A STUDY ON CAPITAL BUDGETING

CHAPTER 1

INTRODUCTION

INTRODCUTION TO THE STUDY

Every organization irrespective of its size and mission can be viewed as a

financial entity management of an organization. Financial management focuses
not only on the improvement of funds but also on their efficient

use with the objective of maximizing the owners‟ wealth. The allocation of

funds is therefore an important function of financial management. The

allocation of funds involves the commitment of funds to assets and activities.
There are two types of Investment decision:

1. Management of current assets or Working capital management.

2. Long term investment decision.

Long term investment decisions are widely known as capital budgeting or

capital expenditure budgeting. It means as to whether or not money should be
invested in long term project. This part is devoted to an in-depth and
comparative decision of capital budgeting/capital expenditure management. A
project is an activity sufficiently self- contained to permit financial and
commercial analysis. In most cases projects represent expenditure of capital
funds by pre- existing entities which want to expand or improve their operation.

In general a project is an activity in which, we will spend money in expectation

of returns and which logically seems to lead itself to planning. Financing and
implementation as a unit, is a specific activity with a specific point and a
specific ending point intended to accomplish a specific objective. To take up a
new project, involves a capital investment decision and it is

the top management’s duty to make a situation and feasibility analysis of

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that particular project and means of financing and implementing it financing is a

rapidly expanding field, which focuses not on the credit status of a company,
but on cash flows that will be generated by a specific project. Capital budgeting
has its origins in the natural resource and infrastructure sectors. The current
demand for infrastructure and capital investments is being fueled by
deregulation in the power, telecommunications, and transportation sectors, by
the globalization of product markets and the need for manufacturing scale, and
by the privatization of government owned entities in developed and developing
countries. The capital budgeting decision procedure basically involves the
evaluation of the desirability of an investment proposal. It is obvious that the
firm must have a systematic procedure for making capital budgeting decisions.
The procedure must be consistent with the objective of wealth maximization. In
view of the significance of capital budgeting decisions, the procedure must
consist of step by step analysis.

What is Capital Budgeting

Capital budgeting is the process in which a business determines and evaluates

potential large expenses or investments. These expenditures and investments
include projects such as building a new plant or investing in a long-term
venture. Often, a company assesses a prospective project's lifetime cash inflows
and outflows to determine whether the potential returns generated meet a
sufficient target benchmark, also known as "investment appraisal."

Capital Budgeting Techniques

To help the association in choosing the best speculation there are different
strategies accessible dependent on the correlation of money inflows and
outpourings.

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These techniques are:

1. Payback period method

In this procedure, the element ascertains the timespan required to win the
underlying venture of the undertaking or speculation. The task or speculation
with the most brief span is picked.

FORMULAE: Payback period = Cash outlay (investment) / Annual cash inflow

2. Net Present value

The net present value is determined by taking the distinction between the
present estimation of money inflows and the present estimation of money
outflowing over some undefined time frame. The speculation with a positive
NPV will be considered. In the event that there are numerous tasks, the venture
with a higher NPV is bound to be chosen.

FORMULAR

NPV = PVB – PVC

where,

PVB = Present value of benefits

PVC = Present value of Costs

3. Accounting Rate of Return

In this method, the complete net gain of the venture is separated by the
underlying or normal speculation to infer at the most productive venture.

FORMULAE: ARR= Average income/Average Investment

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4. Internal Rate of Return (IRR)

For NPV calculation a markdown rate is utilized. IRR is the rate at which the
NPV ends up zero. The task with higher IRR is generally chosen.

5. Profitability Index

Profitability Index is the proportion of the present estimation of future money

streams of the undertaking to the underlying venture required for the task.

Every strategy accompanies natural points of interest and weaknesses. An

association needs to utilize the most appropriate system to help it in planning. It
can likewise choose various procedures and contrast the outcomes with infer at
the best beneficial activities.

CAPITAL BUDGETING PROCESS:

A) Project identification and generation:

The initial move towards capital planning is to produce a proposition for

speculations. There could be different explanations behind taking up interests in
a business. It could be expansion of another product offering or extending the
current one. It could be a proposition to either expand the generation or decrease
the expenses of yields

B) Project Screening and Evaluation:

This progression mostly includes choosing every right rule's to pass judgment
on the allure of a proposition. This needs to coordinate the goal of the firm to
boost its reasonable worth. The apparatus of time estimation of cash comes
helpful in this progression.

Likewise the estimation of the advantages and the costs should be finished. The
absolute money inflow and surge alongside the vulnerabilities and dangers

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related with the proposition must be broke down completely and fitting
provisioning must be accomplished for the equivalent.

C) Project Selection:

There is no such characterized technique for the determination of a proposition

for ventures as various organizations have various prerequisites. That is the
reason, the endorsement of a venture proposition is done dependent on the
determination criteria and screening process which is characterized for each
firm remembering the goals of the speculation being embraced.

When the proposition has been settled, the various choices for raising or
procuring reserves must be investigated by the fund group. This is called setting
up the capital spending plan. The normal expense of assets must be diminished.
An itemized method for periodical reports and following the venture for the
lifetime should be streamlined in the underlying stage itself. The last
endorsements depend on benefit, Economic constituents, reasonability and
economic situations.

D) Implementation:

Cash is spent and along these lines proposition is actualized. The various
obligations like executing the recommendations, finishing of the venture inside
the imperative timespan and decrease of expense are assigned. The
administration at that point takes up the undertaking of checking and containing
the execution of the proposition.

E) Performance review:

The last phase of capital budgeting includes examination of genuine outcomes

with the standard ones. The troublesome outcomes are distinguished and
expelling the different challenges of the activities helps for future choice and
execution of the proposition.

