Of Funds,
Then How Will It Become A Risk For Shareholders? Because At The Time Of Winding
Up Of The Company The Creditors Are Given Priority Over The Shareholders And They
Will Be Repaid First. So In This Way The Risk Arises That The Company Will Not Be
Able To Fulfill The Financial Obligations Of The Shareholders Due To Debt Financing.
Moreover, Financial Risk Does Not End Up Here As It Is A Myriad Of Risks Which Are
Given As Under:
Market Risk: Risk Arising Due To The Fluctuations In The Financial Assets.
Exchange Rate Risk: The Risk Arising Out Of The Variations In The Currency
Rates. Credit Risk: The Risk Emerging Because Of Non-Payment Of Debt By A
Borrower.
Liquidity Risk: The Risk Originating As A Result Of A Financial Instrument Is
Not Traded Quickly In The Market.
What Affects A Company’s Business Risk?
There Are Several Factors That Can Affect The Business Risk Level Of A Company.
The Fluctuations In Demand For A Certain Product Or Service Can Certainly Affect
Business Risk As This Will Have A Direct Impact On A Company’s Profits. In Addition,
Every Time A Competing Company Introduces A Similar Product To The Market, It Has
The Potential To Drive Down Costs And Sales, Both Of Which Can Affect A Company’s
Earnings. Changes In Business Risk Can Also Be Attributed To External Factors Like
Government Actions And Changes In Consumer Preferences As Well As Internal
Factors Like The Company’s Ratio Of Fixed To Variable Expenditures.
What Affects A Company’s Financial Risk? One Of The Most Common Things That Can Affect A Company’s Financial Risk Is The
Quality Of The Financial System Within Its Country Of Operation. If A Company Is
Based In A Country That Has A Poorly Functioning Financial System Or Devalued
Currency, Its Financial Risk Will Usually Be Relatively High As The Company’s Holdings
Could Easily Be Eliminated. For Most American-Based Companies, However, Their
Financial Leverage Is Usually Used To Determine Their Risk Level. Financial Leverage
Is A Company’s Debt To Equity Ratio. The More A Company Relies On Debt To Finance
The Business, The Higher Their Financial Leverage Is And Therefore, The Company Is
A Higher Financial Risk.
Key Differences Between Business Risk And Financial Risk
The Following Are The Major Differences Between Business Risk And Financial Risk:
1. The Uncertainty Caused Due To Insufficient Profits In The Business Due To
Which The Firm Is Not Able To Pay Out Expenses In Time Is Known As Business
Risk. Financial Risk Is The Risk Originating Due To Use Of Debt Funds By The
Entity.
2. Business Risk Can Be Evaluated By Fluctuations In Earning Before Interest And
Tax. On The Other Hand, Financial Risk Can Be Checked With The Help Of
Leverage Multiplier And Debt To Asset Ratio. 3. Business Risk Is Linked With The Economic Environment Of Business.
Conversely, Financial Risk Associated With The Use Of Debt Financing.
4. Business Risk Cannot Be Reduced While Financial Risk Can Be Avoided If The
Debt Capital Is Not Used At All.
5. Business Risk Can Be Disclosed By The Difference In Net Operating Income And
Net Cash Flows. In Contrast To Financial Risk, Which Can Be Disclosed By The
Difference In The Return Of Equity Shareholders.
Bibliography
https://en.wikipedia.org/wiki/Kansai_Nerolac_Paints www.moneycontrol.com › PAINTS & VARNISHES www.investopedia.com/.../what-difference-between-operating-leverage www.yourarticlelibrary.com/financial...operating-leverage...financial-lev... INDEX
Sr No Topic Page No Sign
1 INTRODUCTION
2 Balance Sheet
3 P&L
4 Calculation Of Ratios
5 Capital Structure,Profitability & Liquidity Ratio 6 Difference Between Operating And
Financial Leverage
7 Impact Of Financial Leverage On Shareholders
Earnings
8 Difference Between Buisness And Financial
Risk
9 Bibliography