Basheer ahmed khan department of management studies pondicherry university submitted by. Students can find project reports, seminar topics, ppt, pdf, abstracts for free download. Empirical analysis, iraqi listed firms introduction capital structure is about putting in place the structure, processes and mechanism that may ensure the firm is being directed and managed in a way that enhances longterm equity value. Capital structure analysis of indian oil corporation limited iocl a project report submitted in partial fulfillment of the requirements for the degree of master of business administration department of management studies, pondicherry university under the guidance of institutional guide. The capital structure is how a firm finances its overall operations and growth. It shows the mix of a companys longterm debt, specific shortterm debt, common equity and preferred equity. Capital structure of a company refers to the composition or make up of its capitalization and it includes all long term capital resources i. Since then, many economists have followed the path they mapped. The goal of this chapter is to discuss the various theories that help to explain the determination of capital structure. The theory of capital structure wiley online library. Trend analysis of capital structure in indian two wheeler. A s tructural e quation m odeling approach author dr. If the monetary resources that the current activity is able to produce are not enough to offset the cashouts due to the companys investment activity, the firm needs to raise new funds from investors. Financing the firms assets is a very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital in financing.
The traditional tradeoff theory of capital structure states that when the weighted average cost of capital wacc is minimized, and the market value of assets is maximized, an optimal capital. They proposed theories about the capital structure, which can be seen as the basis for other studies which tried to find the optimal capital structure. Combining theory and practi ce contabilidade, gestao e governanca brasilia v. The quantum and structure of total funds in smes during the period of study was also analyzed. Issuer credit ratings are not specific to any one debt issue by the firm, and they reflect only the. Capital structure is the proportion of all types of capital viz. Capital structure an overview sciencedirect topics. Heavy industry, capital structure, debt, equity, beta. G21,g30,g32,m41 abstract using a novel data set that records individual debt issues on the balance sheet of a large random sample.
Capital structure and its 4 important theories ni, noi. The relative proportion of various sources of funds. A dynamic panel analysis miroslav mateeva aamerican university in bulgaria, 1 g. The factors influencing the capital structure decision are. Short term liabilities, long term liabilities, return on equity, amman stock exchange. The impact of capital structure on firms performance in nigeria. It is synonymously used as financial leverage or financing mix. This research led to the development of a model of capital structure. A public sector company, it was incorporated in the year 1975 to accelerate power development in the country as a wholly owned company of the government of india. Ingridmihaela dragota, victor dragota, laura obreja brasoveanu, andreea semenescu capital structure. Sep 08, 2020 capital structure is a permanent type of funding that supports a companys growth and related assets. American journal of business education january 2011.
Capital structure refers to how the firms assets are financed. Sep 07, 2014 capital structure analysis of indian oil corporation limited iocl 1. On the determinants of sme capital structure in central and eastern europe. Making capital structure support strategy mckinsey. However, the way organizations are financed, the capital structure, is still an unsolved puzzle. Capital structure decisions are important to maximize the earnings of the companies. They mm pointed the direction that such theories must take by showing under what conditions capital structure is irrelevant. Nov 29, 2019 discover the capital structure analysis for starbucks corporation sbux, and learn how it generated a 47% increase in enterprise value in 2015.
Capital structure decisions are of importance when considering the. Capital structure analysis in indian heavy industry dr. Analysis of capital structure and performance of banking sector in middle east countries international journal of economics and financial issues vol 9 issue 2 2019 3 its investment from internally generated funds rather than external sources. The capital structure is one of the main topics in financial management becausecapital structure plays very important role in maximizing the value and performance of the firms 2.
The importance of the capital structure starts with the study of modigliani and miller 1958. The financing details a framework for capital structure. Tamilselvi, head of the department, department of business administration, cauvery college for women, tiruchirappalli 620 018. Proportionate relationship between debt and equity 2. Izmirliev square, 2700, blagoevgrad, bulgaria, phone. The ratio of external source borrowed to internal source is a cautious decision for corporate managers. Reviewing the capital structure analysis done for disney in chapter 8, we see that. Pdf capital structure analysis of ebx groups companies. A firm whose actual debt ratio is very different from its optimal has several. The modern theory of capital structure began with the celebrated paper of modigliani and miller 1958.
The impact of capital structure on firms performance in. Dec 15, 2020 capital structure analysis is usually confined to shortterm debt, leases, longterm debt, preferred stock, and common stock. The empirical analysis necessitates a summary measure of credit quality, a purpose served by issuer credit ratings. Determination of optimal capital structure is an important task in financial management 3. By using regression analysis, the results of research on the effect of capital structure on profitability is 1 sda the ratio of shortterm debt to total capital positively associated. Their analysis shows that debt equity ratio is positively and strongly associated to all other profitability ratios in which net profit, gross profit and operating profit are. Pdf on jan 1, 20, mohd shahid ali and others published theories of capital structure. The effect of capital structure on firm performance. The upcoming maturity of a debt instrument, which may need to be replaced or paid off. Capital structure a reading prepared by pamela peterson drake outline 1. Capital structure reflects the firms financing strategy, for example, its overall target debtequity ratio, and also financing tactics. Exploring the determinants of financial structure in the. The capital structure theory and its practical implications.
