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http://www.iaeme.com/IJM/index.asp 313 editor@iaeme.com
International Journal of Management (IJM)
Volume 7, Issue 3, March-April 2016, pp.313
 – 
322, Article ID: IJM_07_03_030 Available online at http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=7&IType=3 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510
© IAEME Publication
A STUDY ON CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF INDIAN TEXTILE INDUSTRY
Dr. K. K. Ramachandran
Director, Vice Principal, GRD School of Commerce and International Business, Dr.G.R. Damodaran College of science, Coimbatore, Tamilnadu
M. Madhumathy
Research scholar, GRD School of Commerce and International Business, Dr.G.R. Damodaran College of science, Coimbatore, Tamilnadu
ABSTRACT
The Capital structure is one of the most basic and important research  fields in theory of corporate finance. Capital structure of an organisation is being affected by many features, and an organisation must try to decide most  favorable blend of investment or funding. Even after 57 years of Modigliani and Miller irrelevance theorem, the basic question how firm chooses their capital structure remains unclear. The Indian textile Industry has an overwhelming presence in the economic life of the country. It is the second largest textile industry in the world after China. Apart from providing one of the basic necessities of life the cloth, the textile industry contributes to the
country’s industrial output and export earnings. In this paper an attempt is
made to identify the impact between capital structure and financial  performance of the textile industry.
Key words:
Capital structure, Indian Textile industry, Profitability ratio, Financial performance and Correlation
Cite this Article:
Dr. K. K. Ramachandran and M. Madhumathy. A Study on Capital Structure and Financial Performance of Indian Textile Industry.
 International Journal of Management 
,
7
(3), 2016, pp. 313
 – 
322. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=7&IType=3
 
Dr. K. K. Ramachandran and M. Madhumathy
 
http://www.iaeme.com/IJM/index.asp 314 editor@iaeme.com
INTRODUCTION
Capital structure is the most significant discipline of company’s operations. ‘Capital structure’ represents the total long
-term investment in a business firm. It includes funds raised through ordinary shares, preference shares, bonds, debentures and term loans from financial institutions, etc. Decision regarding the type of capital structure of a company should play a critical role since capital has impacts on profitability and solvency. Small companies often do not plan their capital structure; the capital structure is allowed to develop without any formal planning. These companies may do well in the short run; however, sooner or later they face considerable difficulties. The unplanned capital structure does not permit a fiscal use of the funds for the company, irrespective of its size. A company should therefore plan its capital structure in such a way that it derives maximum advantage out of it and should easily adjust to the changing conditions. The determination of an optimum capital structure in practice is a formidable task, and has to go beyond the theory. A number of factors influence the capital structure decision of a company. The judgment of the person or group of persons making the capital structure decision plays a crucial role. Two similar companies may have different capital structures, if the decision makers differ in their judgment about the significance of various factors. The Indian textile industry is one of the largest in the world with a massive raw material and textile manufacturing base. Our economy is largely dependent on the textile manufacturing and trade in addition to other major industries. It is second largest in the world next to China. The Indian textile industry contributes to nearly 12
 percent of India’s forex earnings. This is the only industry which has been posting
growth graph year after year. Though India is self-sufficient in textile industry, the
country’s share in the world market is a just four percent compared to 35 percent of
China. India needs to focus on scaling operation if this scenario has to change. It can  be achieved only through investments in the mega Textile Park, which can then be single point manufacturing and disbursing centers for export needs. This can also be
a safe revenue model for the country’s textile needs. As of India’s position in the
global textile value chain, the numbers are impressive. India hosts roughly 25 percent of the global spinning capacity. India produces 20 percent of global cotton supply  both for domestic use and for export. The country ranks number two in the global textile and apparel exports. Above 27 percent of the foreign exchange earnings are on account of exports of textiles and clothing alone. The textile industry accounts for 21  percent of the total employment generated in the economy. The textile sector is highly diverse and has hand-spun and hand- woven segments at one end of the spectrum, and capital intensive sophisticated modern mills on the other.
TEXTILE SECTOR REMAINS HIGHLY-FRAGMENTED
The textile segment is highly fragmented and many large textile companies are also conglomerates of medium-sized mills. According to the statistics released by the Ministry of textiles, the entire textile industry is highly fragmented except the spinning sub-segment. The organised sector contributes more than 95 percent of spinning and about 5 percent of weaving fabric. Small scale industries perform the  bulk of weaving and processing operations. The unorganized sector forms the bulk of the industry, comprising handlooms, power looms, hosiery and knitting, readymade garments, khadi and carpet manufacturing units. The organised mill sector consists of spinning mills involved only in spinning activities and composite mills where
 
A Study on Capital Structure and Financial Performance of Indian Textile Industry
 
http://www.iaeme.com/IJM/index.asp 315 editor@iaeme.com
spinning, weaving and processing activities are carried out under a single roof. These organised units are mostly independent and small scale in nature unlike the composite units that undertake all activities together.
STATEMENT OF THE PROBLEM
In reality, capital structure of a firm is difficult to determine. Financial managers are finding it challenging to determine the optimum capital structure. A firm has to issue various securities in a countless mixture to come across particular combinations that can maximize its overall value. If a wrong mix of finance is employed; the  performance and survival of the business enterprise may be seriously affected. Survival and growth needs resources, but financing of these resources has limitation. Therefore, the present study is undertaken to know the impact of capital structure on the financial performance of selected Indian textile companies.
OBJECTIVES OF THE STUDY
 
To analyze the financial performance of selected textile companies.
 
To study the inter -company variation with regards to resorting to various sources of finance
RESEARCH METHODOLOGY
Source of information
The study is based on secondary data. The main source of data is from Capitaline Plus database; it has detailed financial and non-financial information of about 15,000 listed and unlisted companies, annual reports of the sample unit and to supplement the data different publications, various books, journals and different websites related to textile industry have been used for better reliability.
Period of the study
The study covers a period of ten financial years from 2004-2005 to 2013-2014.
Sampling
Ten textile companies are taken for the study. They are Ambika Cotton Mills Limited, Banswara Syntex Limited, Bannari Amman Spinning Mills, Bombay Rayon Fashion Limited, Century Enka Limited, Kitex Garments Limited, KPR Mill Limited, Mandhana Industries, Nitin Spinners Limited and Page Industries Limited. All ten companies taken for the study are listed in the both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) with a market capitalisation over 100 Crores.
Tools for Analysis
Percentage analysis and multiple correlation tests are applied to analyse the collected data.
LIMITATIONS OF THE STUDY
 
The study carries all the limitations inherent with the secondary data and financial information.
 
The study restricted to selected companies for the period of ten years only.

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