Analyzing and determining financing options for small and mid-cap companies

Abstract

Traditionally, the cost of debt and cost of equity for small and mid-cap firms tends to be on the higher side as compared to their larger size counterparts. The purpose of this study is to analyze whether this theory holds in practice in the Indian context. We analyze the trends of different financial health ratios, indicators of structure of debt and equity components of firms and the variation of various costs of capital according to the size of the firms. In the first phase of this project, literature survey was done in order to know about the different options available to firms in order to finance their operations at various stages of their life cycle. Thereafter, we tried to extract financial data about various companies across different industry sectors and analyzed the trends of the financing choices across size and industry classification of the firms. The results obtained from this analysis were then compared with the theoretical fundamentals regarding financing. Thereafter, we have attempted to provide certain recommendations about the optimal financing decisions as a function of the life-cycle stage the firm is in and its industry sector.