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ESSENTIAL OF CAPITAL BUDGETING

 Capital planning is a basic device in budgetary administration

 Capital planning gives a wide degree to money related chiefs to assess
various ventures as far as their feasibility to be taken up for speculations
 It helps in uncovering the hazard and vulnerability of various ventures
 It helps in keeping a beware of over or under ventures
 The administration is given a viable control on expense of capital
consumption ventures
 At last the destiny of a business is settled on how ideally the accessible
assets are utilized

BREAKING DOWN Capital Budgeting

Ideally, businesses should pursue all projects and opportunities that enhance
shareholder value. However, because the amount of capital available for new
projects is limited, management needs to use capital budgeting techniques to
determine which projects will yield the most return over an applicable period.
Various methods of capital budgeting can include throughput analysis, net
present value, internal rate of return, discounted cash flow and payback period.

Need

 A large sum of money is involved which influences the profitability of

the firm making capital budgeting an important task.
 Long term investments, once made, cannot be reversed without a
significant loss of invested capital. The investment becomes sunk, and
mistakes, rather than being readily rectified, must often be borne until the
firm can be withdrawn through depreciation charges or liquidation. It
influences the whole conduct of the business for the years to come.

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 Investment decisions are the based on which the profit will be earned and
probably measured through the return on the capital. A proper mix of
capital investment is quite important to ensure adequate rate of return on
investment, calling for the need of capital budgeting.
 The implication of long term investment decisions are more extensive
than those of short run decisions because of time factor involved, capital
budgeting decisions are subject to the higher degree of risk and
uncertainty than short run decision.

Importance of investment decisions:-

Capital investments, representing the growing edge of a business, are deemed to

be very important for three inter- related reasons.

1. They influence firm growth in the long term consequences capital investment
decisions have considerable impact on what the firm can do in future.

2. They affect the risk of the firm; it is difficult to reverse capital investment
decisions because the market for used capital investments is ill organized and
/or most of the capital equipments bought by a firm to meet its specific
requirements.

3. Capital investment decisions involve substantial out lays.

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SCOPE OF THE STUDY:-

This study highlights the review of capital budgeting and capital expenditure
management of the company. Capital expenditure decisions require careful
planning and control. Such long term planning and control of capital
expenditure is called Capital Budgeting. The study also helps to understand how
the company estimates the future project cost. The study also helps to
understand the analysis of the alternative proposals and deciding whether or not
to commit funds to a particular investment proposal whose benefits are to be
realized over a period of time longer than one year. The capital budgeting is
based on some tools namely Payback period, Average Rate of Return, Net
Present Value, Profitability Index, and Internal Rate of Return.

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CHAPTER 2

INTRODUCTION

INDUSTRY PROFILE

Land is "property comprising of land and the structures on it, alongside its
characteristic assets, for example, yields, minerals or water; unflinching
property of this nature; an intrigue vested in this (additionally) a thing of
genuine property, (all the more for the most part) structures or lodging by and
large. Additionally: the matter of land; the calling of purchasing, selling, or
leasing area, structures, or lodging." It is a legitimate term utilized in wards
whose lawful framework is gotten from English customary law, for example,
India, England, Wales, Northern Ireland, United States, Canada, Pakistan,
Australia, and New Zealand. Residential land

Private land may contain either a solitary family or multifamily structure that is
accessible for occupation or for non-business purposes.

Homes can be grouped by and how they are associated with neighboring living
arrangements and land. Distinctive sorts of lodging residency can be utilized for
the equivalent physical sort. For instance, associated living arrangements may
be possessed by a solitary element and rented out, or claimed independently
with an assention covering the connection among units and normal territories
and concerns.

Condo (American English) or Flat (British English) – An individual unit in a

multi-unit building. The limits of the loft are commonly characterized by an
edge of bolted or lockable entryways. Regularly observed in multi-story condo
structures.

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Multi-family house – Often observed in multi-story withdrew structures, where

each floor is a different loft or unit.

Terraced house (a. k. a. townhouse or rowhouse) – various single or multi-unit

structures in a constant column with shared dividers and no mediating space.

Townhouse (American English) – A building or unpredictable, like condos,

claimed by people. Regular grounds and normal territories inside the complex
are claimed and shared mutually. In North America, there are townhouse or
rowhouse style condos also. The British identical is a square of pads.

Helpful (a. k. a. center) – A sort of various possession in which the inhabitants

of a multi-unit lodging complex claim partakes in the helpful partnership that
claims the property, giving every inhabitant the privilege to involve a particular
condo or unit.

Semi-disconnected residences

Duplex – Two units with one shared divider.

Disconnected residences

Disconnected house or single-family confined house

Compact abodes

Manufactured houses or private trains – A full-time living arrangement that can

be (despite the fact that may not practically speaking be) versatile on wheels.

Houseboats – A gliding home

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Tents – Usually transitory, with rooftop and dividers comprising just of texture
like material.

The measure of a condo or house can be depicted in square feet or meters. In the
United States, this incorporates the zone of "living space", barring the carport
and other non-living spaces. The "square meters" figure of a house in Europe
may report the complete zone of the dividers encasing the home, in this way
including any joined carport and non-living spaces, which makes it imperative
to ask what sort of surface zone definition has been utilized. It tends to be
portrayed all the more generally by the quantity of rooms. A studio loft has a
solitary room with no lounge (conceivably a different kitchen). A one-room loft
has a living or lounge area separate from the room. Two room, three room, and
bigger units are normal. (A room is a different room proposed for resting. It
normally contains a bed and, in more up to date staying units, an implicit
wardrobe for garments stockpiling.)

Different classes

 Chawls
 Estates
 Havelis

List of house types for a total posting of lodging types and designs, land
patterns for movements in the market, and house or home for increasingly broad
data.

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DIFFERENT TYPES OF REAL ESTATE

There are four types of real estate:

 RESIDENTIAL REAL ESTATE

This includes both new construction and resale homes. The most common
category is single-family homes. There are also condominiums, co-ops,
townhouses, duplexes, triple-deckers, quadplexes, high-value homes, multi-
generational and vacation homes.

