Robi Axiata Limited is one of the most renowned telecom companies of Bangladesh. The company is a joint venture between Axiata Group Berhad, Malaysia and NTT DOCOMO INC, Japan. Initially the company was known as Telekom Malaysia International (Bangladesh) which started operation in Bangladesh in 1997 with the brand name AKTEL. Later, on 28th march 2010, the product was rebranded as Robi and the company is now called Robi Axiata Limited. The product was redesigned adding more value for its customers and the improved network facility makes it more user-friendly for all its customers.
It is a people oriented brand of Bangladesh. The company is progressing with full force keeping in mind the traditional tools of Bangladesh and moving ahead with more innovative and creative strategies. The capital structure determines the combination of debt and equity that the firm uses in its operation. The capital structure decision is crucial for any business organization. This implies for Robi Axiata Limited as well because this decision will result in the maximum return that Robi can achieve.
This study seeks to investigate the relationship between capital structure and profitability of Robi Axiata Limited during the three month period of internship. The report will include all the financial highlights that will assess the profitability of Robi. The study will also include the competitor analysis and the different financial models used by the company. Robi basically uses two models they are:- i)The Dividend Discount Model ii)Present Value of Free Cash Flow Literature Review
The pioneering study by Modigliani and Miller (1958) shows that company’s value is not dependent on its financial structure. The authors conclude that a company’s greater or lesser value depends on the ability of its assets to generate value, it being irrelevant if the assets originate in internal capital or external capital. However, Modigliani and Miller (1963), admitting the existence of taxes conclude that, given tax benefits, companies have an advantage in using debt rather than using internal capital, as they can benefit of debt tax shields. Modigliani and Miller 1958) concluded to the broadly known theory of “capital structure irrelevance” where financial leverage does not affect the firm’s market value. However their theory was based on very restrictive assumptions that do not hold in the real world. These assumptions include perfect capital markets, homogenous expectations, no taxes, and no transaction costs. The presence of bankruptcy costs and favorable tax treatment of interest payments lead to the notion of an “optimal” capital structure which maximizes the value of the firm, or respectively minimizes its total cost of capital.