Capital structure analysis-

Capital structure-In finance, capital structure refers to the way

a corporation finances its assets through some combination of

• equity
• debt
• hybrid securities

capital structure is most likely used for referring a companys debt

equity ratio . A high debt/equity ratio generally means that a
company has been aggressive in financing its growth with debt.
Levered company-

A company that uses borrowed money to help finance its assets.

Leveraged companies often have more volatile earnings than firms that rely
solely on equity financing. Mostly companies having huge capital
investment will for levered company. The cost of capital is less compared to
unlevered company as they don’t have to share the profit with the
shareholders .shareholders expect a high return as a risk premium.

Unlevered company-

A company that takes money from public to raise their capital .unlevered
company cost of capital is high and in this case profit has to be shared and
the return will be volatile to the lenders i.e. the shareholders .whereas in
levered company the rate of interest will be fixed as decided with the
lender. Generally a unlevered company has less of capital investment .

For eg-most of the IT sector companies are unlevered as this business

does not involve purchase of machinery it is service oriented industry.

Debt equity ratio-

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and
debt the company is using to finance its assets.
Cost of capital-

The cost of capital is the rate of return that capital could be

expected to earn in an alternative investment of equivalent risk..

Weighted average cost of capital-

Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate

Businesses often discount cash flows at WACC to determine the Net

Present Value (NPV) of a project, using the formula:

NPV = Present Value (PV) of the Cash Flows discounted at

WACC.

Analysis and interpretation-

(R.S in Cr)

year 2019 2020 2021 2022 2023

equity 39.94 39.94 39.94 39.94 39.94

Equity
The equity in al the 5 years has been the same .that means the company hasn’t
issued any fresh issue of stock in 5yrs.
Debt:-

TOTAL DEBT

200 185.78
180 165.17
160
132
140
120
100 78.49
80 66.03
60
40
20
0
2019 2020 2021 2022 2023

TOTAL DEBT Column1 Column2

year 2019 2020 2021 2022 2023

Total Debt 185.78 165.17 132.00 78.49 66.03

As we can easily see the company is trying to reduces it liability and one of the
intresting finding in Cipla balance sheet all the debt are unsecured no secured
debt it shows that company has a good credit rating and it enjoys good
reputation amongst its debtor .here company has no legal obligation to pay
first to the debtors during time of liquidation.
Inspite of they reducing there debt and keeping there euity same from last 5
years Cipla is been doing considerable investment in assest which can seen in
the below graph.
 4,500.00

4,000.00

3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
2019 2020 2021 2022 2023

TOTAL ASSETS Series 2 Series 3 Series 4 Column1

year 2006 2007 2008 2009 2010

Total
2,195.11 2,635.23 3,118.24 3,879.24 3,531.05
assests
The investment in asset is not done through raising the capital it means it is
using its reserve for purchase of new assets or investment ,use of internal
resrerve reduces the burden of paying interest as against loan.

DEBT-EQUITY RATIO-2019

EQUITY, 18%,

EQUITY
DEBT

DEBT, 82%,
 2020 2021 2022 2023
Here we can see every year they have drastically tried to reduce their debt
thus trying to make it debt free. The reason for the same is increase in net
profit as sales of hero Honda has grown in past years.
2019 20202 2021 2022 2023
10,097 11,553 12,048 13,553 16,856

Conclusion-
The company in past years have reduced their debt component keeping the
equity same .therefore decreasing the cost of capital and utilizing its profits for
expansion.