Capital Structure

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%


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%


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


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%


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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Capital Structure