This document discusses capital structure and financing decisions for businesses. It defines capital structure as the composition of a company's long-term capital, including debt and equity. The capital structure determines how a company finances its assets through different sources of funds. The document lists several factors that influence a company's capital structure decision, such as financial leverage, risk, growth opportunities, and costs of financing. It also describes different methods for evaluating capital budgeting proposals, such as net present value, internal rate of return, and payback period.

1. FINANCING DECISIONS (CAPITAL
STRUCTURE)
Vedapradha.r

2. CAPITAL
 Capital refers to the funds borrowed from
different sources of finance by the business firm
to acquire firm’s assets to be used in the
operations of a firm.

3. CAPITAL STRUCTURE
 Capital structure of a company refers to the
composition or components of its capitalisation
and it includes all long – term capital resources
(Loans, reserves, shares and bonds). It is made
up of debt and equity securities and refers to
permanent financing of a firm.

4. RELATIONSHIP BETWEEN CAPITAL
STRUCTURE, CAPITALISATION &
FINANCIAL STRUCTURE

6. CALCULATION OF CAPITALISATION

7. CALCULATION OF CAPITAL STRUCTURE

8. CALCULATION OF FINANCIAL STRUCTURE

9. FINANCIAL
STRUCTURE
CAPITALISATION
CAPITAL
STRUCTURE

10. FORMS/TYPES OF CAPITAL STRUCTURE

11. Equity shares only
Equity and
Preference shares
Equity shares and
Debt
Equity shares,
Preference shares
& Debentures
FORMS OF
CAPITAL
STRUCTURE

12. FACTORS INFLUENCING DECISION IN CAPITAL STRUCTURE
INTERNAL FACTORS
 Financial Leverage
 Risk
 Growth and Stability
 Retaining control
 Cost of capital
 Cash flows
 Flexibility
 Purpose of finance
 Asset structure

13. EXTERNAL FACTORS
 Size & Nature of business
 Investors interest
 Cost of floatation
 Legal requirement
 Period of finance
 Purpose of finance
 Taxation policy
 Market conditions
 Availability of funds

14. CONCEPTS
 EBIT- EPS ANALYSIS
 FINANCIAL BREAK-EVEN POINT
 POINT OF INDIFFERENCE/ RANGE OF EARNINGS
 OPTIMUM CAPITAL STRUCTURE
 LEVERAGES – Financial, Operating & combined
 CAPITAL GEARING

15. INVESTMENT DECISIONS

16. CAPITAL BUDEGETING
Meaning: Capital budgeting is a long-term planning
for making and financing proposed capital out
lays.
Budgets:
 Purchase of fixed assets like land, plant,
machinery
 Addition, expansion, improvement of business
 Replacement of fixed assets
 Research and development

17. NEED FOR CAPITAL BUDGETING
Huge Investments
Long term needs of firm
Irreversible
Long term effect

18. CAPITAL BUDGETING PROCESS
 Identification of various investment
proposals
 Screening of proposals
 Evaluation
 Fixing priority
 Final approval
 Implementing
 Performance review or feedback

19. Accept/Reject decisions: Independent
projects and don’t compete with each
other.
Mutually exclusive: Acceptance of one
automatically rejects the other.
 Capital rationing: Combinations of
projects are selected due to funds
limitations.

20. METHODS OF CAPITAL BUDGETING
Traditional
• Pay back period
(PBP)
• Improved pay
back
• Accounting rate
of return (ARR)
Modern
• Net present
value (NPV)
• Internal rate of
return(IRR)
• Profitability
Index (PI)