INTRODUCTION 1.

1 INTRODUCTION
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. So a firm should try to maintain an optimum capital structure with a view to maintain financial stability. An optimum capital structure is one that maximizes the market value of the firms. A company borrows and this borrowing helps in increasing the value of the companys share in the stock exchange. It can be said that the borrowing has helped the company in moving towards its optimum capital structure. Sometimes the borrowing will result in fall in the market value of the companys equity shares. The use of fixed charges sources of funds, such as debt and preference capital along with the owners equity in the capital structure is described as financial leverage. The leverage should be favorable only when cost of capital is less than return on investment. It can be said that the borrowing has moved the company away from its optimum structure. Therefore the capital structure cost of capital and leverage should be properly studied to obtain capital structure by keeping this mind, this study was undertaken.

1.2 CAPITAL STRUCTURE

Capital structure refers to kinds of securities and the proportionate amounts that make up capitalizations. It is the mix of different sources of long-term sources such as equity shares, preference shares, debentures, long-term loans and retained earnings. The terms capital structures refers to the relationship between the various long-terms sources financing such as equity capital, preference share capital and debt capital. Deciding the suitable capital structure is the important decision of the value of the firms. Capital structure is the permanent financing of the company represented primarily by long-terms debt and equity.

Definition
According to the definition of Presana Chandra, The composition of a firms financing of equity, preference, and debt.

OPTIMUM CAPITAL STRUCTURE

Optimum capital structure is the at which the weighted average cost of capital is minimum and thereby the value of the firm is maximum. Optimum capital structure may be defined as the capital structure or combination of debt and equity that leads to the maximum value of the firm.

Objectives of capital structure

Decision of capital structure aims at the following two important objectives: Maximize the value of the firm. Minimize the overall cost of capital

LEVERAGE
It is the basis and important factors, which affect the capital structure. It uses the fixed cost financing such as debt, equity and preference share capital. It is closely related to the overall cost of capital.

COST OF CAPITAL
Cost of capital constitutes the major part for deciding the capital structure of a firms. Normally long-term finance such as equity and debt consist of fixed cost while mobilization. When the cost of capital increases, value of the firms will also decrease. Hence the firm must take careful steps to reduce the cost of capital.

1.3 STATEMENT OF THE PROBLEMS

The study is stated as A study on the capital structure of Salem Coperative Sugar Mills Ltd.., Mohanur. The period of the study is five years period commencing from 2009-2013

SCOPE OF THE STUDY

The scope of the study is to be determine and compare the financial performance for the past five year and also predict the future financial position of Salem Co-operative Sugar Mills Ltd.., Mohanur. LIMITATION OF THE STUDY Figures available for the study from the company were only for the last five year. Since the study has been analyses on the basis of the data available, the inherent limitations of financial statement are limitation to the study. Most of the capital structure concept has not been included. CHAPTER SCHEME First chapter includes the introduction to the study, theory, statement of the problem, review of literature, objectives, scope, and limitation. Second chapter includes the introduction to the company, company detail, and conclusion. Third chapter includes the introduction, methodology (Area of study, period of the study, collection of data, statistical tools, and conclusion. Fourth chapter includes the introduction to the data, first objectives, second objectives, third objectives, and conclusion. Fifth chapter includes the introduction, objectives , findings, suggestion, and conclusion.