Debt-Equity Analysis In Chemical Industry

Debt-Equity Analysis in Chemical Industry is the study of a crucial problem in our corporate sector. Especially, difficulty arises in raising capital either in terms of equity or debt in case of capital intensive industries such as chemical, manmade fibers, chemical fertilisers etc. these industries are facing hardship because of (i) import of machinery (Chemical industry can meet these challenges only by greater capital requirements). Therefore chemical industry needs to maintain a judicious capital structure comprising of a proper mix of different components namely, equity, preference share capital and long term debt titled as debt equity ratio. This ratio has to be properly maintained to balance the comparative structure components in such a way that the firm can earn more and more profits, leading to profit maximisation and wealth maximisation of the shareholders. Debt-equity Analysis in Chemical Industry becomes necessary because of various reasons such as (a) to assess the long term financial position on ?Solvency?, (b) to determine the soundness of the long term financial policy of an enterprise; (c) to determine judicious and optimum capital structure; (d) to determine the relative stake of outsiders and shareholders in the company; (e) to meet the legal requirements etc. If the financial manager of an enterprise applies the financial tool debt-equity ratio to chemical industry in judicious manner, it is sure that he will have many advantages such as leverage benefits, taxation benefits, high profitability etc.