This document summarizes an analysis of Honda Cars India Limited's (HCIL) capital structure and management of surplus funds. It discusses HCIL's sources of short-term, long-term, and retained earnings financing. It also analyzes HCIL's investment of surplus funds in bank fixed deposits and evaluates alternative investment tools like commercial papers, corporate bonds, and mutual funds. Key factors considered for HCIL's borrowing and investment decisions are discussed such as credit ratings, liquidity, returns, and risks.

1. Amity school of business
Submitted by- Vibhor Jain
Roll No.- 23
Course- BBA+MBA

2. 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.

3. One of the main purposes of this report is to get oneself
familiar with the theoretical concepts and practical usage
of
those ideas identified with Capital structure. The report
focuses on the investment of temporary surplus fund. The
report will focus on the understanding of financial
leverage
Of HCIL and at the same time take closer look at the
strategies followed by the company.

4. 1. DEFINE THE OBJECTIVE
The project started with an objective of understanding the different instrument of
borrowings that HONDA CARS INDIA LTD. Is presently using. It will also provide
an
overview of investment strategy adopted by HCIL to manage its Surplus Fund.
2. COLLECTION OF DATA
A combination of primary and secondary data was used to collect the necessary data
for the analysis to be done.
3. ANALYSIS
The data collected in the previous step will be used to carry out an extensive analysis
of the strategies adopted by HONDA CARS INDIA LTD to borrow funds to meet its
diverse budgetary requirements over a time period and it will also be used to analyze
the investment strategies adopted by HCIL.
4. RESULTS AND RECOMMENDATION
The findings of the analysis would be looked into and the results would be interpreted
and based on that the necessary recommendation will be provided.

5. 1. Having limited knowledge in the concerned area.
2. No prior work experience in the finance department
of an organization.
3. Resource Constraint
4. 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.

6. As long as the company's return on invested capital is
higher than the cost of borrowing, it is advantageous
for
the 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 Borrowings
1. Short Term Borrowings
2. Medium Term Borrowings
3. Long Term Borrowings

7. 1) Rate of Interest
2) Duration
3) Size of the Firm
4) Share Holders Concern
Sources of Short-term Finance
1. Trade Credit
Trade credit refers to credit allowed to manufacturers
and merchants by the suppliers of raw material,
finished
goods, components, and so on.

8. 2. Bank Credit
Commercial banks grant short-term finance to business
a firm which is known as bank credit. Bank credit
might
be granted by way of loans, cash credit, overdraft and
discounted bills.
Long Term Finance
A business requires funds to buy fixed resources like
land and building, plant and machinery, furniture etc.
These assets may be regarded as the establishment of a
business.

9. SOURCES OF LONG TERM FINANCE
1) DEBENTURES
Whenever a company wants to acquire a lot of finance
for a long yet fixed period, it can acquire from the
overall population by issuing loan certificated called
Debentures.
2) Public Deposit
people used to store their reserve funds with business
Concerns. The period for which business undertakings
accept public deposits ranges between six months to
three years

10. 1) RETAINED EARNINGS
The portion of the profits which is not circulated among
the shareholders but rather is held and is used in business
is called retained earnings or ploughing back of profits.
Uses of Retained Earnings at HCIL
As retained earnings are generated within a company
and
does not incur any additional cost, it is considered as the
most convenient form of financing.

11. With Reference to the annual report 2008-2009, the
company
has incurred a loss Of RS.1965640,000. Thus in the current
year there is no retained earnings for HCIL.
LONG TERM BORROWINGS
1. External Commercial Borrowings
ECBs are one of the modes of raising funds from abroad.
ECBs refer to business advances, benefited from non-
resident
loan specialists with minimum average maturity of 3 years.

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

13. INTRODUCTION
There is always a time lag between a company’s cash
inflows
and outflows. When cash inflows are greater than cash
outflows, the company has some surplus fund lying idle with
itself. Instead of having the surplus funds of no use, the
company tries to invest these funds so that it can earn a
reasonable rate of return.

14. 1. Returns
2. Risks
3. Average maturity
4. Marketability
Investment in Bank fixed deposits
Honda Cars India is currently investing its surplus fund in
Fixed Deposits.
1. BOTM (Bank of Tokyo Mitsubishi)
2. BOA (Bank of America)

15. 3. CITI BANK
4. KOTAK BANK
Various Tools Available in Market for Investment:
1. Commercial Papers
2. Corporate Bonds
3. Certificate of Deposits
4. Mutual funds.

16. 1. Credit Standing/Rating
Before investing in Corporate Bonds, the financial standing
should be carefully analyzed. Bonds get rated by an
independent rating agency.
2. Liquidity
Another important criterion for investment decision is the
liquidity of the bond i.e. how easily bond can be off-loaded in
the market without significant capital loss.

17. 1. AAA – (Triple A) Highest Safety
2. A – Adequate Safety
3. BBB (Triple B) Moderate Safety

18. Rating Requirement
Every qualified member should get the credit rating for
issuance of Commercial Paper from either the Credit
Rating 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

19. Risk
In case the organization has decided that it is ready to bear
some degree of risk then in that case it can opt for alternatives
like commercial paper and mutual funds instead of investing
their funds in fixed deposits.
Return
A company can get a maximum return on their investment of
surplus funds in case of inter corporate deposits, corporate
bonds and certificate of deposits.

20. Thank you