Analysis of Capital Structure of an Indian Company
Many
companies around the world have been struggling with capital structures for
close to four decades now. This is especially the case when a company is trying
to cope with credit expansions, as most end up failing to build enough
liquidity necessary for survival. Enterprises with an unpredictable cash flow
stream are the most affected thus contributing to excess debts during low
seasons of the business.
Getting
the correct capital structure by describing the composition of equity and debt
of a company when financing its investments and operations has caused immense
difficulties for practitioners and academics alike. This has forced some
organizations to focus on the traditional tax benefit of debt since the
interest still remains a tax deductible expense. However, other firms have a
substantial amount of money yet they do not know how to put it into maximum
use. So many employers have to know the pf balance check without uan number in the epf official web portal
Choosing
the capital structure of an organization is the most important issue when it
comes to checking the financial framework of a business entity. Therefore,
companies need to come up with the most suitable methods of financing their
assets while at the same time setting up their own structures. This in turn
ends up reflecting the corporate governance of that particular company.
India
has quite a number of companies both private and public. These companies play a
key role when it comes to developing India’s economy since they are a good
source of revenue and employment. Unfortunately, companies tend to show
differences in terms of capital structure. The dissimilarities lead to
differences in how public and private firms serve customers or use their
finances.
Companies
in India consider their resources of financing according to the least resistance
or least effort. They therefore decide to raise capital only as the last resort
thus using internal funds until when they are depleted. The companies then opt
for debts after which they turn to equity after exhausting all solutions. This
mode of operation does not favour every company since there are some
organizations which lack adequate funding. Fortunately, the profitability of
most Indian companies is going up thus making it easier for them to compete
with other firms serving the market.
The
government of India expects the capital markets of companies to develop further
in the next couple of years. This action means more innovations as the
percentage of capital market instruments will go up. With technological
changes, more companies will start expanding and building capacities so as to
serve customers from all corners of the world.
This has already been witnessed with Indian companies based abroad
already using capital market related instruments.
Management
of capital structure is necessary if a company is to compete with others
effectively. Therefore, organisations should consider using trade-offs which
are in line with their fiscal discipline and financial flexibility. Once this
is done, it will become easy for companies in India to serve customers without
having to worry about market barriers that may affect their performance.
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