A STUDY ON CAPITAL STRUCTURE OF SELECTED INDIAN COMPANIES

Abstract

Capital structure refers to blend of equity and debt fund for raising long term funds. This blend of equity and debt is called as financial leverage. The use of financial leverage affects earning per share and consequently affects value of the firm. This is because the cost of equity is higher than debt and cost of debt is further reduced because of tax shield. The tax shield is available to only debt and not to equity. There are pros and cons of both equity and debt funds. The decision of debt affects profitability, liquidity, EPS and value of the firm. Theories of capital structure discuss the impact of financial leverage on EPS and market value of the firm.  Steel manufacturing companies require large amount of long term funds and therefore they have used both types of sources of long term funds in their capital structure. Researcher has taken selected nine steel companies of India to study the capital structure of these companies.