Capital Structure Theory

Chapter CAPITAL STRUCTURE AND LEVERAGE

Capital Structure Defined ,[object Object],[object Object]

Questions while Making the Financing Decision ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Features of An Appropriate Capital Structure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Determinants of Capital Structure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Patterns / Forms of Capital Structure ,[object Object],[object Object],[object Object],[object Object],[object Object]

Problems on Capital structure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Problems on Capital structure

Meaning of Financial Leverage ,[object Object],[object Object]

Measures of Financial Leverage ,[object Object],[object Object],[object Object],[object Object],[object Object]

Financial Leverage of Ten Largest Indian Companies, 2006 Company Capital Gearing Income Gearing Debt ratio Debt–equity ratio Interest coverage Interest to EBIT ratio 1. Indian Oil 0.556 1.25:1 4.00 0.250 2. HPCL 0.350 0.54:1 5.15 0.194 3. BPCL 0.490 0.96:1 5.38 0.186 4. SAIL 0.858 6.00:1 - ve - ve 5. ONGC 0.106 0.12:1 53.49 0.019 6. TELCO 0.484 0.94:1 0.99 1.007 7. TISCO 0.577 1.37:1 1.62 0.616 8. BHEL 0.132 0.15:1 8.36 0.120 9. Reliance 0.430 0.75:1 3.46 0.289 10. L&T 0.522 1.09:1 2.31 0.433 11. HLL 0.027 0.03:1 264.92 0.004 12. Infosys 0.000 0.00:1 NA* NA* 13. Voltas 0.430 0.72:1 2.64 0.378

Financial Leverage ,[object Object],[object Object]

Financial Leverage and the Shareholders’ Return ,[object Object],[object Object]

Effect of Leverage on ROE and EPS ,[object Object],[object Object],[object Object]

Debt-equity Mix and the Value of the Firm ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Assumption of Capital Structure Theories ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Net Income (NI) Approach ,[object Object],[object Object]

Net Operating Income (NOI) Approach ,[object Object],[object Object]

MM Approach Without Tax: Proposition I ,[object Object]

MM’s Proposition II ,[object Object]

MM Hypothesis With Corporate Tax ,[object Object],[object Object]

Features of an Appropriate Capital Structure ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Capital Structure Theory

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Capital Structure Theory