Driving Value: The Interplay Between Capital Structure and Financial Health in Indian Automobile Companies

Abstract

A basic financial concept, which is called capital structure. It is the combination of equity, debt or both that is available for firms to fund their operations and investments. One of the most important decisions in corporate finance is the strategic choice of capital structure, which can impact the performance and sustainability of a company. Capital structure has received much attention in academic research over the years, especially in the field of corporate finance. The present study aims to examine the effect of the capital structure on the financial performance of the automobile companies in India as the industry plays a pivotal role in the Indian economy. The study highlights five top automobile companies namely, Tata Motors, TVS Motor Company Limited, Ashok Leyland, Hero MotoCorp Limited, and Bajaj Auto Limited. Studies were conducted for five years from 2015 to 20244 and the financial data of these companies were retrieved from their annual reports. This study examines the effect of capital structure on the performance indicators like net profit before tax, total assets, earnings per share and dividend payout ratios. The companies selected are used in the study of the independent variables which are total debt and total owned capital. For analysis, statistical tools and techniques are used to analyse the relationship. The study reveals that the differences in capital structure decisions have significant effects on the performance of the companies. But some firms have constant levels of owned capital over time, indicating that other variables, like debt per capita, or other financial dimensions may be more relevant in explaining firm performance over time. The report emphasizes the importance of the automobile industry's capital structure and its impact on performance, along with potential optimization strategies and decision-making processes to improve competitiveness in the face of constantly changing market dynamics.