Power point presentation on borrowings and investments of HCIL

Amity school of business

Submitted by- Vibhor Jain Roll No.- 23 Course- BBA+MBA

INTRODUCTION

An organization requires funds ranging from the need to arrange working capital which is required for the day to day working to the funds required for the long term plans of the company such as funds required to set up new plants, for the purchase of machinery etc. Therefore it is extremely vital for an organization to determine and efficiently arrange for different sources of finance so that a consistent flow of funds can be maintained during the life cycle of the organization.

PURPOSE OF THE REPORT

One of the main purposes of this report is to get oneself familiar with the theoretical concepts and practical usage

ofthose ideas identified with Capital structure. The reportfocuses on the investment of temporary surplus fund. Thereport will focus on the understanding of financial

leverageOf HCIL and at the same time take closer look at thestrategies followed by the company.

METHODOLOGY

 1. DEFINE THE OBJECTIVEThe project started with an objective of understanding the different instrument ofborrowings that HONDA CARS INDIA LTD. Is presently using. It will also provide anoverview of investment strategy adopted by HCIL to manage its Surplus Fund.

2. COLLECTION OF DATAA combination of primary and secondary data was used to collect the necessary datafor the analysis to be done.

3. ANALYSISThe data collected in the previous step will be used to carry out an extensive analysisof the strategies adopted by HONDA CARS INDIA LTD to borrow funds to meet itsdiverse budgetary requirements over a time period and it will also be used to analyzethe investment strategies adopted by HCIL.

4. RESULTS AND RECOMMENDATIONThe findings of the analysis would be looked into and the results would be interpretedand based on that the necessary recommendation will be provided.

Limitations of the Study

1. Having limited knowledge in the concerned area.2. No prior work experience in the finance department

of an organization.3. Resource Constraint4. As the access to company data is limited, the

analysis to be done would be based on certain assumptions.

5. Secondary data to be used may not be fully reliable.

INTRODUCTION TO BORROWINGS

As long as the company's return on invested capital ishigher than the cost of borrowing, it is advantageous forthe company to borrow but there should be judicial mix of borrowings in the capital structure of any company to retain its value and to maximize its wealth.Type of Borrowings1. Short Term Borrowings2. Medium Term Borrowings3. Long Term Borrowings

FACTORS TO BE CONSIDERED WHILE BORROWING FUNDS

1) Rate of Interest2) Duration3) Size of the Firm4) Share Holders Concern

Sources of Short-term Finance1. Trade CreditTrade credit refers to credit allowed to manufacturersand merchants by the suppliers of raw material,

finishedgoods, components, and so on.

2. Bank CreditCommercial banks grant short-term finance to businessa firm which is known as bank credit. Bank credit

mightbe granted by way of loans, cash credit, overdraft anddiscounted bills.

Long Term FinanceA business requires funds to buy fixed resources likeland and building, plant and machinery, furniture etc.These assets may be regarded as the establishment of abusiness.

SOURCES OF LONG TERM FINANCE

1) DEBENTURESWhenever a company wants to acquire a lot of financefor a long yet fixed period, it can acquire from theoverall population by issuing loan certificated calledDebentures.

2) Public Depositpeople used to store their reserve funds with businessConcerns. The period for which business undertakingsaccept public deposits ranges between six months tothree years

Sources of Funds used by HONDA CARS INDIA LTD

1) RETAINED EARNINGSThe portion of the profits which is not circulated amongthe shareholders but rather is held and is used in businessis called retained earnings or ploughing back of profits. Uses of Retained Earnings at HCILAs retained earnings are generated within a company

and does not incur any additional cost, it is considered as the most convenient form of financing.

With Reference to the annual report 2008-2009, the company

has incurred a loss Of RS.1965640,000. Thus in the currentyear there is no retained earnings for HCIL. LONG TERM BORROWINGS1. External Commercial BorrowingsECBs are one of the modes of raising funds from abroad.ECBs refer to business advances, benefited from non-

residentloan specialists with minimum average maturity of 3 years.

ECB at HCILHCIL took an ECB of amount 13, 500, 000 USD on 9March-2009 from CITIBNAK, BAHRAIN with an interest rate of Libor +. 40% for the funding of its secondmanufacturing unit in Alwar, Rajasthan.

INVESTMENT OPPURTUNITIES OF TEMPORARY SURPLUS FUND at HCIL

INTRODUCTIONThere is always a time lag between a company’s cash

inflowsand outflows. When cash inflows are greater than cashoutflows, the company has some surplus fund lying idle

withitself. Instead of having the surplus funds of no use, thecompany tries to invest these funds so that it can earn a reasonable rate of return.

SELECTION CRITERIA1. Returns2. Risks3. Average maturity4. Marketability

Investment in Bank fixed depositsHonda Cars India is currently investing its surplus fund inFixed Deposits.1. BOTM (Bank of Tokyo Mitsubishi)2. BOA (Bank of America)

3. CITI BANK4. KOTAK BANK

Various Tools Available in Market for Investment:1. Commercial Papers2. Corporate Bonds3. Certificate of Deposits4. Mutual funds.

Factors to be considered while investing in Corporate Bonds

1. Credit Standing/RatingBefore investing in Corporate Bonds, the financial standingshould be carefully analyzed. Bonds get rated by anindependent rating agency.

2. LiquidityAnother important criterion for investment decision is theliquidity of the bond i.e. how easily bond can be off-loaded in the market without significant capital loss.

High Investment Grades

1. AAA – (Triple A) Highest Safety2. A – Adequate Safety3. BBB (Triple B) Moderate Safety

Rating Requirement

Every qualified member should get the credit rating for issuance of Commercial Paper from either the CreditRating Information Services of India Ltd. (CRISIL) or

the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or such other credit rating agencies as may be specified by the Reserve Bank of India now and again

CONCLUSION

RiskIn case the organization has decided that it is ready to bearsome degree of risk then in that case it can opt for alternativeslike commercial paper and mutual funds instead of investing their funds in fixed deposits.ReturnA company can get a maximum return on their investment of surplus funds in case of inter corporate deposits, corporate bonds and certificate of deposits.

Thank you