Presentation on Capital Structurey

8/9/2019 Presentation on Capital Structurey

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PRESENTATION ONCAPITAL STRUCTURE

ONGC COMPANY

Presented To

Dr A.S. khalsaPresented by

Jyoti guptaShweta pandey

Anurag sahuNitin pathak

Ram vishal rajput


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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


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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 firms cost of capital .


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Suitable Pattern For Capital Structure

Raising total capital through the issueof

1. Equity share only2. Both preference share as well as

equity share

3. Equity share , preference share ,&

debentures or bonds


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Determination of Specific Cost

Debt capital

Preference share capital

Equity share capital Retained earning


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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 payoutNP= Net proceed

t = tax


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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 premiumNP=par value + premium - flotation charges


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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


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Cont

debenture are issued at premium

NP = par value - flotation charges + premium

2 2 I= rate + flotation charges + premium



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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 = taxI = Interest payout

NP= Net proceed


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Cost of irredeemable preference share

When are preference share issued at par

NP = par value - flotation charges

When preference share are issued at discountNP = par value discount - flotation charges

When preference share are issued at premiumNP = par value + premium - flotation charges


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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 discountNP = par value - flotation charges - discount

2 2

I = rate + flotation charges + discount



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Conti..

preference share are issued at premium

NP=par value - flotation charges +premium

2 2 I=rate + flotation charges + premium



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Cost ofequity 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


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Cost of retained earning

Cost of retained earning= AD*100

RE

AD=Retained earning for each share holder

RE=earning for alternative investment ofretained earning


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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

Netproceed

800.23 11407.79 9916.22 12722.61 15109.7

Cost ofdebenture

192.31 24.13 35.78 29.22 24.65


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CHANGE IN COST OF DEBENTURE


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Cost ofequity 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

PRICE

250.64 284.33 91.05 378.42 289.52

COST OFEQUITYSHARE

29.46 21.36 27.71 26.74 25.26


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CHANGE IN COST OF EQUITY SHARE


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Weighted average cost for year 2003

SerialNo.

Investmenttypes

Value(Incr.)

Cost Weightedcost

WeightedAveragecost

1 Debenture 800.23 192.3% 35.94% 69.11

2 Equity

Share

capital

1425.93 29.46% 64.05% 18.86

Total 2226.16 87.97

Formula of weighted cost

= Investment x100Total investment


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Serial

No.

Investm

ent

Types

Value

(In cr.)

cost weighted

cost

weighted

Average

Cost

1 Debenture 11407.79 24.13% 88.88% 21.44

2 Equity

Share

capital

1425.93 21.36% 11.11% 2.37%

Total 12833.72 23.81




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Seri

al

No.

Investm

ent

Types

Value

(In cr.)

cost weighte

d cost

weighted

Average

Cost

1 Debenture 9966.12 35.78%

87.48% 31.30

2 Equity

Share

capital

1425.93 27.71

%

12.51% 4.29

Total

11392.05

35.59




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serial

no.

Investment

Types

Value

(In cr.)

cost weighted

cost

weighted

Average

Cost

1 Debenture 12722.61 29.22% 89.92% 26.27

2 Equity

Share

capital

1425.93 26.74% 10.07% 2.69

Total 14148.54 28.96




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Seri

al

No.

Invest

ment

Types

Value

(In cr.)

cost weighted

cost

weighted

Average

Cost

1 Debenture 15109.07 24,6% 87.59% 21.59

2 Equity

Share

capital

2138.89 25.2% 12.40% 3.13

Total 17247.96 24.72




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Percentage change

year 2004 2005 2006 2007

Equityshare

-87.45 48.28 -18.33 -15.63

equityshare -27.49 29.72 -3.50 -5.53

WeightedAveragecost

-72.93 49.47 -18.62 -14.77

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