FINANCIALMANAGEMENT

- Dr. Sandeep Goel

FOCUS

DESIGNING CAPITAL STRUCTURE

- Dr. Sandeep Goel

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.

FACTORS AFECTING CAPITAL STRUCTURE- Profitability Aspect - Liquidity Aspect - Cost of capital - Control - Capital Market Conditions- Flexibility - Period of Finance - Purpose of Financing

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.

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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