A STUDY ON IMPACT OF CAPITAL STRUCTURE ON FINANCIAL

POSITION OF KARNATAKA POWER TRANSMISSION CORPORATION

LIMITED

By
Fazila Banu
2nd M.COM
(Reg.No.17AECOM003)
Under the Guidance of
Dr.Syeda Tabassum S.G
(H.O.D of Commerce)
ABBAS KHAN COLLEGE FOR WOMEN

FEBRUARY, 2019

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TITLE OF THE STUDY: A STUDY ON IMPACT OF CAPITAL STRUCTURE ON
FINANCIAL POSITION OF “KARNATAKA POWER TRANSMISSION
CORPORATION LIMITED”

INTRODUCTION:
The term capital structure is the mix of different securities issued by firm to finance its operations.
Capital Structure was defined by Modigliani and Millar as the mix between debt and equity that
the company uses in its operation. Capital structure plays a vital role in financial decision making
process, maximizing the KPTCL performance and its value. It’s important for financial position
of a company, which directly affects decision. Hence, proper care and attention need to be given
while determining the capital structure decision, the overall position of the enterprise regarding all
kinds of assets, liabilities are shown. This decision is important not only because of impact on
financial position, but to deal with its competitive environment.it play an important role in
determining the risk level of the KPTCL. The various means of financing represent the
proportionate between debt and equity. The Capital Structure of a company may be simple,
compound or complex. When a KPTCL has a high level of risk, it usually seeks to balance it with
a lower level of financial risk by utilizing lower level of debt capital in its Capital Structure. The
outcomes of the study may guide policy planners to formulate better policy decisions in respect of
the mix of debt and equity capital and to exercise control over capital structure to have good impact
on financial position.

KEY WORDS
Capital Structure, Financial Position, Debt, Equity and KPTCL.

STATEMENT OF THE PROBLEM

Capital Structure is the combination of debt and equity that make the total capital firms. The
proportion of debt to equity is a strategic choice for company. Capital Structure decision directly
impact on financial position of company.

SCOPE OF THE STUDY

The study has been conducted for gaining practical knowledge about Capital Structure and
its impact on financial position in KPTCL.
 Geographical Scope
The Study Conducted from KPTCL in Bangalore

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  Time scope
The time taken to complete this research is 2 months.

OBJECTIVES OF THE STUDY

1. To identify the share capital and debt of the KPTCL.
2. To identify the changes in Capital Structure and impact on Financial Position.
3. To understands the Capital Structure of KPTCL.
4. To Study to maximize the value of KPTCL.
5. To study to minimize the overall cost of capital.
6. To study financial flexibility and retain strong balance sheet.

REVIEW OF LITERATURE
Modigliani and miller (mm) theory (1958, 1963): In Modigliani and Miller provided the seminal
in capital structure under certain assumptions include no taxes, homogenous expectations, perfect
capital markets, and no transaction costs .This theory which called “capital structure irrelevance”
states that the relationship between capital structure and cost of capital is irrelevant, that mean the
increases in debt does not effect on cost of capital. In a result, the investor's expectations of future
benefits are totally effect on firm value and cost of capital.Latterly, Modigliani and Miller
introduced new evidence that cost of capital effect on capital structure, and thus effect on firm
value with taking taxes as assumption into consideration, which refer that borrowing give tax
advantage, because the interest will deduct from the tax which result what is known as tax shields,
which in turn reduce the cost of debt and then maximize the firm performance

Pecking order theory: Pecking order theory is the result of Asymmetric information. The pecking
order model does not discuss the optimal capital structure as significant point, but states that firms
have two main sources to fund its financial needs which are internal and external finance; the
theory claims that firms prefer to use firstly internal finance such as excess liquid assets or retained
earnings then external finance. If internal financing is not enough to fund investment projects,
firms may or may not obtain external financing, and if they do, In order to minimize additional
costs of asymmetric information, the managers head for choosing between the different sources of
external finance, firms prefer to use debt leverage firstly, secondly issuance of preferred stock and
finally issuance of common stock
Abor (2008) studies the relation of long term debt and short term debt with the determinants of
capital structure of 230 publicly quoted firms, large unquoted firms and small and medium
enterprises listed on the Ghana Stock Exchange from the period 1998 to 2003. He gets the result
that long-term debt is positively related with size and growth and negatively related with age,
profitability and tax whereas short-term debt is positively related with age, dividend payout and
tax and negatively related with both asset structure and risk.

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 Bas et al. (2009) analyze the determinants of capital structure decisions of 11,125 small and
private firms in 25 developing countries using data from World Development Indicators and they
find that tangibility, profitability and size are the major determinants of capital structure decisions.
Ramakrishnan (2012) studies the significant impact of determinants on the determination of
capital structure during the period 1996 to 2007 of Malaysian firms. He observes that risk, non-tax
debt shield, size and tangibility have significant impact on the determination of capital structure
of a firm.

RESEARCH METHODOLOGY
For this study secondary data as a source of information from KPTCL website, journals and other
websites.

LIMITATIONS OF THE STUDY

1. The scope of the study is limited to KPTCL.
2. Time taken to complete the study is very limited.
3. Study is based on secondary data where analysis mainly depends on company’s
information shared.

OVERVIEW OF CHAPTER SCHEMES

CHAPTER 1: CAPITAL STRUCTURE

This chapter contains an introduction to Capital Structure and background of the study.

CHAPTER 2: RESEARCH DESIGN

The chapter deals with research, meaning, statement of the problem, review of literature,
scope of the study, objectives of the study, operation research, source of data, limitations
of the study.
CHAPTER 3: COMPANY PROFILE
This chapter gives a complete profile of the company. History natures of business, service
profile, vision and mission, organizational structure and SWOT analysis.
CHAPTER 4: DATA ANALYSIS AND INTERPRETATION.
This chapter makes on analysis of data collected from secondary source. Tabulated tables,
graphs and interpretation thereof.
CHAPTER 5: FINDINGS, CONCLUSIONS AND SUGGESTIONS.
This chapter deals with the summary of findings, conclusions, and offer recommendation
based on findings.

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