Financial Structure of BSRMS-An Evaluative Study

Capital structure refers to the mix of long term sources of funds such as debentures, long term debt, preference share capital and equity share capital including reserves and surpluses. On the other hand financial structure includes both short term and long term sources of fund. Firms can raise money through a variety of means. Capital structure of a firm is the proportion of each type of security that the firm has used. Most firms have both debt and equity in their capital structure. Leverage increases the expected return to shareholders but also the risk. The optimal capital structure maximizes the long term market price per share, also keeping in view the financial requirements of a company. A sound capital structure should have the following features-

v It should generate maximum returns to the shareholders

v There should not be excessive debt to maintain long term solvency

v The capital structure should be flexible to provide funds to finance its profitable activities in future

v It should involve minimum risk of loss of control of the company.

An optimal capital structure is one that strikes a balance between risk and return. There are a number of factors that determine the shape of capital structure such as size.Profitability, non-debt tax shield, asset structure, interest rate, uniqueness, growth, exchange rate, ownership structure, tax-shield benefit. The importance of an optimal capital structure is thus obvious. There is a viewpoint that strongly supports the close relationship between leverage and value of firm. There is an equally strong body of opinion which believes that financing mix or the combination of debt and equity has no impact on the wealth of shareholder and the decision on financial structure is irrelevant. In theory capital structure can affect the value of firm by affecting either its expected earnings or the cost of capital or both. While it is true that financing mix cannot affect the total operating earnings of a firm as they are determined by the investment decisions.

1.2. Literature Review: -
Dr. Asha Sharma has done a research on “Capital Structure Analysis in Tata Steel Limited” in 2012 with a view to study the methods of raising finance and financial leverage practice of the company, to examine the impact of financial leverage on EPS, to know about the dividend policy of the company, to assess the inter relationship between degree of financial leverage, EPS and DPS, to summarize the main findings of the study by using various financial ratios and descriptive statistics. The finding follows that the company has positive relationship as well as positive effect of financial leverage on EPS.

Mr. Anup Chowdhury and Mr. Suman Paul Chowdhury have studied over “Impact of capital structure on firm’s value:-evidence from Bangladesh” in 2010 to find out the impact of capital structure on the value of firm in the context of Bangladesh economy or industrial sector by using descriptive statistics, correlation analysis, cross sectional time series regression analysis. The interesting finding of this paper suggests that maximizing the wealth of shareholders requires a perfect combination of debt and equity whereas cost of capital has a negative correlation in this decision and it has to be as minimum as possible.

Joung-Eun Kim conducted a research on “Strategic Choice and Financial Structure in Casual Themed Restaurants” in 2008 in order to understand how the pattern of capital structure are shaped within the context of the multi-unit casual themed restaurant industry by using various financial ratios and statistical tools. The major findings are that growth has positive relation with short-term debt ratio; working capital needs are positively correlated with short-term debt ratio. Besides companies that have franchising strategy show a lower mean of market capitalization and companies that have multiple concepts show a higher mean of market capitalization.