 COMMERCIAL REAL ESTATE

incorporates shopping plazas and strip shopping centers, restorative and
instructive structures, lodgings and workplaces. Condo structures are
frequently viewed as business, despite the fact that they are utilized for
living arrangements. That is on the grounds that they are claimed to
deliver salary.
 INDUSTRIAL REAL ESTATE

incorporates fabricating structures and property, just as stockrooms. The

structures can be utilized for research, creation, stockpiling and circulation of
merchandise. A few structures that disseminate merchandise are viewed as
business land. The arrangement is significant on the grounds that the zoning,
development and deals are taken care of in an unexpected way.

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 LAND
incorporates empty land, operating homesteads and farms. The
subcategories within empty land incorporate undeveloped, early
improvement or utilize, subdivision.

Deals and promoting

Usually practice for a mediator to give land proprietors devoted deals and
promoting support in return for commission. In North America, this middle
person is alluded to as a land merchant (or real estate broker), or a land
specialist in regular discussion, while in the United Kingdom, the delegate
would be alluded to as a home operator. In Australia the delegate is alluded to
as a land operator or land agent or the specialist

Development Industry is a standout amongst the most blasting ventures in the

entire world. This industry is for the most part a urban based one which is
worried about arrangement just as development of land properties.

the contractual worker individual or association engaged with the development

procedure spend significant time in any of the previously mentioned classes. A
temporary worker who is engaged with structure land don't by and large go for
specific exchange or overwhelming designing works. The equivalent is
additionally valid for other sort of contractual workers.

Development Industry is a blasting industry and remain so with the continuation

of the advancement procedure particularly in the creating nations. With the
procedure of advancement, the movement of individuals happens from the

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country to urban zones. This wonder is most altogether seen in the "Asian
Tiger" nations, China and India. In this way, the Construction Industry is
additionally on an ascent in such nations.

What New Home Statistics Tell You About the Real Estate Market

Insights about new home development are significant driving monetary

pointers. That implies they will surrender you a heads on the eventual fate of the
lodging market.

Every one of these pointers recounts to a little unique tale about the soundness
of the homebuilding business. For instance, say home begins are relentless,
however lodging begins decay. That will negatively affect home deals.
Numerous purchasers might not have any desire to hold up longer than a year. It
likewise implies there's a lack of wood, cement, or development laborers. Those
deficiencies could drive up expenses, and deals costs. That would additionally
diminish interest for new homes.

In the event that contracts are declining, the homebuilder will finish up with a
stock of unsold homes available to be purchased. It likewise implies request is
high, yet property holders can't get contracts. Rising home begins may appear to
be a marker of lodging quality. In any case, it may be an awful sign. Declining
home closings mean the lodging market is feeble.

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The new home deal is the initial phase in a nine to year process. In the event
that new home deals get, at that point you realize closings will ascend in about a
year. In any case, the majority of the staying three stages must be finished.

Another home deals is the point at which the purchaser signs the administrative
work and gives the homebuilder a store. That is on the grounds that most new
homes are not developed until there is a purchaser. The exemptions are spec
homes that are utilized as model homes. The Census Bureau discharges month
to month evaluations of new home deals. They are given as a yearly rate.

Two months after the desk work is marked, the nearby lodging controllers allow
the license. It is an early marker, yet not constantly precise. Manufacturers can
go bankrupt and never construct the allowed units. They can change the
quantity of units worked in a multi-family. Truth be told, 22.5 percent of multi-
family allows aren't constructed, or are changed to single-nuclear families. At
last, engineers regularly get grants for an expansive bit of a perplexing that
could take months and month to construct.

A quarter of a year later is the new home begin. It happens when the developer
kicks things off. The National Association of Home Builders provides details
regarding this month to month. It's precise in light of the fact that the new home
begin possibly happens when the manufacturer is sufficiently sure to get things
started.

Six to nine months after the fact is the end. The homebuyer must get a home
loan before the home can close. On the off chance that the homebuyer doesn't
qualify, the house stays in stock. On the off chance that this measurement is
lower than the home deal figure, it implies the new home market will begin to

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back off. There are such a large number of homes being assembled, and
insufficient qualified home purchasers. It can likewise mean developers will
start bringing costs down to clear their inventories. Fannie Mae discharges the
report on all home loans.

There are three other significant pointers to watch.

Stock - This is the aggregate of homes that are accessible available to be

purchased, yet unsold. The NAHB reports this month to month.

Long periods of Supply This is how long it would take to sell every one of the
houses in stock. It depends on the business rate and stock. The NAHB likewise
reports this month to month.

Deals Prices - The Census Bureau investigates both the middle and normal new
home deals cost.

REAL ESTATE DEVELOPMENTS

Land improvement, or property advancement, is a business procedure,

enveloping exercises that run from the redesign and re-rent of existing
structures to the buy of crude land and the closeout of created land or bundles to
other people. Land engineers are the general population and organizations who
facilitate these exercises, changing over thoughts from paper to genuine
property. Real domain advancement is not quite the same as development, albeit
numerous designers likewise deal with the development procedure.

Designers purchase land, fund land arrangements, manufacture or have

developers construct ventures, make, envision, control, and coordinate the
procedure of advancement from the earliest starting point to end. Developers for

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the most part go for broke in the creation or redesign of land—and get the best
rewards. Normally, engineers buy a tract of land, decide the advertising of the
property, build up the building system and configuration, get the vital open
endorsement and financing, construct the structures, and lease, oversee, and
eventually sell it.

Now and again property engineers will just embrace some portion of the
procedure. For instance, a few engineers source a property and get the plans and
allows affirmed before selling the property with the plans and allows to a
manufacturer at an exceptional cost. Then again, a designer that is additionally a
manufacturer may buy a property with the plans and allows set up so they don't
have the danger of neglecting to acquire arranging endorsement and can begin
development on the advancement right away.

Designers work with a wide range of partners along each progression of this
procedure, including modelers, city organizers, engineers, surveyors, examiners,
temporary workers, legal counselors, renting specialists, and so forth.

REAL ESTATE INVESTING

Everybody who purchases or sells a home participates in land contributing. That

implies you should think about a few variables. Will the house ascend in esteem
while you live in it? In the event that you get a home loan, by what method will
future financing costs and expenses influence you?

