A Study on the Determinants of Capital Structure at Larsen and Toubro Puducherry

Abstract

This study looks at Larsen & Toubro Limited's capital structure, concentrating on how the business finances its operations by finding a balance between debt and equity. The study examines important ratios like leverage, debt-equity ratio, and return on equity by examining financial data from 2019 to 2024 in order to determine how capital structure affects the performance and financial stability of the business. According to the study, the company's debt utilization has changed over time, with higher leverage resulting in both higher financial risk and higher earnings. The study also evaluates how debt and equity affect the company's cost of capital by applying capital structure theories, such as the Net Income Approach and the Net Operating Income Approach. The results indicate that whereas debt can reduce the total cost of capital, an over-reliance on it could put the company at greater risk. This highlights how crucial it is to continue taking a balanced approach to funding.
The study highlights how important it is to optimize capital structure in order to minimize risk and increase business value. Maintaining long-term growth and financial health depends on the company's capacity to control its debt while increasing its equity basis. In order to attain an ideal capital structure, the study advises Larsen & Toubro to carefully assess its financing approach, finding a balance between debt and equity. In order to maintain financial stability, the report concludes that Larsen & Toubro should continue to take a conservative approach to debt, concentrating on lowering borrowing costs and raising equity. A well-managed capital structure will help the company reduce financial strain, improve profitability, and position itself for sustainable growth in the future.