Capital Structure

Guided By: Presented By: Ebiz-1

Prof. Dr. santosh rupa jaladi

Atul-08
Shantanu-39
Afreen-41
Riya-37
Abhinav-32
MEANING OF CAPITAL STRUCTURE
 Capital Structure refers to the combination or mix
of debt and equity which a company uses to
finance its long term operations.
 Raising of capital from different sources and their
use indifferent assets by a company is made on
the basis of certain principles that provide a
system of capital so that the maximum rate of
return can be earned at a minimum cost.
 This sort of system of capital is known as capital
structure.
Capital structure

Equity Debts

Capital
 • Equity share capital
• Preference share capital
Equity

• Debentures
• Loans
Debts • etc
Factors Influencing Capital structure

Internal
Factors External
Factors
Internal Factors
 Size of Business
 Nature of Business
 Regularity and Certainty of Income
 Assets Structure
 Age of the Firm
 Desire to Retain Control
 Future Plans
 Operating Ratio
 Trading on Equity
 Period and Purpose of Financing
External Factors
 Capital Market Conditions
 Nature of Investors
 Statutory Requirements
 Taxation Policy
 Policies of Financial Institutions
 Cost of Financing
 Seasonal Variations
 Economic Fluctuations
 Nature of Competition
Point Of Indifference
 It refer to that EBIT level, at which EPS remain same
irrespective of different alternatives of debt equity mix.

 At this level of EBIT return on capital employed is equal to

cost of debt this is also known as breakeven level of EBIT for
alternative financial plan
ESSENTIALS OF OPTIMAL CAPITAL
STRUCTURE
 Minimum Cost of Capital
 Minimum Risk
 Maximum Return
 Maximum Control
 Safety
 Simplicity
 Flexibility
 Attractive Rules
 Commensurate to Legal Requirements
Which Capital Structure Is Better ?
Optimal Capital Structure
 The optimal or the best capital structure implies the most
economical and safe ratio between various types of securities.

 It is that mix of debt and equity which maximizes the value of

the company and minimizes the cost of capital.
 Comparison
Maruti Ashok
TVS Bajaj Mahindra
Suzuki Leyland
Total Debt
Equity 0.52 14.61 93.25 1.44 0.98
Ratio
Financial
Leverage 1.29 1.09 1.04 1.41 1.80
Ratio
Net Fixed
Assets to
Net Worth 1.56 1.06 1.00 2.92 2.00
Ratio
Total Asset
to Debt 3.01 0.07 0.01 2.03 2.04
Ratio
Thank you