Capital Structure Analysis of Hero Honda, For The Year 2005 To 2010
Capital Structure Analysis of Hero Honda, For The Year 2005 To 2010
Capital Structure Analysis of Hero Honda, For The Year 2005 To 2010
2005 to 2010.
Submitted to-
equity
debt
hybrid securities
Unlevered company-
A company that takes money from public to raise their capital .unlevered
company cost of capital is high and in this case profit has to be shared and
the return will be volatile to the lenders i.e. the shareholders .whereas in
levered company the rate of interest will be fixed as decided with the
lender. Generally a unlevered company has less of capital investment .
For eg-most of the IT sector companies are unlevered as this business
does not involve purchase of machinery it is service oriented industry.
Cost of capital-
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
(R.S in Cr)
Equity
The equity in al the 5 years has been the same .that means the company
hasnt issued any fresh issue of stock in 5yrs.
Debt
year 2006 2007 2008 2009 2010
Total Debt 185.78 165.17 132.00 78.49 66.03
As we can easily see the company is trying to reduces it liability and one of
the intresting finding in hero Honda balance sheet all the debt are
unsecured no secured debt it shows that company has a good credit rating
and it enjoys good reputation amongst its debtor .here company has no
legal obligation to pay first to the debtors during time of liquidation.
Inspite of they reducing there debt and keeping there euity same from last
5 years hero handa is been doing considerable investment in assest which
can seen in the below graph.
year 2006 2007 2008 2009 2010
Total
2,195.11 2,635.23 3,118.24 3,879.24 3,531.05
assests
The investment in asset is not done through raising the capital it means it is
using its reserve for purchase of new assets or investment ,use of internal
resrerve reduces the burden of paying interest as against loan.
Capital structure of hero Honda motors-
The company has raised more of debt than equity issue its a
levered company.
Here we can see every year they have drastically tried to reduce
their debt thus trying to make it debt free. The reason for the
same is increase in net profit as sales of hero Honda has grown in
past years.
Sales turnover
Conclusion-