capital structure across countries today

8/7/2019 CAPITAL STRUCTURE ACROSS COUNTRIEs today

1/12

CAPITAL STRUCTURE ACROSSCAPITAL STRUCTURE ACROSS

COUNTRIES :COUNTRIES :

A CASE STUDY OF PHARMACEUTICALSA CASE STUDY OF PHARMACEUTICALS

FIRMSFIRMS

PRESENTED BYPRESENTED BY::--

RAJ MISHRA

ANAMIKA MISHRA

SNEHA THAPA

DEEPAK TIWARI


2/12

Glaxo

Smith Kline Beecham (SKB)

Novartis

Pfizer

LEADING PHARMACEUTICALS

COMPANIESuuuuu..


3/12

Year 1 Year 2 Year 3 year4

Glaxo India .4333 .894 .336 .346

Glaxo welcome 2.860 2.670 2.140 1.680

Smith Kline

Beecham (SKB)

0 0 0 0

SKB, UK .441 .408 .386 .269

Novartis, India .385 .116 .099 .045

Novartis AG,

Switzerland

.460 .460 .410 .280

Pfizer, India .143 .265 .019 .112

Pfizer, US .075 .091 .077 .089


4/12

Question-1

Comment on the capital practices of four

companies. Why are capital structure decisionof the parent companies absolutely different

from that of the subsidiaries?


5/12

Capital structure practice of GLAXOComment :

We can see that the debt-equityratio of GLAXO welcome isgradually decreasing that is the firm

is increasing its global presence byacquiring more capital from equitythan debt for the continuous 4years.

Where as for GLAXO India the debtto equity ratio is increasing in the

2nd year meaning it relies more ondebt financing rather than equity,but again in the 3rd year it isincreasing its equity financing and asmall increase in the 4th year in thedebt financing.

Debt-equity trend ofparent & subsidiary

0

0.5

1

1.5

2

2.5

3

year 1 year 2 year 3 year 4

glaxo india

glaxo welcome


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Capital structure practice of SKB

Comment:

Similarly like GLAXO, SKB UK theparent company is acquiringcapital more from equity thandebt for the continuous 4 years.

But the debt-equity ratio for itssubsidiary in India iscontinuously 0 or constant. Thisshows that the subsidiary in notable to take advantage of subsidized debt or low cost loansfor there international parentfirm. This creates high costcapital market for the subsidiary.

Debt-equity trend

ofparent andsubsidiary

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45


SKB india

SKB, UK


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Capital structure practice of NOVARTIS

and PFIZER

0

0.05

0.1

0.15

0.2

0.25

0.3


PFIZER, INDIA

PFIZER, US

0

0.05

0.1

0.15

0.2

0.25

0.30.35

0.4

0.45

0.5


NOVARTIS, INDIA

NOVARTIS,SWITZERLAND


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WHY CAPITALSTRUCTURE DECISIONSOF

THEPARENT COMPANYABSOLUTELYFROM

THATOFSUBSIDIARY???

The decision for acquiring capital for various firms having there

global presence is quite a difficult job.

The decision for capital decision highly depends on government

controls, policies such tax-structure for debt v/s equity, bond v/s loan,

restriction on foreign ownership of equity and foreign placement of

debt.

The capital structure practices for developed and developing countries

have some similarities and dissimilarities .


9/12

WHY CAPITALSTRUCTURE DECISIONSOF

THEPARENT COMPANYABSOLUTELY

FROMTHATOFSUBSIDIARY.???CONT.

fThe emerging market firms mainly which havethere global presence are more leveraged, andacquire capital mainly from outside financing and

these firms have high growth rate.

f

Where as developing countries firms are lightlyleveraged, than there counterparts in developedcountries:- means it depends highly on the thefinancial system of the country.


10/12

QUESTION-2

Empirical evidences shows that firms strongly

prefer retentions than debt and choose equityfinancing as a last resort. This is the

cornerstone of modern capital theory and

practice. Can you explain the phenomenon

from the firms perspective?


11/12

Successful and profitable MNC are able to usea more equity intensive capital structure asthey can transfer substantial amounts from

profits to retained earnings. This ensures thatthe MNCs have a higher reserve of retainedearning and thus are better equipped to usean equity intensive capital structure.

Conversely, if the profitability and reservesavailable with the MNC are low then it mayhave to rely on debt financing.


12/12

Year 1 Year 2 Year 3 year4 Year 1 Year 2 Year 3 year4

Glaxo .4333 .894 .336 .346 2.860 2.670 2.140 1.680

SKB 0 0 0 0 .441 .408 .386 .269

Novartis .385 .116 .099 .045 .460 .460 .410 .280

Pfizer .143 .265 .019 .112 .075 .091 .077 .089

INDIAN SUBSIDIARIES PARENT COMPANY

capital structure across countries today

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