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Numerous individuals do as such well with putting resources into their homes
they need to purchase and sell homes as a business. There are numerous
approaches to do that. To begin with, you can flip a house. That is the place you
purchase a house to improve at that point offer it. Numerous individuals claim a
few homes and lease them out. Others use Airbnb as an advantageous method to
lease all or part of their homes. You can lease getaway homes utilizing VRBO
or Home Away.

You can likewise put resources into lodging without purchasing a home. You
can purchase supplies of homebuilders. Their stock costs rise and fall with the
lodging market. Another route is with Real Estate Investment Trusts, called
REITS. These are interests in business land. Their stock costs fall behind
patterns in private land by a couple of years.

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COMPANY PROFILE

REAL Unity Private Limited is a Private company. It is named Non-govt

organization and is enrolled at Registrar of Companies, Ahmedabad. It is
involved in Business exercises n.e.c.

It was formerly known as Bhavna real estate.

REAL Unity Private Limited's Annual General Meeting (AGM) was held on 25
September and according to records from Ministry of Corporate Affairs (MCA),
its accounting report was keep going documented on 31 March

Directors of Real Unity Private Limited are Bhavnaben Vinubhai Davra, Hardik
Davra and Vinubhai Balubhai Davra.

For carrying out projects company has a committed team of persons which

includes the educated and experienced person from all walks of life.

Our motto is Quality, Timely Delivery of Works and Client

Satisfaction. This can be seen from the projects executed by the Company.

REAL Unity gained enhanced popularity with successful completion and

handing over of 297 flats in a prestigious project of the company. Keeping in

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view the demand from public, company further started construction of about
427 flats

REAL Unity has offered many years of land involvement in land deals and all
features of property the executives.

As a freely possessed office we have an inborn energy for our neighborhood,

binds to our locale and a close comprehension of our market. The nature of our
administration and the dimension of consideration we offer on our customers set
us apart.

REAL UNITY is an affectionate group of eager and devoted land experts who
love property. The company is dependably close by to give clever canny
guidance on the entirety of the type of property one needs.

The company is focused on astute, financially savvy advertising customized

explicitly for the clients. Our outcomes represent themselves and the dimension
of rehash and referral business we get is a genuine demonstration of the
commitment we demonstrate our customers.

Working with a select arrangement of postings guarantees our business group

can give a really elite dimension of administration, while the property
supervisory crew guarantees your rentals are very much cared for and make the
rental experience for both property proprietors and inhabitants pleasant.

REAL Unity gives a wide assortment of land administrations to financial

specialists. We comprehend that you would prefer not to be in the matter of land
and property the executives, yet we do. A portion of the arrangements we offer
our customers are:

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 Broker Opinion of Valuation

 Marketing for sale
 Managing the Property while vacant
 Managing Property while Occupied
 Marketing the Property for Lease

TOP COMPETITORS

Century Real Estate

Century Real Estate Holdings is a privately held Indian real estate and
construction company. and headquartered in Bengaluru, Karnataka.

Sobha Ltd.

SOBHA Limited is an Indian multinational real estate developer headquartered

in Bangalore, India. which works in the business of construction, development,
sale, management and operation, townships, housing projects, commercial
premises and other related activities

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Prestige Group

Prestige Group is a property development company in South India. Prestige is

based in Bangalore, Karnataka, India.

Mantri Developers

Mantri Developers is a real estate company in India which has developed

properties in Indian cities such as Bangalore, Chennai, Hyderabad and Pune. Its
developments are utilized for private, business, retail, hospitality, office, senior-
living and instructive purposes.

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SWOT ANALYSIS

STRENGTH:

 Work force stimulation

 Skillful workers
 Good team work
 Proper communication among workers
 Optimization use of technology

WEAKNESS

 Management of time
 Resistance of new working methods
 Branding
 Customer retention is less

OPPORTUNITIES:

 Exposure to new technology

 Opportunity for new distribution channel
 Favourable contracts
 Growth in the market

THREATS:

 Risk will be high

 Changes in buyers preference
 Legal modification
 Decline in the economy
 Increased competitions

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Chapter-3

Review of literature

As per a report published by Economy Watch (2010) – Industry Trends all over
the world show a rise in its rate of growth. This industry is collected of many
components including construction of heavy and civil engineering (highways,
bridges, railway tracks, airports, etc.), real estate (both residential as well as
commercial) development, and specialized construction products (such as
architectural products, electrical connections, decorative items, etc.). All these
parts cannot be expected to show similar trends and in fact are showing
differential growth pattern all over the world. India is seeing a successful in the
construction sector mainly due to the government creativity in expansion of the
developmental facilities. Economic increase has also generated enhanced
generation of demand in the real estate sector (both residential as well as
commercial). Construction Industry in India is rising at a phenomenal rate of 7
to 8% p.a.

Economic watch report 2010, a study on construction industries, page number-

01

As stated by Nargis Namazi (2011) in an article published in Business Review

– across the world, the construction industry is witnessing a great successful.
And India is no exception! Government rules and expenditure in infrastructure,
training and regeneration projects have helped the sector grow at high levels and
the same pace is likely to be seen in the coming time too. This industry
comprises of many gears including construction of heavy and civil engineering
(highways, bridges, railway tracks, airports, etc.), real estate (both residential as

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well as commercial) development, and specialized construction products (such

as architectural products, electrical connections, decorative items, etc.) The
construction industry is currently growing at 10 per cent per annum and has a
size of 70 billion dollars but with the huge investment in the construction
industry, tremendous growth opportunities are expected.

Nargis Namazi 2011, article published in Business Review. Page number-01

and 02.

