The capital structure of a company is made up of debt and equity securities that

comprise a firm s financing of its assets. It is the permanent financing of a fir

m represented by long-term debt, preferred stock, and net worth. So it relates t
o the arrangement of capital and excludes short-term borrowings. It denotes some
degree of permanency as it excludes short-term sources of financing. The D/E ra
tio is a key metric used to examine a company's overall financial soundness. An
increasing ratio over time indicates that a company is financing its operation i
ncreasingly through creditors rather than through employing its own resources an
d that it has a relatively higher fixed interest rate charges burden on its asse
ts.
Some of the major reasons why the debt/equity (D/E) ratio varies significantly f
rom one industry to another, and even between companies within an industry, incl
ude different capital intensity levels between industries and whether the nature
of the business makes carrying a high level of debt relatively easier to manage
.
The objectives of the study are to analyze the capital structure of different in
dustries in India, to analyze the average debt equity value of large cap, mid ca
p and small cap industries in India and identify the differences in financial st
atements especially in the balance sheet of a manufacturing company and a servic
e industry. This study mainly depends on the secondary data available on the int
ernet. For the analysis of capital structure, 132 companies from 20 different in
dustries which belong to 5 sectors were taken. To determine the nature of the ca
pital structure of the sample companies debt-equity ratio is calculated. Thereaft
er, average of debt equity ratio was calculated by considering the weighted aver
age based on their market capitalization.
The debt-equity ratios of the industry sectors covered in the study lie within t
he range of 0.004607- 8.237996. The lowest ratio observed in the case of Compute
r Software industry and the highest in the banking sector. The common understand
ing and theoretical studies show that the debt equity value of large cap compani
es should be more since they are more known to the public, especially the money
lenders, it is easy for them to get more debt amount. But in this study what was
found is that the average debt equity value of small cap companies is higher th
an that of mid cap and large cap.
It is therefore argued that the financial manager must identify factors and care
fully analyze sector specific attributes before attempting to achieve the so-cal
led optimal capital structure. The appropriate capital structure of the firm is
warranted to sustain the value of the firm in the hyper-competitive corporate en
vironment.