Capital Structure Decisions: A study on Leverage and Profitability of Infrastructure Companies in India

Abstract

Capital structure decisions are vital for the financial soundness of the company. Inappropriate decisions about the capital structure may lead to financial distress and eventually to bankruptcy. The top level finance executive sets the capital structure of their companies keeping in mind the objective of wealth maximization. However, they do choose different financial leverage levels in their effort to attain an optimal capital structure. The key to sustaining India growth rate lies in developing India infrastructure which has shown a tremendous potential in the recent times. Observing the growing scenario, the infrastructure companies are aiming at their best performance at all level starting from acquiring capital for their long term and short term projects to market expansion so that they can take utmost advantage of the Industry peak time. This paper shed some light on the analysis of capital structure of infrastructure companies. An attempt has been made to analyze the various ratios like Debt ratio, Debt-Equity ratio, and Interest Coverage Ratio of Infrastructure companies which are related to capital structure. The main sectors covered under the infrastructure are Power, Gas, Construction, Cement, and Telecommunication for the purpose of analysis. Each sector is analyzed with the help of last five years financial data for leading five companies representing each sector. Key words: Capital structure, Debt, Equity, Interest

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