As per the market research report published by the Consolidated Construction

Consortium Limited (2011), us on industry suffers from capacity limits, lack of
trained manpower and managerial skills with performance much below
international level. The industry is starved of finance. Small and medium
contractors do not have the wherewithal to upgrade their capability, both hard
and soft, to undertake high value time bound projects. Quality, safety,
environment and social aspects are also not being addressed appropriately. The
report decided that in the years ahead, the construction industry in India has to
overcome various challenges with respect to housing, environment,
transportation, power or natural hazards. Technocrats related with the Indian
construction industry need to employ innovative technologies and skilled
project handling strategies to overcome these challenges. The outstanding
performance under demanding conditions in the past will stand in good stead
and give confidence to the Indian construction industry to bring about an overall
development in the infrastructure of the nation. The gains of large investments
in the mega-projects eventually will feedback to the construction industry itself
in the form of better economy and better work conditions.

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Consolidated Construction Consortium Limited 2011, a study on manpower and

managerial skills, Page number-02 and 03.

According to Niranjan Hiranandani, Managing Director, Hiranandani

Constructions (Project Manager, 2011), “the National Housing and Habitat
Policy of the Government of India was passed in October 1998 by Parliament. It
talks about problems like liberalisation in the housing sector. What we need to
do now is to first scrap the Urban Land Ceiling Act. The Central government
has already fought the Act, but many states, including Maharashtra, have not
followed suit. If this is done, more land will be available for development. The
second major thing is stamp duty. Fortunately for us, Maharashtra has reduced
the stamp duty on commercial properties from 10 per cent to 5 per cent, and for
residential properties from 8 per cent to 5 per cent. The third important issue is
the sanction of building plans. But since this process is riddled with corruption,
it is difficult to clear plans or procure non-agricultural land. If these steps are
taken, some problems faced by the real estate industry will be solved.”

Niranjan Hiranandani 2011, a study on issues of liberalization in housing sector,

Page number-03.

A Report by CIDCI (2006-2007) remarked that the 10th Five-year plan brought
by the Planning Commission, Government of India, which is a policy paper for
the economy for the next five years (2002 – 2007) has for the first time
combined a chapter on Construction. This shows the importance given by the
Government of India to the Construction Industry. The plan encourages 8%
growth in GDP for which total investment is Rs. 4,081,700 Cr. The public
sector investment is 1,1212,802 crore and private sector investment is 2,476,100

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crores. Based on past experience, construction accounts for 40-50% of the

investment which means a figure of 2,000,000 crore in the next five years or
about 4,00,000 crore every year.

CIDCI 2006-2007, A report on growth of GDP and investment in construction

sector, Page number-03

Singh Vandana (2009) concluded her research paper with the remark that the
Real Estate is a very wide concept and it is highly pretentious by the macro-
economic factors like GDP, FDI, per capital income, interest rates and
employment in the nation. The most important aspect in the case of Real Estate
is location which affects the value and returns from the Real Estate. India needs
a stronger capital market base for property financing. The debate on the
potential introduction of REITs and real estate funds points in the right
direction. The introduction of REIT s in 2007, will give worldwide investors in
particular a familiar investment vehicle. Private investors could also enter into
indirect investment in real estate. Although interest in new projects is most
likely to come primarily from institutional investors, the rising middle class is
likely to seek new instruments aside from direct property investments in the
medium term. So, in the end we can say that the investment in Real Estate in
India is a very good investment chance. But one should be very careful while
taking decision in this direction due to rising inflation and interest rates. Legal
issues should also be kept in mind while choosing a property.

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Singh Vandana 2009, A report on GDP, FDI, capital income and employment,
Page number-04.

According to K. K. Kapila, Chairman and Managing Director of ICT Pvt. Ltd

(2011), our construction industry suffers from capacity limitations, lack of
trained manpower and managerial skills with performance much below
international level. Though there are islands of excellence in a sea of weakness,
our companies must become global players by modernising, intensive training
of their manpower, enhancing their turnover and change of mindset. The
industry is starved of finance. Small and medium contractors do not have the
ability to upgrade their capability, both hard and soft, to undertake high value
time bound projects. FIDIC conditions are not being rigorously followed and
the contract agreements remain to be heavily loaded in favour of the
owner/client. Quality , safety , environment and social aspects are also not being
addressed properly.

K.K. Kapila 2011, A report on issues on capacity constraints, trained manpower

and managerial skills, Page number-04.

According to Drake MacDonald (2011), like many emerging countries, India

has a problem with faulty construction. Sadly, the primary reason there are so
many poorly constructed buildings in India is due to greed. However, what
makes matters worse is that greed is not isolated to one particular part such as
builders or workers, but to the construction industry in India as well a whole.
Builders looking for cheap and quick ways to build regularly skimp on
materials, while the low wages received by contract workers inspires them to

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do little as possible and take no arrogance of their work. Even the government
is guilty of greediness, as officials regularly pocket bribes in exchange for
awarding contracts or looking the other way. Plainly the problem in India is not
that there is a lack of regulation , but only lack of enforcement for existing
regulations.

Drake MacDonald 2011, A report on Faulty construction, Page number-05.

A study conducted by IHS Global (2009) arranges that the Indian construction
industry is highly split. This is partly due to the fact that, for most projects,
there are no long-term relationships between the contractors and clients. For
example, government agencies such as the National Highway Authority of India
(NHAI) do not provide any benefits to the long-term contractors that have
worked with them in the past. Because the sector absences economies of scale,
smaller players may have better cost structures due to lower overhead costs.

HIS Global 2009, A report on relationship between contractors and clients, Page
number-05.

Iyer K. R. (2011) remarked in his report that India today is facing a single
challenge of dealing with high increase, while continuing high growth.
Boosting of supply in all industries, including incentivizing of infrastructure
development, streamlining of regulatory process to reduce time and costs for
business and tax incentives for low cost housing are all important areas which
will help reduce inflation and also enable growth rates to be maintained.

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Infrastructure remains a dynamic sector for India’s growth story, which was
repeated by country’s Finance Minister (FM) Pranab Mukherjee in his Budget
2011-12. Construction projects in various areas like road, low-cost housing,
ports and airports, bridges and special economic zones (SEZ) will propel the
growth and order book of construction companies.

Iyer K.R 2011, A report on problems with inflation and growth rate, Page
number-05.

