capital structure
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CAPITAL STRUCTURE
Presented by GROUP 10
Abhishek ModiAmit Agarwal
Archanaa .KAyush AgarwalSadaf Ali Khan
CAPITAL STRUCTURE
Mix of company’s long term debt, short term debt, common equity and preferred equity.
The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Capital structure of sectorsSoftware firms: Don’t require much long term funds
once they have initiated their operations.
Their business risk is high. Thus, to reduce the overall risk, they like to minimize their financial risk.
Telecom Firms: High long term debts. Debt equity ratios
in the range of 0.4
Companies for Capital Structure studyBharti AirtelMaruti UdyogMind Tree
Bharti Airtel
Incorporated on July 7th,1995 Services offered in India ,Srilanka
and Bangladesh Four major strategic business units
Business Unit Function
Mobile GSM mobile services
Telemedia High speed broadband internet
Enterprise portfolio of services for corporates
Digital TV Digital entertainment
Capital structure 2007 2008 2009
In (‘000)
Share capital
1,89,59,342
1,89,79,075
1,89,82,398
Retained earnings
6,00,82,590
12,59,64,376
21,06,63,499
Total owners equity
7,90,41,932
14,49,43,451
22,96,45,897
Long term debt
4,15,35,506
7,77,15,118
5,39,92,506
Debt equity ratio 0.53 0.54 0.24
Study of Capital Structure
Observations
Equity share capital has been constant over the three years
A huge increase in the retained earnings can be noticed which also implies a huge increase in profits and a low dividend payout
More borrowings is observed in 2008 . This is basically to finance working capital requirements for the period.
Observations Debt repayment in the year 2009
which has resulted in a fall in debt equity ratio from .54 to .24
2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
Debt equity
Cost of capital
Particulars 2007 2008 2009
Net income Rs. 4,25,71,766
Rs. 6,70,08,187 Rs. 8,46,99,123
Shareholder’s Equity
13,55,53,039 21,70,42,493 30,39,44,983
Cost of equity 31.41% 30.87% 27.87%
Particulars 2007 2008 2009
interest 30,44,252
40,53,699
32,09,545
debt 4,15,35,506
7,77,15,118 5,39,92,506
Cost of debt7.33% 5.22% 5.94%
Weighted Average cost of capital
2007 25.76%
200824.11%
200924.56%
Particulars 2007 2008 2009
Equity proportion 0.765453457 0.736342286 0.849156605Debt proportion 0.234546543 0.263657714 0.150843395cost of equity 0.3141 0.3087 0.2787
Cost of debt 0.0733 0.0522 0.0594
WACC 0.257621192 0.241071796 0.245620044
MARUTI Maruti Suzuki India Limited is a leading four-
wheeler automobile manufacturer in South Asia.
Automobile revolution in India Joint venture between Indian Govt & Suzuki
Japan As of May 10 2007, Govt. of India sold its
complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.
Annual Exportsmore than 50000 cars Domestic Market 730000 cars per year
Capital StructureCAPITAL
STRUCTURE
2007 2008 2009(In crs)
Share capital 144.50 144.50 144.50
Retained earnings
6709.40 8270.90 9200.40
Total owners equity
6853.90 8415.40 9344.90
Long term debt 630.80 900.20 698.90
Debt equity ratio
0.1069 0.0920 0.07478
Observations
Equity share capital has been constant over the three years.
Gradual increase in retained earnings
More borrowings is observed in 2008 which is for new projects .
Cost of capital
Particulars 2007 2008 2009
Net income Rs.15620 mn Rs. 17308 mn Rs.20360mn
Shareholder’s Equity 70065 mn 82709 mn 90305mn
Cost of equity 22.29% 20.93% 22.55%
Particulars 2007 2008 2009
interest Rs. 404 mn Rs. 596
mn Rs.670mn
debt Rs.6705mn Rs.9002mn Rs.10,043mn
Cost of debt6.025% 6.620% 9.65%
CAPITAL STRUCTURE OF MINDTREE
2007 2008 2009
EQUITY SHARE CAPITAL 37.75 37.92 38
TOTAL RESERVES 397.71 496.05 492.36
NET WORTH 435.46 533.97 530.36
TOTAL DEBT 26.38 91.72 139.37
DEBT TO EQUITY RATIO 0.06058 0.17177 0.262784
In Rs. crs
Share Capi-tal
Reserves Total
net worth Total Debt0
100
200
300
400
500
600
Capital structure
200720082009
In Rs. crs
2007 2008 20090
0.05
0.1
0.15
0.2
0.25
0.3
debt to equity ratio
debt to equity ra-tio
• Equity of the company has constantly grow each year because company provides with employee stock .• Debt of the company has increase from 26.38crore in 2007 to 91.72 crore in 2008 and 139.37 crores in 2009.•Interest rate of the company has gone up on year on year basis because of the company raising loan. These were mainly secured loan raised for to meet the working capital need and for expansion in SEZ area in Bangalore and Chennai.
COST OF EQUITY CAPITAL 2007 2008 2009
NET WORTH 435.46 534 530.4
NET PROFIT 90.05 103.3 56.4COST OF EQUITY (%) 20.6792817 19.3 10.6
In Rs. crs
2007 2008 20090
100
200
300
400
500
600
NET WORTH Net Profit
2007 2008 20090
5
10
15
20
25
COST OF EQUITY
COST OF EQUITY
CALCULATION OF COST OF DEDT
2007 2008 2009
TOTAL DEBT 26.38 91.72 139.37
INTEREST 3.33 6.31 17.99WEIGHTED AVERAGE COST OF DEBT 12.6232 6.879634 12.90809
2007 2008 20090
20
40
60
80
100
120
140
160
total loansinterest
2007 2008 20090
2
4
6
8
10
12
14
weighted average cost of debt
weighted average cost of debt
The company is paying dividend as a percentage of equity capital. i.e. 20% for 2007, 20% for 2008 and decreased to 10% in 2009. The decrease is mainly due to the reduction in the profit after tax of the company which has drastically fallen for 112.73 in 2008 to 32.55 in 2009. The reason for the fall might be the economic slowdown. So is the esp. has also gone down.
2007 2008 2009
Dividend 6.82 7.57 3.8
2007 2008 20090
2
4
6
8
6.827.57
3.8
Dividend
Dividend
THANK YOU
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