The article therefore, contributes to the theory of capital structure with optimality and related issues using beta approach. The term capital structure is used to represent the 1. Capital structure analysis of bhel bhel is the largest engineering entreprise in india in the energy infrastructure sector today. Equity ratio, debt to equity ratio, equity to debt ratio, interest coverage key performance. Capital structure policy involves a tradeoff between risk and return 1 using more debt raises the riskiness of the firms earnings stream. Irrelevance theorem a benchmark striking result is that under fairly general conditions, the value of the firm defined as the sum of value of debt and. Capital structure affects a companys overall value through its impact on operating cash flows and the cost of capital. American journal of business education january 2011 volume 4. This study makes several important contributions to the existing studies of capital structure.
By reconciling empirical evidence with theory practical strategies for managing capital structure in transition are suggested. A study on capital structure pattern of small and medium. This process is experimental and the keywords may be updated as the learning algorithm improves. Research abor 2005 entitled the effect of capital structure on profitability. Since the interest expense on debt is tax deductible in most countries, a company can reduce its aftertax cost of capital by increasing debt relative to. Capital structure decision is the mix of debt and equity that a company uses to finance its business damodaran, 2001. Capital structure, debt equity ratio, trade off theory and pecking order theory. The capital structure puzzle is unravelled and a clear. Banks often argue that a higher capital requirement will lower their performance by increasing the total cost of financing bandt et al. Such capital requirement can however limit the financial flexibility and lower the profitability of the banking sector. Risk of cash insolvency arises due to failure to pay fixed interest liabilities. Debt, equity or preferred stock b the cost of each component n in summary, the cost of capital is the cost of each component weighted by its relative market value. In this case it will be said that the capital structure of the company consists of rs 1,00,000 in equity shares, rs 1,00,000 in preference.
The analysis of companys capital and evaluation of factors, which. Capital structure is combination from all the right side of the firms balance sheet 1. This paper analysis capital structure determinants of croatian enterprises based on a crosssectional data for prerecession 2007 and recession 2010 comprising. Would you like to get the full thesis from shodh ganga along with citation details. Capital structure refers to the combination of debt. The survey would then proceed to document the answers available in the litera ture. Capital structure has been a major issue in financial economics ever since modigliani and miller showed in 1958 that given frictionless markets, homogeneous expectations. The period covered for the analysis is from 19992000 to 20092010. Capital structure analysis definition accountingtools. The analysis may be on a regularly scheduled basis, or it could be triggered by one of the following events. Capital structure initial public offering debt ratio debt financing airline industry these keywords were added by machine and not by the authors. Irjmst volume 4 issue 3 online issn 2250 1959 theories of capital structure.
Capital structure analysis of indian oil corporation limited. However, the series of simplifying assumptions have often been. Capital structure analysis of indian oil corporation. Download latest collection of mba projects on capital structure from this site for free of cost. The problem with organizing the survey in this way is that often a. Capital structure notes selfinstructional 126 material used for the mix of capitalization. Determinants of capital structure in static tradeoff theory are. Myers 1984 challenged the notion of an optimal capital structure based solely on the tradeoff of the related benefits and costs of financial leverage in a world of. The earlier studies on capital structure mainly focuses on the analysis of. Capital structure is also referred to as the degree of debts in the financing or capital of a business firm.
Optimum capital structure and cost of capital n if the cash flows to the firm are held constant, and the cost of capital is minimized, the value of the firm will be maximized. Relying on the capital structure and its impact on performance, different analyses are used in the literature and empirical studies. Capital structure is essentially concerned with how the firm decides to divide its cash flows into two broad components, a fixed component that is earmarked to meet the obligations toward debt capital and a residual component that belongs to equity shareholdersp. Analysis of capital structure determinants mohd shahid ali assistant professor, motilal nehru e college, university of delhi, mail. Section 6 presents the results of firms capital structure analysis and. Introduction the capital structure is defined as the mix of debt and equity that the firm uses in its operation.
Expressed as a formula, capital structure equals debt obligations plus total shareholders equity. Capital structure theory asks what is the optimal composition between debt and equity. Capital structure and financial performance hrmars. January 2006 the theory and practice of corporate capital structure liability strategies group 7 introduction this paper this paper provides an overview of current capital structure theory together with a detailed analysis of the results of a recent corporate capital structure survey. Capital structure is the composite of borrowed fund and owners fund that adds up to total capital employed of the business organization.
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