Designing Capital Structure
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Transcript of Designing Capital Structure
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FINANCIALMANAGEMENT
- Dr. Sandeep Goel
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FOCUS
DESIGNING CAPITAL STRUCTURE
- Dr. Sandeep Goel
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PLANNING OF CAPITAL STRUCTURE Two Issues
I. Is Capital Structure relevant for the valuation of a firm? -Wealth maximization
II. Is there an Optimal Capital Structure?
-Financing mix that minimizes the overall cost of capital and therefore maximizes the value of the firm is the Optimal Capital Structure.
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FACTORS AFECTING CAPITAL STRUCTURE- Profitability Aspect - Liquidity Aspect - Cost of capital - Control - Capital Market Conditions- Flexibility - Period of Finance - Purpose of Financing
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EBIT EPS ANALYSIS It analyses the Impact of various financing alternatives on EPS at different levels of EBIT
It helps the management in choosing the best financing plan.
A technique used for Shareholders Wealth Maximization.
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RATIO ANALYSIS- As indicators of debt servicing capacity of the firm
Interest Coverage Ratio EBITInterest on Debt
Cash Flow Coverage RatioEBIT + Depreciation + Other Non-Cash ChargesInterest on Debt + Loan Repayment Installment /(1-t)
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