Heamanta Doloi and et.al (2012) have identified factors that cause delay in
construction projects in India. From the factor analysis, most serious factors of
construction delay were identified as (1) lack of commitment; (2) ineffective
site management; (3) poor site coordination; (4) improper planning; (5) lack of
clarity in project scope; (6) lack of communication; and (7) substandard
contract. Regression model indicates slow decision from owner, poor labour
productivity, architects' unwillingness for change and rework due to mistakes in
construction are the reasons that affect the overall delay of the project
significantly. These findings are expected to be significant contributions to
Indian construction industry in controlling the time overruns in construction
contracts.

Heamanta Doloi and et.al 2012, a report on problems in delay of construction

project in India, Page number-06.

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According to Singh Pradeep (2011), in a huge industry like construction, there

are many tensions due to peculiarly irrational risk-sharing arrangement coupled
with its competitive character. Today there are increasing disputes and
differences arising out of promised relations between contractors and owners
whether owners are individual, firms or public. Construction contracts have
very sensitive arrangement of weaving many different agencies to perform
various duties to execute the job. Because of complexity of such interwoven
responsibilities, superimposed by statutes, monitored by environmentalists,
exposed to vagaries of nature and uncertainties of markets, it could be a
phenomenon if any construction project can come out without getting greatly
distorted on time-money or concept scale. He has identified the following four
categories of factors that lead to dispute and delay in construction projects:

(1) Changes include Additions, Alterations, Variations, Deletions.

(2) Delays and interruption.

(3) Different Site conditions.

(4) Unfair enrichment by owners.

Singh Pradeep 2011, A study on relationship between contractors and owners,

Page number-06.

A study by Word Bank (2008) entitled ‘India-Indian Road Construction

Industry: Capacity Problems, Constraints and Recommendations’ made several
recommendations to improve the Indian construction industry and eliminate the

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hassles associated with inter-departmental coordination. Some of these

recommendations are:

1. Mainstreaming the pre-construction process and clearances.

2. Setting up a Road Appellate Tribunal for faster clash resolution based on the
US and Singapore models, rather than the current contract by contract approach.

3. Starting a system on rating, grading and registration of construction

companies, and individuals, as currently followed in US and several European
countries, to improve professionalization in the industry and facilitate enhanced
access to finance.

4. Framing a construction law to improve the legal and regulatory environment

in the country.

Report of World Bank 2008, a study on improvement of capacity problems and

improve Indian construction industries, Page number-07.

According to G. K. Kulkarni (2012) construction workers are exposed to a wide

variety of health hazards at work. The exposure varies from job to job. The
work-related diseases from 5% to 20% of work force. He acknowledged some
common difficulties of construction workers to be physical damages, hazards
from harmful chemicals, dusts, mists, gases and biological hazards such as
malaria, dengue, etc.

G.K. Kulkarni 2012, A report on health hazards in construction industries, Page

number-07.

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Statement of the problem

The financial management of any organization must consider the comparative
study of the previous year’s financial statement of the organization. The nature
and trend of the changes touching the organization are easily and clearly
learned by the use of comparative statement. It will be appreciated that the
existing position of any business enterprise at a particular date is not so much
important as its previous happens to be thus it becomes bossy to study the
previous history of the enterprise while studying the present financial position,
hence to know the importance of the comparative statements.
Hence the statement of the problem is:
Detail study on comparative financial statement at REAL Unitypvt ltd is done
in order to find out its productivity, profitability and financial position
compared to previous years.

Objectives of the study

The objectives of study of comparative statements as follows-

 To find out the profitable capital expenditure.

 To know whether the extra of any existing fixed assets gives more return
than earlier.
 To assess the various sources of finance for capital expenditure.
 To find out the income on the investments.

Scope of the study

The study is limited to REAL Unity pvt ltd. The scope of this study pertaining
totally last five years i.e. 2014,2O15,2016,2017 and 2018 . It includes
classification of current assets, fixed assets, current liabilities, long term
liabilities, capital funds and other financial details of the institution.
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Analysis is done on the basis of published data obtained from the annual reports
and websites.

References period
The study is limited to financial statements such as balance sheet and profit and
loss a/c for the five years of “REAL Unity pvt ltd”

Methodology
The methodology covers collection of the data from the primary as well as
secondary data, personal interview was adopted to collect data from the
company such as balance sheet, profit and loss account and company profile.
1. The objective study is framed to gather the required data to complete the
research work after the thoughtful discussion is made with professors and
friends.
2. General discussions with mentor to get information about the study .
3. The data also collected from internet and journals etc. study of different
annual report for collecting the data of five years.
4. The data has been collected according to the objective and data is analyzed
tabulated and presented in graphical from with the help of bar charts, pie charts
etc.

Sources of data collection

Data required for the study is collected through published balance sheet, and
profit and loss a/c , this is added by the information collected during the
discussion with the mentor.
The sources of data may be classified into two types such as:-
1. Secondary data.
Secondary data: The secondary sources which are not original sources and it is
second hand information which is already collected and interpreted by others
previously are called as secondary data. The sources of secondary data collected

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for this project are as follows:-

1. Official websites
2. Annual report
3. journals

Limitations:
Every effort has been made to make study complete and has exhaustive as
possible. Though , the study is not free from certain limitations.
1. The study is based on the data available in annual report published by the
company so that accurateness of the calculation depends upon the information
available on balance sheet.
2. The study is limited to the performance of financial statements for five years
only.
3. The study was to be completed within a limited time period.
4. The thorough study has been made on REAL Unity pvt ltd to the partial
fulfilment for the degree of M.COM

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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

Information accumulation is the way toward social affair and estimating data on
focused factors in a set up methodical design, which at that point empowers one
to respond to applicable inquiries and assess results. The information gathering
segment of research is normal to all fields of study including physical and
sociologies, humanities and business. It help researchers and investigators to
gather the primary concerns as assembled data. While techniques shift by
control, the accentuation on guaranteeing exact and genuine accumulation
continues as before. The objective for all information accumulation is to catch
quality proof that at that point means rich information examination and permits
the structure of a persuading and dependable response to questions that have
been presented.

