Financial structure of Indian Companies Swain Cs Rabindra Nath*, Dr. Patnaik B.C.M.** *Professor, School of Management, KIIT University, Bhubaneswar, Odisha, India **Associate Professor, School of Management, KIIT University, Bhubaneswar, Odisha, India Online published on 11 July, 2017. Abstract The present study is an attempt to understand the financial structure of Indian Companies. For this purpose selected companies considered and the financial structure analysis made and accordingly the inputs developed. Financial Structure of the company is a specific mixture of short term borrowings and long term debt and equity that it uses to finance its operations. Capital Structure accounts for only Long Term Debt and Equity where as Financial Structure accounts for both Long Term and Short Term borrowings and Owners’ Equity with which the company's assets are financed. Capital Structure is a mix of company's long term debt, specific short term debt, common equity & preferred equity. Capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long term notes payable while equity is classified as paid up capital and retained earnings. A short term debt such as working capital requirements is also considered to be part of the capital structure. A high debt/equity ratio generally means that the company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations, the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost i.e., interest cost, then the shareholders benefit as more earnings are being spread among the same number of shareholders. However, the cost of this debt financing may outweigh return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy which would leave shareholders with nothing. A company's reasonable, proportional use of debt & equity to support its assets is the key indicator of balance sheet strength. A healthy capital structure that reflects a low level of debt and a corresponding high level of equity is a very positive sign of investment quality (Richard Loth). Financial Structure is divided in to the amount of the company's cash flow that go to the creditors and the amount that goes to the shareholders. Financial Structure is the way in which a company's assets are financed. Thus an ideal financial structure is such an optimal financial structure that maximizes the firm's value and minimizes firm's cost of capital with a tolerable risk. Top |