Capital structure analysis of the fertiliser industry: a case study of IFFCO and Indo Gulf Corporation Ltd., India

Abstract

Capital structure, or what is generally known as capital mix, is very important to control the overall cost of capital in order to improve the earnings per share of share holders. After globalisation and liberalisation, various financial sector reforms were started by governments, such as reducing rates of interest etc., which directly affected the capital structure planning of firms. Due to this situation, the fertiliser industry also reorganised their capital structure. The financing of a capital structure decision is a significant managerial decision. Initially, the company will have to plan its capital structure at the time of its promotion. Subsequently, whenever funds have to be raised for finance and investment, a capital structure decision is involved. In this research article, researchers try to evaluate the concept of capital structure, capital structure planning and patterns of capital structure in IFFCO and Indo Gulf Corporation Ltd. We found that both companies are using the maximum possible long-term debt in their capital structure planning. During the study period, both the companies raised more and more long-term funds to meet their development and expansion needs because debt is a cheaper source of finance, especially from 1994–1995 onwards when rates of interest decreased regularly in the Indian capital market.