Importance

Notwithstanding the field of study or inclination for characterizing information

(quantitative or subjective), exact information gathering is fundamental to
keeping up the respectability of research. Both the choice of suitable
information gathering instruments (existing, adjusted, or recently created) and
unmistakably portrayed directions for their right use diminish the probability of
blunders happening.

A formal information accumulation process is vital as it guarantees that the

information assembled are both characterized and precise and that resulting
choices dependent on contentions exemplified in the discoveries are legitimate.
The procedure gives both a benchmark from which to quantify and in specific
cases an objective on what to improve.

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Types

There are 3 types of data collection and they are:

1. Surveys: Institutionalized paper-and-pencil or telephone polls that pose

foreordained inquiries.

2. Interviews: Organized or unstructured one-on-one coordinated discussions

with key people or pioneers in a network.

3. Focus groups: Organized meetings with little gatherings of like people

utilizing institutionalized inquiries, follow-up inquiries, and investigation of
different subjects that emerge to all the more likely get members.

Consequences from improperly collected data include:

• Inability to answer research questions accurately;

• Inability to repeat and validate the study

Primary and Secondary data

There are many ways of classifying data.

The most common type of data collection are as follows:

Primary data: Data collected by the investigator himself/ herself first hand for a
specific purpose.

Examples: Data collected by a student for his/her research project or

assignments.

Secondary data: Optional information alludes to information which is gathered

by somebody who is somebody other than the client.

Examples: Census data that is used to analyze the impact of education on

career choice and earning.

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CALCULATION IN RETURN ON INVESTMENT (ROI):

Return on investment = Profit before interest and tax / Capital employed

INCOME STATEMENT FOR THE YEAR

2013-2014:

(Amount in cr.)

PARTICULAR Amount

2013-2014
Sales 834.79
Less Variable Cost 674.05
Contribution 160.74
Less Fixed Cost 34.95
Add Other Income 15.52
Earnings before Interest, Tax and Depreciation 141.31
Less Depreciation 57.23
Earnings before interest and tax 84.08

CALCULATION OF CAPITAL EMPLOYED:

PARTICULAR AMOUNT

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2013-2014
Equity share capital 28.12
Add Reserves 1129.71
Add Secured loans 211.85
Add Unsecured loans 0.00
Capital Employed 1369.68

Return on investment = Profit before interest and tax / Capital employed

= 84.08 / 1369.68

ROI = 0.0613

= 6.13%

Return on Investments

7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2013/2014

Return on Investments

INCOME STATEMENT FOR THE YEAR

2014-2015:

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(Amount in cr.)

PARTICULAR Amount

2014-2015
Sales 876.13
Less Variable Cost 711.92
Contribution 164.21
Less Fixed Cost 38.08
Add Other Income 12.46
Earnings before Interest, Tax and Depreciation 138.59
Less Depreciation 12.24
Earnings before interest and tax 126.35

CALCULATION OF CAPITAL EMPLOYED:

PARTICULAR AMOUNT
2014-2015
Equity share capital 28.12
Add Reserves 867.35

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Add Secured loans 130.28

Add Unsecured loans 0.00
Capital Employed 1025.75

Return on investment = Profit before interest and tax / Capital employed

= 126.35 / 1025.75

ROI = 0.1231

= 12.31%

Return on Investments

14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2014/2015

Return on Investments

INCOME STATEMENT FOR THE YEAR

2015-16:

(Amount in cr.)

PARTICULAR AMOUNT
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Sales 902.55
Less Variable Cost 703.62
Contribution 198.93
Less Fixed Cost 43.52
Add Other Income 30.49
Earnings before Interest, Tax and Depreciation 185.90
Less Depreciation 43.14
Earnings before interest and tax 142.76

CALCULATION OF CAPITAL EMPLOYED:

PARTICULAR AMOUNT
2015-2016
Equity share capital 28.12
Add Reserves 698.84
Add Secured loans 34.01
Add Unsecured loans 78.50
Capital Employed 839.47

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Return on investment = Profit before interest and tax / Capital employed

= 142.76 / 839.47

ROI = 0.1700 * 100

=17%

Return on Investments

18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2015/2016

Return on Investments

INCOME STATEMENT FOR THE YEAR

2016-2017:

(Amount in cr.)

PARTICULAR Amount

2016-17
Sales 1541.05
Less Variable Cost 1256.24

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Contribution 284.81
Less Fixed Cost 55.24
Add Other Income 19.41
Earnings before Interest, Tax and Depreciation 248.98
Less Depreciation 63.87
Earnings before interest and tax 185.11

CALCULATION OF CAPITAL EMPLOYED:

PARTICULAR AMOUNT
2016-2017
Equity share capital 28.12
Add Reserves 541.08
Add Secured loans 60.18
Add Unsecured loans 28.03
Capital Employed 657.41

Return on investment = Profit before interest and tax / Capital employed

= 185.11 / 657.41

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ROI = 0.2815 * 100

=28.15%

Return on Investments

30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016/2017

Return on Investments

INCOME STATEMENT FOR THE YEAR

2017-18:

(Amount in cr.)

PARTICULAR Amount

2017-18
Sales 1931.65
Less Variable Cost 1473.41
Contribution 458.24
Less Fixed Cost 72.12
Add Other Income 39.31
Earnings before Interest, Tax and Depreciation 425.43

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Less Depreciation 134.15

Earnings before interest and tax 291.28

CALCULATION OF CAPITAL EMPLOYED:

PARTICULAR AMOUNT
2017-2018
Equity share capital 28.12
Add Reserves 485.20
Add Secured loans 54.10
Add Unsecured loans 4.02
Capital Employed 571.44

Return on investment = Profit before interest and tax / Capital employed

= 291.28 / 571.44

ROI = 0.509 * 100

=50.97%

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Return on Investments

60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2017/2018

Return on Investments

Return on Investments from 2014 to 2018

Year 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018

ROI 6.13% 12.31% 17% 28.15% 50.97%

Return on investments
60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018

Return on investments

Interpretation: From the above graphical representation it is seen that the

return on investments has be constantly increasing each year from 2014 to 2018.

