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Basis 2015 2016 2017 2018 2019: As in Case of Piramal Enterprises Shown in Below Table Cost of Capital

The document compares the cost of capital for Piramal Enterprises and Grasim Enterprises over a five year period from 2015 to 2019. It shows that Piramal Enterprises maintained a lower weighted average cost of capital (WACC) between 12.3-14.55% compared to Grasim's higher WACC of 15.96-19.48%. This is because Piramal Enterprises had a more efficient capital structure with a higher debt portion, allowing it to benefit from the cheaper cost of debt. While debt provides tax shield benefits, companies need to balance debt levels to minimize risk. In conclusion, Piramal Enterprises demonstrated a better capital structure than Grasim over the five year period

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radhika
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49 views1 page

Basis 2015 2016 2017 2018 2019: As in Case of Piramal Enterprises Shown in Below Table Cost of Capital

The document compares the cost of capital for Piramal Enterprises and Grasim Enterprises over a five year period from 2015 to 2019. It shows that Piramal Enterprises maintained a lower weighted average cost of capital (WACC) between 12.3-14.55% compared to Grasim's higher WACC of 15.96-19.48%. This is because Piramal Enterprises had a more efficient capital structure with a higher debt portion, allowing it to benefit from the cheaper cost of debt. While debt provides tax shield benefits, companies need to balance debt levels to minimize risk. In conclusion, Piramal Enterprises demonstrated a better capital structure than Grasim over the five year period

Uploaded by

radhika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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As in case of Piramal Enterprises shown in below table Cost of Capital:-

Basis 2015 2016 2017 2018 2019

Cost of Debt 0.0677 0.1149 0.0059 0.0795 0.1373


Cost of Equity 0.1576 0.1638 0.1518 0.1363 0.1393
WACC 0.1352 0.1455 0.1268 0.1251 0.1232
Wo 0.28 0.2371 0.4304 0.2053 0.3872
VE 0.7508 0.7623 0.5836 0.7475 0.6128

As in case of Grasim Enterprises shown in below table Cost of Capital:-

Basis 2015 2016 2017 2018 2019

Cost of Debt 0.0431 0.4821 0.0801 0.0353 0.0319


Cost of Equity 0.1853 0.1966 0.1571 0.1727 0.1644
WACC 0.1802 0.1948 0.1696 0.1692 0.1596
Wo 0.0411 0.0141 00.487 0.0242 0.0467
VE 0.9589 0.9859 0.9513 0.5076 0.9535

With reference to the third question wherein we are asked to compare the cost of capital of
Piramal Enterprises with its competitor, we have found the following 
Firstly,
Grasim has been taken as the competitor of Piramal Enterprises and as the Table 1 shows WACC
for Piramal Enterprises is between 12.3 percentage to 14.55 percentage wherein same range is
quite higher in case of its competitor. WACC cost of capital for Grasim is between 15.96
percentage to 19.48 percentage in last five years.
This shows the efficiency of the  Piramal Enterprises' management as they have maintained a
better capital structure by having higher portion of debt element than Grasim which has enabled
it to take advantages of Cheaper source of capital.
Also tac sheild benefits of debt has helped Piramal in maintaining their cost of capital to lower
side in comparison to its competitor.
As excess of everything is bad having excessive debt in capital structure makes company
vulnerable as debt is an obligation (charge against profit). So it is advised to maintain balanced
debt equity to minimize risk. 

It can be concluded that Piramal Enterprises has better capital structure than Grasim as shown in
last five years. Further sales and profit margin prospects are need to assess before changing
capital structure.

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