Optimum Capital Structure: A Case Study in PT Pupuk Sriwidjaja Palembang

In order to raise money whether for the operational or for expansion, there are two main sources of funding, debt and equity. To get optimum financing, companies need to decide the component of capital structure wisely. This research use Damodaran Framework to get the optimum financing mix and case study conducted in PT Pupuk Sriwidjaja palembang. The analysis also including company’s debt structure, relationship between ICR level and drop in EBITDA, and the relationship between debt ratio level and firm value. Data collected from company’s related report and interview with the management for the clarification needed. The result shows that company is not liquid and solven enough if it is compared to the average of industry which are another SOE fertilizer company in Indonesia, level of ICR gives 10% drop in EBITDA, and Debt Ratio is overlevered compared to its optimal. Thus, based on Damodaran Framework, PT PUSRI should focus on equity financing rather than debt to optimize its firm value. Equity financing sources may consist of internal and external equity. Internal sources related to the increase of retained earning. External source including capital injection, IPO, and ESOP. Keywords: Financing, Capital Structure, Damodaran framework