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Table showing calculation of Average Rate of Return (ARR):

Year Profit Investment

2014 60.98 40.04
2015 73.01 31.51
2016 161.12 43.38
2017 157.25 535.08
2018 272.09 535.61
Total 724.45 1185.62
Average profit=724.45/5=144.89

Average investment=1185.62/5=237.12

AVERAGE RATE OF RETURN=AVERAGE PROFIT/AVERAGE

INVESTMENT

114.89/237.12=0.484

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Graph showing Average rate of return

Average Rate of Return

0.48

0.5
0.4
0.3
0.2
0.1
0
2014-2018

Average Rate of Return

Interpretation: From the above graphical representation it is seen that the

average rate of return of the company of the previous five years i.e 2014 to 2018
is 0.484

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Table showing calculation of cash flow

Year 2014 2015 2016 2017 2018

Cash flow 118.22 127.22 204.24 221.11 406.23

Graph showing cash flow

Cash Flow
450

400

350

300

250

200

150

100

50

0
2014 2015 2016 2017 2018

Cash Flow

Interpretation: From the above graphical representation it is seen that the

cashflow of the company has constantly been increasing every year from 2014
to 2018.

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Table showing Calculation of Net Present Value

Year Cash flow PV@10% PVCF

2014 118.22 0.909 107.46
2015 127.06 0.826 104.95
2016 204.24 0.751 153.38
2017 221.11 0.683 151.01
2018 406.23 0.620 251.86
TOTAL 768.66
NPV=768.66-535.61=233.05

Graph showing Net Present Value

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Net Present Value

233.05

250

200

150

100

50

0
2014-2018

Net Present Value

Interpretation: From the above graphical representation it is seen that the net
present value of the company of the past five years from 2014 to 2018 is 233.05

Table showing Internal Rate of Return (IRR)

Year Cash flow PV@10% PVCF

2014 118.22 0.909 107.46
2015 127.06 0.826 104.95
2016 204.24 0.751 153.38
2017 221.11 0.683 151.01
2018 406.23 0.620 251.86
TOTAL 768.66
(-) Investment 535.61
233.05

Year Cash flow PV@25% PVCF

2014 118.22 0.8 94.57

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2015 127.06 0.64 81.31

2016 204.24 0.512 104.57
2017 221.11 0.409 90.43
2018 406.23 0.327 132.83
TOTAL 503.71
(-) Investments 535.61
-31.9
FORMULAE: L+[LV-RV/LV-HR](HR-LR)

10+[768.66-535.61/768.66-503.71](25-10)

=23.19

Internal Rate of Return

23.19

25

20

15

10

0
2014-2018

Internal Rate of Return

Interpretation: From the above graphical representation it is observed that the

internal rate of return of the company of the previous five years i.e. 2014 to
2018 is 23.19. The internal rate of return is between 10% to 25%.

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Table showing Return on Equity

(Return on equity= profit after interest, tax/equity funds * 100)

Year Profit after tax Equity fund Return on equity

2014 60.98 28.12 210.42
2015 73.01 28.12 259.63
2016 161.12 28.12 572.97
2017 157.25 28.12 558.32
2018 272.09 28.12 967.60

Graph showing Return on Equity

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Return on Equity
1200

1000

800

600

400

200

0
2014 2015 2016 2017 2018

Return on Equity

Interpretation: From the above graphical representation it is seen that the

return on the equity has been increasing from year to year. There was a slight
drop during the year 2017. This shows that the company is earning good profit
which results in good return to equity shareholders and investors.

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CHAPTER 5

FINDINGS, RECOMMENDATIONS AND CONCLUSION

FINDINGS:

 COMPARISON OF RETURN ON INVESTMENT OF DIFFERENT

FINANCIAL YEAR:

YEAR RETURN ON INVESTMENT (%)

2013-2014 6.13
2014-2015 12.31
2015-2016 17
2016-2017 28.15
2017-2018 50.97

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It is found the that the company is having a high return on investment in the
year 2017-18 than previous year. This shows the company is earning a good
profit and high return on investment is acceptable.

 COMARISION OF THE CASHFLOWS OF DIFFERENT FINNCIAL

YEAR

Year 2014 2015 2016 2017 2018

Cash flow 118.22 127.22 204.24 221.11 406.23
It is found that the cashflow of the company has constantly been increasing
from 2014 to 2018 which shows the performance of the company is good and
they are not currently facing any financial distress.

 NET PRESENT VALUE

Year NPV
2014-2018 233.05
The net present value of the company from the year 2014 to 2018 has been
observed to be positive which means that the company is earning a good
revenue.

 RETURN ON EQUITY

Year Return on Equity

2013-2014 210.42
2014-2015 259.63
2015-2016 572.97
2016-2017 558.32
2017-2018 967.60

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It is found that the return on equity is increasing every year from 2014 to 2018.
This shows the company is in a favorable position and is earning good profit
which results in good return to equity shareholders and investors.

SUGGESTIONS:

 There should be effective coordination between the different departments

like production sales, purchase, finance, marketing, etc., this will help to
enhance the efficiency of the organization

 There should be proper budgeting control system

 There should be proper communication between various departments and

responsibility centers.

 There should be well organized man power planning.

 Education about the importance of budgeting should be communicated to

all concerned authorities involved directly or indirectly to work according
for the growth of the company.

CONCLUSION:

To conclude the project A study on Capital Budgeting conducted at REAL

Unity Pvt. Ltd using the balance sheet and profit and loss account from 2014 to
2018 it is seen and observed that the company is functioning smoothly and has
been able to earn good profits every year which is a good sign for the company

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and should continue the good performance so that in the future haul to be able
to sustain in the market and give a good competition to the major players.

On the whole REAL Unity Pvt. Ltd is moving forward in a positive direction
and has the urge to keep growing in the market with a good organization and
excellent management

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