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Showing posts from October, 2008

A Tale of Two Companies

The frequency of my posts have dropped drastically. I am at a loss to decide whether this is attributable to market conditions, or me not having anything significantly intelligent to say...I am tempted to vote for the latter.
After months of contemplating what to write, I settled for an exposition on something that I term "beautiful". Capital structure is something that does not get as much importance as it should by investors, analysts and management in general. What is the optimal capital structure? I wish someone knew the answer. In this post, I take a look at how the markets treat two companies that are similar in most respects except for their capital structures. I then take a look at a case of possible mis-pricing and how often, even 'good' companies never seem to get their due.

Capital Structure irrelevant? Hmm... I consider Chambal Fertilizers and GNFC (fertilizers again!) for this post.

Most finance experts and academics advocate having 'some' debt i…