Evaluation of capital structure of Padma PolyCotton Knit Fabrics Ltd.

Abstract

The report of Capital Structure Analysis of Padma Poly Cotton Ltd. is based on Annual Reports of 2 years 2011 & 2012. This analysis based on the different ratios analysis of capital structure (C.S) and Financial Structure (F.S) and their sensitivity to the company’s efficiency. The study is basically based on secondary data. The sources of secondary data were Annual Report, Company brochure and website. Some primary data were collected by interviewing The Padma PollyCotton Knit Fabrics Ltd Officials. Before using the data for the purpose of evaluation of capital structure, the documents were carefully scanned and their reliability was judged. The growth rate, Earning per Share (EPS), ROE, of the Company will able to find out the trend of the Company. Again the common size statement is used to find out the proportion of the Company. The yearly financial ratios regarding capital structure were calculated by EXCEL Sheet, graphically plotted 2 years data 2011 & 2012 are taken in this report. Assets and Equity were increasing from 2011 to 2012 but asset turnover ratios (ROA/ROE) were decreasing. The present situation of the company is not impressive. This Company is too reluctant to make the payments of interest charges, basically Padma PollyCotton Knit Fabrics Ltd is not paying debts in due time. Though the inventory turnover ratio is higher, it does not claim higher income because of higher cost of good sold. From the ratio analysis of financial data from annual reports of Padma Poly Cotton Ltd. 2011 & 2012 we find the average EPS is 1.14, ROA is 0.94%, ROE is 3.05%, Debt Ratio is 69.27%, ROA/ROE is 0.32 and Debt : Equity is 21: 79. The historical Debt: Equity (capitalization ratio) is 21:79. By using historical data (WACC, value of the firm, and debt-equity ratio) in the Optimal Capital Structure Model, we find the Debt: Equity is 21:79 which is similar to the historical Debt: Equity Ratio i.e. 21:79. So Company’s existing Debt: Equity ratio is in optimal.