DETERMINANTS OF CAPITAL STRUCTURE OF CHETTINAD CEMENT CORPORATION LIMITED A STUDY Introduction The capital structure of a company is the combination

n of debt, equity and other sources of finance that it uses to fund its long-term asset. The key division in capital structure is between debt and equity. The proportion of debt funding is measured by gearing or leverages. There are different factors that affect a firm's capital structure, and a firm should attempt to determine what is optimal, or best mix of financing. But determining the exact optimal capital structure is not a science, so after analyzing a number of factors, a firm establishes a target capital structure which it believes is optimal. The present study aims to analyze the determinants of capital structure in the chettinad cement corporation ltd, karur. Determinants of capital structure: The following are the determinants or factors which determine the capital structure of a business enterprise: 1) Cost of fixed assets: The fixed capital of a business enterprise is invested in fixed assets. The fixed assets are not fixed in value; in fact, their value may record an increase or decrease in course of time. They are fixed in the sense that without them the business cannot be carried on. Further, they remain in business for a longer time. Hence, while making an assessment of the capital requirement the cost of fixed assets also be kept in mind. 2) Size of the business enterprise: The capital structure of a business enterprise is also influenced by the size of business enterprise. It may be small, medium or large. A large-sized business enterprise requires much more capital as compared to a small-sized business enterprise 3) Nature of the business organization: The capital structure of a business enterprise is also influenced by nature of business organization. It may be manufacturing, financing, trading or public utility type.

4) Retaining control of the business enterprise The capital of the business enterprise is also influenced by the intention of the promoters of having effective control. This is also a very important factor in deciding the capital structure. For this purpose they raise a large amount of money by issuing debentures and preference shares which hardly enjoy any voting rights. 5) Legal requirements: One has to comply with the provisions of the law in regard to the issue of different types of securities. For example, in india banking companies are not allowed by the banking companies act to issue any type of securities except shares. 6) Period of finance: Period of finance, i.e., short, medium or long term is also another factor which determines the capital structure of a business enterprise. For example, short-term finances are raised through borrowings as compared to long-term finance which is raised through issue of shares, stocks etc. 7) The purpose of financing: The purpose of financing should also be kept in mind in determining the capital structure of a business enterprise. The funds may be required either for betterment expenditure or for some productive purposes. The betterment expenditure, being nonproductive, may be incurred out of funds raised by issue of shares or from retained profits. On the contrary, funds for productive purposes may be raised through borrowings. 8) Requirements of the potential investors: The capital structure of a business enterprise is also affected by the requirement of the potential investors. Different classes of investors go for different types of securities. Investors who are interested in the stability and safety and regularity of income prefer debentures and preference shares. On the contrary, investors who prefer to take risk so as to have higher income and also to take part in the management prefer shares or stocks. 9) Elasticity of capital structure:

The capital structure of a business enterprise should be quite elastic so as to meet the future requirements of the capital also. For this purpose the amount of authorized capital should be fixed at a higher level as compared to present needs. 10) Money market conditions: Money market conditions also influence the capital structure of a business enterprise. In case of boom period it is advisable to issue shares which can fetch higher premium due to large profits. On the contrary, during the depression period it is advisable to issue debentures on account of lower rate of interest. 11) Miscellaneous: Liquidity, (ii) simplicity, (iii) mutual rights, (iv) policy of the business enterprises, (v) capital gearing, (vi) age of business enterprises. FINDINGS From the financial leverage ratio was low in the year 2007-2008 with 1.06 times. Thus it can be concluded that a low rate of financial leverage indicates the company using more debt funds with optimum rate of interest. The average financial leverage is 2.48 times and the Correlation between PBDIT and PBDT is 0.99 respectively. From the Operating Leverage Ratio was high in the year 2008-09 as 0.61times and lower in the year 2003-04 with -0.34 times and at average operating leverage ratio was 0.25 times and with the correlation between percentage of changes in PBDIT and Sales as 0.75. From the Combined leverage ratio is high in 2008-09 with 0.68 times and low in the year 2002-03 with -1.34 times and on average 0.12 times and the correlation between the DOL and DFL as -0.50 moderately From the Debt-equity ratio, the company maintains debt-equity ratio as 1.88 times an average. It shows the relationship between the outsider fund and shareholder fund are positively correlated. From the Interest coverage ratio it was at an average of 7.07 times in the year 2007-08 is the highest interest coverage ratio as 17.73 times because of high PBDIT and moderate interest rate. When compared to all these years in the

financial year 2002-03 is the lowest as 1.09. It indicates the earnings potential or bottom line of the company is in positive nature. From the Proprietary ratio at the beginning of the study period 2001-02 it has showed a value of 0.22 times at the end of the period 2010-11 as 0.51 times . It indicates the investment of shareholders fund in term of assets is in meaning way. In mean ratio of Fixed assets to net worth ratio was4.34times.This ratio indicated the investment of fixed assets of the study unit is not only depends on shareholder fund and company also used outsider fund to investment is fixed assets. From the table Trend analysis the future growth of the study unit will be very bright.

SUGGESTIONS The management should reduce the debt and the it has to take step to increase the ownership share capital. The management takes steps to maintain the same level of returns. As the company was facing some cost of financial risk during the beginning of the study period later on recover on stable therefore researcher to suggest the

management to maintain the current financial position in the fourth coming years

CONCLUSION

The study on the determinants of capital structure in Chetinad Cement Corporation Limited, karur, reveals that the overall financial position was satisfactory during the study period. The company has to maintain the debt-equity mix in its capital structure, if its continuous in future, the bottom level, growth and value of the company may be in good condition. Overall, the companys capital structure is optimum. The study suggests that the company can maintain the same level of capital structure decisions to maximize its earnings for the fourth coming years.