Capital Structure and Its Impact On Profitability
Capital Structure and Its Impact On Profitability
Capital Structure and Its Impact On Profitability
Flow of Presentation
Introduction
Introduction
A mix of a company's long-term debt, specific 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. Debt comes in the form of bond issues or long-term notes payable,
Capital Structure
Capital structure consists of short term debt, Long term debt and equity financing. It tells how company uses different sources of finances to finance its operations.
Debt financing.
Debt financing means when a company wants to borrow money it takes debt from the banks, or other sources of finance and after a specified interval of time this debt have to be paid back. The lender in this case is not the owner of the company. He receives fixed interest payments till the maturity of debt and receives back the principal amount at maturity.
Equity financing.
In equity financing companies issue shares to get financing. In this case the person who buy share becomes owner of company. There are no interest payments in this case, and no return of principal amount.
Profitability.
Profitability is the ability of a company to generate net income consistently.
run.
Profitability is measured with income and expenses. Profitability is measured with an income statement because income statement is measure of income and expenses during a given time period.
Data Analysis
1200
1000 800 600 400 200 0 Mar '09 Mar '10 Total Share Capital Mar '11 Total Debt 210.36 234.44 551.69 551.69 551.69 481.62 245.39
551.69 248.83
551.69 272.67
Mar '13
In 2010, reported a 11% jump in its net profit to 233.44 from 210.60 in previous year due to lower input costs and realization of government subsidies. Results also shows a significant relationship between current liabilities and profitability of company in fertilizer sector.
By doing Research of banking sector with 5 public sector bank in India we come to know that there is a positive relationship between the capital structure and profitability. Increase in debt lead to increase in profit
BANK OF BARODA
408444.1 6 327747.3 3 198033.0 4 254394.3 5
Total Debt
BANK OF INDIA
350330.26
Total Debt
Total Debt
179255.05
Union Bank of India fund infusion of about Rs 1,000 crore as part of recapitalization plan of the government in 2011-12.Net non-performing assets (NPAs) sequentially rose 13 basis points to 1.32% while gross NPAs by 20 basis points to 2.57%
SBI
1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 9121.23 Mar '09 9166.05 Mar '10 7370.35 Mar '11 11686.01 14104.98 Mar '12 Mar '13 Total Debt 795786.81 1371922.28 1170652.93 1053501.77 907127.83
In 2011 SBI has issued the right share issue of Rs 20000 cr and thats why the profit of the company is down in 2011.
By conducting the thorough research we come to know that there is a positive relationship between the capital structure and profitability. If there is an increase in the debt then the profitibility would increase. And if there is a decline in the debt then the profitability would also decline.
971.41
Mar '09
971.41
Mar '10
971.41
Mar '12 Reported Net Profit
971.41
Mar '13
In 2011, SBI has issued the right share issue of Rs 20000 cr and thats why the profit of the company is down in 2011. .
The
between debt and profitability. Our findings imply that an increase in debt position is associated with a decrease in profitability; thus, the higher the debt, the lower the profitability of the firm. The results also show that profitability increases with control variables; size and sales growth.
Mar '09
Mar '10
Mar '12
Reported Net Profit
Mar '13
During FY 2013, Tata Steel Group raised debt from various banks and
financial markets .
An amount of Rs 15472 crore was incurred on capital expenditure
Capital Structure and Profitability Relationship in Manufacturing Sector During FY 2012 : 6 million tonnes per annum plant in Odisha's Kalinganagar. Investment - Rs 35,000 crore. 65:35 debt equity ratio for spent Rs. 3700 crore in FY 2012. During FY 2011,FY 2010 and FY 2009: Eurozone crisis Current steel demand is almost 30% lower than the pre-2008 financial crisis level. Lower average selling prices compared with the all-time high price levels .
The study results reveal no significant relation between debt and profitability.
Our findings imply that an increase in debt position is having no relevance with profitability; thus, the higher the debt, the lower the profitability of the firm.
Ranbaxy
6000 5000 4000 3000 3725.37 4260.72 3348.38 4333.53 4763.61
2000
1000 0 -1000 -2000 -3000 -4000 Total Share Capital Total Debt Reported Net Profit 210.19 Mar '09 -1044.8 571.98 210.21 Mar '10 1148.73
210.52
Mar '11
-3052.05
Capital Structure and Profitability Relationship in Pharmaceutical Sector 2008, loss on exceptional items stood at Rs 784.3 crore due to change in AS 30. Increase in profit in 2009, due to savings on selling, general and administrative department. EBITDA stood double than 2008 Growth in domestic market to 16% compared to last year. In 2009-10, gain from forex reserve stood to 675 crore as compared to 23.7 crore in 2008-09. In 2010, License fees generated was Rs 170 crore which was milestone. In 2011, a sharp decline in sales outside india which was 68% of 2010. Third time affected by forex effects, loss stood to 470 crores from where it had gains in 2010.
Limitation of study
Conclusion