“The study of relationship between capital structure and cost of capital” with respect to industries from Ahmednagar District

A business organization requires funds for various activities of the enterprise. Requirement of funds can be broadly categorized as Long-term requirement and Short-term requirement. The long-term requirements of funds are for the purposes of fixed assets creation, which is essential for improving the earning capacity of the business. Short-term funds are required for financing the day-to-day activities of the business. This is known as the working capital of the business. It is fundamental principle of financial management that funds raised should be exactly as per the requirement of business and they should be neither surplus nor in-adequate from the requirement point of view.

The aim of this study is to study the meaning of capital structure and cost of capital. Some companies do not plan their capital structure, and it develops as a result of the financial decisions taken by the financial manager without any formal planning. These companies may prosper in the short-run, but ultimately they may face considerable difficulties in raising funds to finance their activities. With unplanned capital structure, these companies may also fail to economize the use of their funds. Consequently, it is being increasingly realized that a company should plan its capital structure to maximize the use of the funds and to be able to adapt more easily to the changing conditions.

The study focuses on the study of relationship between capital structure planning and cost of capital of the companies from Ahmednagar district. It was found that the industries from Ahmednagar district are planning their capital structure optimally for the well-being of the organisation.