International Academic Journal of Economics

  • ISSN 2454-2474

Determinations of Capital Structure

Kesur Richa Harish

Abstract: Suitability of the capital structure for an organization is a much debated question. While some arguments state that capital structure is not significant at all, others comment that capital structures have been increasingly affecting both value and risk. Hundreds of papers after Modigliani and Miller's seminal work and lot of research on that but still one question arise: what do we really know about corporate capital structure choice? Theory has clearly made some progress on the subject. The present study has been undertaken firstly to determine the impact of various factors on the firm. Secondly, to determine the relationship and impact of the dependent and independent variables on capital structure of a selected company that is Megafine Phrama (P) Ltd. For the study purpose dependent various like leverages as a measure of Short Term Debt to Equity Ratio, leverage as a measure of Long Term Debt to Equity Ratio, leverage as a measure of Total Debt to Equity Ratio etc were selected. Independent variables like profitability which is measured by using the ratio of EBIT over total assets, tangibility of assets which is measured by the ratio of net fixed assets to total assets, size which is measured by the natural logarithm of total assets, growth which is measured by the percentage change of total assets, liquidity which is measured by the total current assets over current liability and tax rate that is measured by tax provision over profit before tax were taken. Hypotheses were formulated and tested on six variables viz profitability, tangibility, size, growth, liquidity and tax rate and five years (2011 to 2015) audited annual financial statements of Megafine Pharma (P) Limited was consider. In future before taking financial decision the company should mainly focus on size, asset tangibility and liquidity. As it has significant relationship with debt or borrowing of the company. The study also reveals that there was more significant impact of short term debt equity ratio and total debt equity ratio.

Keywords: Short Term Debt Equity, Long Term Debts, Total Debt Equity

Page: 26-54

DOI: 10.9756/IAJE/V5I2/1810014

Volume 5, Issue 2, 2018