Performance Metrics of Unlevered Firms- An industry wise Analysis
Keywords:
Capital Structure, Zero Debt, Financial Leverage, Financial Performance, Corporate FinanceAbstract
Finance managers are always confronted with a dilemma regarding choosing the right source of finance to fund their business projects. Theoretically they may be guided by the various capital structure theories that purport the use of adequate proportion of debt and equity funds in the capital structure. A finance manager who is facing the debt-equity dilemma and favours an all equity stake, can draw inferences from studying the performance of various debt free firms before taking a decision. This paper compares the financial performance metrics of unlevered firms vis-a-vis their industry averages and attempts to identify certain commonalities among them that steers them toward higher returns for the company and to the shareholders. The result indicates most of the performance ratios of unlevered firms are on par with the industry averages. However, debt-free firms had lower PB ratio and Asset Tangibility when compared to the industry.
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