Analysis of Capital Structure of an Indian Company

Posted by Mecof King
1
Dec 15, 2019
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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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