A Study on Capital Structure of Pharmaceutical Industry

Capital structure decision is the strategic financing decision which involves deciding the most appropriate mix of equity and long-term debt finance for a firm. Capital structure policy involves a choice between risk and expected return. The optimal capital structure strikes a balance between these risks and returns and thus examines the price of the stock. The capital structure decision being the strategic decision, aims at achieving the basic objective of every firm i.e., wealth maximization. The pattern of capital structure of a firm has to be planned in such a way that the owner¿s interest is maximized. It can be concluded from the above study that in practice the determination of capital structure involves considerations in addition to the concerns about earning per share, value and cash flow. A firm may have enough debt servicing ability but it may not have assets to offer as collateral. Attitudes of firms with regard to financing decisions may also be quite often influenced by their desire of not losing control, maintaining operating flexibility and have convenient timing and cheaper means of raising funds.