PRESENTATION ON CAPITAL

STRUCTURE

ONGC COMPANY

Presented To
Dr A.S. khalsa
Presented by
Jyoti gupta
Shweta pandey
Anurag sahu
Nitin pathak
Ram vishal rajput
Introduction of ONGC

 Name :- Oil and Natural Gas Corporation

Limited
 Foundation year:- 1956
 Headquarter:- Dehradun , INDIA
 Industry :- Petroleum & Gas
 Chairman:- Radhey S Sharma
 Employees :- 34000
 Website:-www.ongcindia.com
Capital Structure Importance

 Leverage: higher financial leverage means

higher returns to stockholders, but higher risk
due to interest payments

 Cost of Capital: Each source of financing has

a different cost. Capital structure affects the
cost of capital.

 The Optimal Capital Structure is the one that

minimizes the firm’s cost of capital .
Suitable Pattern For Capital Structure

 Raising total capital through the issue

of
1. Equity share only

2. Both preference share as well as

equity share
3. Equity share , preference share ,&
debentures or bonds
Determination of Specific Cost

 Debt capital
 Preference share capital
 Equity share capital
 Retained earning
Cost of Debt capital

 Kd (before tax) = I x 100

NP
 Kdt (after tax) = Kd(1-t)

Kd= cost of debenture

Kdt= cost of debenture after tax
I = Interest payout
NP= Net proceed
t = tax
Cost of irredeemable debt

 When debenture are issued at par

NP=par value - flotation charges

 When debenture are issued at discount

NP=par value – discount - flotation charges

 When debenture are issued at premium

NP=par value + premium - flotation charges
Cost of redeemable debt
 When debenture are issued at par
 NP= par value - flotation charges
2
 I = rate + flotation charges
period of issue

 When debenture are issued at discount

 NP=par value - flotation charges - discount
2 2
 I=rate + flotation charges + discount
period of issue period of issue
Cont……………
 debenture are issued at premium
 NP = par value - flotation charges + premium
2 2
 I= rate + flotation charges + premium
period of issue period of issue
Cost of preference share

 Kpt (after tax) = I x 100

NP
 Kt (before tax) = Kpt
(1-t)
Kdt= cost of preference share after tax
Kd= cost of preference share before tax
t = tax
I = Interest payout
NP= Net proceed
Cost of irredeemable preference share

 When are preference share issued at par

NP = par value - flotation charges

 When preference share are issued at discount

NP = par value – discount - flotation charges

 When preference share are issued at premium

NP = par value + premium - flotation charges
Cost of redeemable preference
share
 When preference share are issued at par
 NP = par value - flotation charges
2
 I = rate + flotation charges
period of issue

o When preference share are issued at discount

NP = par value - flotation charges - discount
2 2
 I = rate + flotation charges + discount
period of issue period of issue
Conti…………..
 preference share are issued at premium
 NP=par value - flotation charges +premium
2 2
 I=rate + flotation charges + premium
period of issue period of issue
Cost of equity share

 Earning yield method

 Cost of equity share = E x 100
P

 Dividend yield method

 Cost of equity share = dx 100
P

E=earning per share

P=Market price
d= Dividend
Cost of retained earning
 Cost of retained earning= AD*100
RE

AD=Retained earning for each share holder

RE=earning for alternative investment of
retained earning
 Calculation of cost of debenture
for ONGC

 Cost of debenture = I x 100

NP

YEAR 2003 2004 2005 2006 2007

INTREST 1538.95 2753.03 3548.39 3718.44 3724.81

Net 800.23 11407.79 9916.22 12722.61 15109.7

proceed
Cost of 192.31 24.13 35.78 29.22 24.65
debenture
CHANGE IN COST OF DEBENTURE
 Cost of equity share

Cost of equity share = E x 100

P

YEAR 2003 2004 2005 2006 2007

INTREST 1538.95 2753.03 3548.39 3718.44 3724.81

MARKET 250.64 284.33 91.05 378.42 289.52

PRICE

COST OF 29.46 21.36 27.71 26.74 25.26

EQUITY
SHARE
CHANGE IN COST OF EQUITY SHARE
Weighted average cost for year 2003

Serial Investm Value Cost Weighted Weighted

No. ent (In cost Average
types cr.) cost

1 Debenture 800.23 192.3% 35.94% 69.11

2 Equity 1425.93 29.46% 64.05% 18.86

Share
capital

Total 2226.16 87.97

Formula of weighted cost

= Investment x100
Total investment
Weighted average cost for year 2004

Serial Investm Value cost weighted weighted

No. ent (In cr.) cost Average
Types Cost

1 Debenture 11407.79 24.13% 88.88% 21.44

2 Equity 1425.93 21.36% 11.11% 2.37%

Share
capital
Total 12833.72 23.81

Formula of weighted cost

= Investment x100
Total investment
 Weighted average cost for year 2005
Seri Investm Value cost weighte weighted
al ent (In cr.) d cost Average
No. Types Cost

1 Debenture 9966.12 35.78 87.48% 31.30

%

2 Equity 1425.93 27.71 12.51% 4.29

Share %
capital
Tota 11392.0 35.59
l 5

Formula of weighted cost

= Investment x100
Total investment
Weighted average cost for year 2006

serial Investment Value cost weighted weighted

no. Types (In cr.) cost Average
Cost

1 Debenture 12722.61 29.22% 89.92% 26.27

2 Equity 1425.93 26.74% 10.07% 2.69

Share
capital
Total 14148.54 28.96

Formula of weighted cost

= Investment x100
Total investment
 Weighted average cost for year 2007
Seri Invest Value cost weighted weighted
al ment (In cr.) cost Average
No. Types Cost

1 Debenture 15109.07 24,6% 87.59% 21.59

2 Equity 2138.89 25.2% 12.40% 3.13

Share
capital
Total 17247.96 24.72

Formula of weighted cost

= Investment x100
Total investment
Percentage change
year 2004 2005 2006 2007
Equity -87.45 48.28 -18.33 -15.63
share
equity -27.49 29.72 -3.50 -5.53
share
Weighted -72.93 49.47 -18.62 -14.77
Average
cost