Capital Strength Of A Business Organization

1114 Words5 Pages
ROE 1 ROA 0.8927 1 NI 0.8678 0.7903 1 LIQ 0.2889 0.3651 0.0802 1 NPLR -0.021 -0.062 0.167 -0.089 1 NIM 0.3863 0.5609 0.4504 0.2858 0.4576 1 SIZE -0.423 -0.557 -0.066 -0.549 0.3303 -0.328 1 D/E -0.324 -0.449 -0.385 -0.149 -0.211 -0.507 0.2732 1 D/A -0.17 -0.315 -0.101 -0.067 0.2315 -0.281 0.5021 0.3983 1 MV 0.2691 0.3949 0.5627 -0.082 0.1105 0.4074 0.2416 -0.402 -0.04 1 CAR -0.189 0.0092 -0.135 0.0886 -0.219 0.0579 -0.249 -0.008 -0.449 -0.086 1 1. Capital strength: The usage of fixed assets is usually similar to the idea of functioning leverage, also known as assets intensity; this indicates that increase in the capital strength of the business organisation increases the risk of inconsistent future earnings. The main aims of the top level management in this scenario are to gain maximum control over the business organisation and to minimize the risk of bankruptcy. Therefore the debt ratio in a business organisation where the focus is on gaining control the debt levels in the capital tends to be low (Gordon and Barton 1988). The critical aspect to consider in this factor is that more the capital strength of the business, the need for more debt arises due to the high costs, and this proves out to be advantageous at the same time due to the vast availability of the fixed assets for the long -term debt. So the conclusion can be drawn that capital strength is negatively related to entire debt and short-term debt and positively related to long-term debt. 2. Tax
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