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Capital Structure - Kesoram

This document provides a synopsis of the capital structure of Kesoram Cement Limited. It discusses the introduction and definition of capital structure, the need for studying capital structure, the scope and objectives of studying Kesoram Cement's capital structure from 2017-2021, limitations of analyzing capital structure using EPS, and includes a bibliography of references. The objectives are to analyze Kesoram Cement's capital structure using EBIT-EPS, study the effectiveness of financing decisions on EPS and EBIT, examine leverage and financing trends, and estimate the debt-equity ratio from 2017-2021.

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mohammed khayyum
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93 views9 pages

Capital Structure - Kesoram

This document provides a synopsis of the capital structure of Kesoram Cement Limited. It discusses the introduction and definition of capital structure, the need for studying capital structure, the scope and objectives of studying Kesoram Cement's capital structure from 2017-2021, limitations of analyzing capital structure using EPS, and includes a bibliography of references. The objectives are to analyze Kesoram Cement's capital structure using EBIT-EPS, study the effectiveness of financing decisions on EPS and EBIT, examine leverage and financing trends, and estimate the debt-equity ratio from 2017-2021.

Uploaded by

mohammed khayyum
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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A

SYNOPSIS ON

“CAPITAL STRUCTURE”
AT

“KESORAM CEMENT LIMITED”

Submitted in partial fulfillment of the requirement for the award of the


MASTER OF BUSINESS ADMINISTRATION

BY
S SHASHANK
H.T NO: 1422-20-672-239

Department of management studies


CSI INSTITUTE FOR P.G. STUDIES
(Affiliated to Osmania University)
East marredpally, secunderabad, telengana
2020-2022
1. INTRODUCTION
The capital structure decision can affect the value of the firm either by changing the expected
earnings or the cost of capital or both.
The objective of the firm should be directed towards the maximization of the value of the
firm capital structure, or average, decision should be examined from the point of view of its
impact on the value of the firm
If the value of the firm can be affected by capital structure or financing decision a firm would
like to have a capital structure which maximizes the market value of the firm. The capital
structure decision can affect the value of the firm either by changing the expected earnings or
the cost of capital or both.
A mix of company’s longterm debt, a 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 souces of funds.
Debts comes in the forn of bond issues or long-term notes payable, while equity is classified
as common stock, preferred stock or retained earnings. Short-term debt such as working
capital requirements is also considered to be part of the capital structure.

The phrase “capital structure” can mean different things to different people. At its simplest,
capital structure reflects the equity and debt of the company. A privately held company that
plans to share equity with employees and raise outside capital generally as atleast two classes
of stock; common for founders and employees, and preferred for investors. A company has a
finite amount of equity to exchange for the financial and talent resources necessary to execute
your plan successfully. Great care should be taken when planning the allocation of equity.
The assets of a company can be financed either by increasing the owners claim or the
creditors claim. The owners claims increase when the form raises funds by issuing ordinary
shares or by retaining the earnings, the creditors’ claims increase by borrowing.

The various means of financing represents the “financial structure” of an enterprise .The
financial structure of an enterprise is shown by the left hand side (liabilities plus equity) of
the balance sheet. Traditionally, short-term borrowings are excluded from the list of methods
of financing the firm’s capital expenditure, and therefore, the long term claims are said to
form the capital structure of the enterprise .The capital structure is used to represent the
proportionate relationship between debt and equity .Equity includes paid-up share capital,
share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It


influences the shareholders returns and risk consequently; the market value of share may be
affected by the capital structure decision. The company will have to plan its capital structure
initially at the time of its promotion.
2. NEED FOR THE STUDY:
The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream. The rate used to discount earnings stream it’s the firm’s required rate of
return or the cost of capital. Thus, the capital structure decision can affect the value of the
firm either by changing the expected earnings of the firm, but it can affect the reside earnings
of the shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting
opinions have been expressed on this issue. In fact, this issue is one of the most continuous
areas in the theory of finance, and perhaps more theoretical and empirical work has been
done on this subject than any other.
If leverage affects the cost of capital and the value of the firm, an optimum
capital structure would be obtained at that combination of debt and equity that maximizes the
total value of the firm or minimizes the weighted average cost of capital. The question of the
existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the
following words.
Given that a firm has certain structure of assets, which offers net operating earnings of
given size and quality, and given a certain structure of rates in the capital markets, is there
some specific degree of financial leverage at which the market value of the firm’s securities
will be higher than at other degrees of leverage?

The existence of an optimum capital structure is not accepted by all. These exist two
extreme views and middle position. David Durand identified the two extreme views the net
income and net operating approaches.
3. SCOPE OF THE STUDY:
A study of the capital structure involves an examination of long term as well as short
term sources that a company taps in order to meet its requirements of finance. The scope of
the study is confined to the sources that KESORAM CEMENT LIMITED tapped over the
years under study i.e. 2017-2021.
4. OBJECTIVES OF THE STUDY:

The project is an attempt to seek an insight into the aspects that are involved in the capital
structuring and financial decisions of the company. This project endeavors to achieve the
following objectives.
1. To Study the capital structure of KESORAM CEMENT LIMITED through EBIT-
EPS analysis
2. To Study the effectiveness of financing decision on EPS and EBIT of the firm.
3. To examining the leverage analysis of KESORAM CEMENT LIMITED.
4. To examining the financing trends in the KESORAM CEMENT LIMITED. For the
period of . 2017-2021.
5. To study debt/equity ratio of KESORAM CEMENT LIMITED will be estimated
for . 2017-2021.
5. HYPOTHESIS
Hypothesis lacks practical relevance in the real world situation. Thus, it is being criticized on
the following grounds.
1. The assumption that taxes do not exist is far from reality.
2. M-M argue that the internal and external financing are equivalent. This cannot be true if
the flotation cost new exist.
3. According to M-M’s hypothesis the wealth of a shareholder will be same whether the firm
pays dividends or not. But, because of the transactions costs and inconvenience associated
with the sale of shares to realize capital gains, shareholders prefer dividends to capital gains.
4. The discount rate (k) for external and internal financing will be different.
5. M-M argues that, even if the assumption of perfect certainty is dropped and uncertainty is
considered, dividend policy continues to be irrelevant. But according to number of writers,
dividends are relevant under conditions of uncertainty.
6. LIMITATION
1.EPS is one of the mostly widely used measures of the company’s performance in practice.
2.As a result of this, in choosing between debt and equity in practice, sometimes too much
attention is paid on EPS, which however, has serious limitations as a financing-decision
criterion.
3.The major short coming of the EPS as a financing-decision criterion is that it does not
consider risk; it ignores variability about the expected value of EPS.
4. The belief that investors would be just concerned with the expected EPS is not well
founded.
5. Investors in valuing the shares of the company consider both expected value and
variability.
BIBLIOGRAPHY
BOOKS REFERED:
 Khan, M Y and P K Jain, Financial Management, Tata McGraw-Hill Publishing Co.,
New Delhi, 2007.
 I M Pandey, Essentials of Financial Management, Vikas Publishing House Private
Ltd, New Delhi, 2095.
 Ramesh, S and A Gupta, Venture Capital and the Indian Financial Sector, Oxford
university press, New Delhi, 2095.
 Anthony, R N and J S Reece, Management Accounting Principles, Taraporewala,
Bombay.

JOURNALS
 The journal of finance
 International journal of finance & policy analysis
 Journal of finance education.

NEWS PAPERS
 Financial Express(December 2019)
 Economic Times (December 2019)

WEB SITES
 www.google.com
 www.yahoo.com
 www.ultratech.com

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