Capital Structure Analysis of Mahindra & Mahindra Ltd.

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Capital Structure Analysis of   Mahindra & Mahindra Ltd.

END TERM PROJECT REPORT: Managing Financial Resources

Submitted to: Prof. Dr. Vishwanath S R

Submitted By: Gautam Shah, Harini J, Pragya

EXECUTIVE SUMMARY

In present world companies use a range of alternatives for collecting the funds. Each company has its way of collecting funds according to its  paying capacity, degree of risk, size of capital, working system of the business, industry, macro-economic factors  etc. so, here in this project report we have analyse the capital structure of  Mahindra & Mahindra Ltd.

Capital structure means the pattern of capital employed in the firm. It is a financial plan of the firm in which the various sources of capital are mixed in such proportion that those provide a distinct capital structure most feasible according to requirement of the firm. Indeed, capital structure is the Ratio of long-term sources of finance in the total capital of the firm includes ‘Proprietor's Funds’ and ‘Borrowed Funds’(Proprietors Funds include equity capital, preference capital, reserves and surpluses retained earnings and Borrowed Funds include long-term debts such as loans from financial institutions, debentures etc.)

A company should construct such a capital structure so that it can achieve its objectives easily. A company should choose optimum capital structure. Optimum capital structure is the point where the market value of the shares is maximum and at this point the average weighted cost of capital is minimum.

Determinants of capital structure: For automobile manufacturing companies listed in NSE by Riyazahmad K.(2012) states that dividend payout, debt service capacity, operating leverage and business risk are influential determinants of capital structure.

Keeping this in mind with following exhaustive ratio’s analysis has been performed on the data extracted from the annual report of Maruti Suzuki India Ltd. for 5 years (i.e. from Year 2010 to 2014) and given bit more focus on these five: 1. Debt Equity Ratio, 2.  Solvency Ratio, 3. Proprietary Ratio, 4. Fixed Assets to Total Debts Ratio, 5. Fixed Assets to Net Worth Ratio.

SIGNIFICANCE  OF  THE  PROJECT

Capital structure decision is one of the strategic decisions taken by any financial manager. Considerable attention is required to decide the mix up of various sources of finance. A judicious and right capital structure decision reduces the cost of capital and increase the value of a firm while a wrong decision can adversely affect the value of the firm. As discussed earlier, various sources of finance differ in terms of risk and cost. Hence, there is utmost need of designing an appropriate capital structure. Capital structure decisions are of great significance due to the following reasons: