Capital Structure, Cost of Capital, and Value Creation: An Empirical Study

In the highly leveraged world of auto manufacturing, taking on debt is usually just part of the game. But Bosch Limited, a leading tier-1 automotive supplier listed on both the NSE and BSE, follows a very different approach. This paper examines the financial strategy of Bosch, exploring how the company structures its capital, prices it, and ultimately translates those choices into real shareholder value. By analysing five years of audited standalone financials (FY 2021-22 to FY 2025-26), we examine whether Bosch’s strictly zero-debt approach holds up against traditional corporate finance theories. To put some hard numbers behind this strategy, we used the Capital Asset Pricing Model (CAPM) and the Weighted Average Cost of Capital (WACC) to estimate the company's true hurdle rate. The results confirm that Bosch is completely unlevered. With a debt-to-equity ratio of 0.00x, equity carries the entire 100% weight. Plugging in a 7.10% risk-free rate, a beta of 0.85, and a 6.00% equity risk premium, both the cost of equity and the WACC settle right at 12.20%. For a firm with zero debt, the WACC is simply equal to its cost of equity. Does this conservative approach leave value unrealised? To find out, we benchmarked Bosch against two industry peers: Schaeffler India and Samvardhana Motherson International. While Samvardhana Motherson uses debt to lower its nominal WACC via interest tax shields, Bosch clearly prioritizes long-term solvency and operational flexibility. The strategy appears to be paying off. Bosch is generating a Return on Capital Employed (ROCE) of 21.54%. Since that easily clears their 12.20% WACC by 9.34 percentage points, the company is creating a healthy Economic Value Added (EVA) spread. Ultimately, this heavily equity-funded model is consistent with the Pecking Order Theory in action. More importantly, it gives Bosch the financial flexibility to fund its significant pivot toward electric mobility and software-defined vehicles. By avoiding the heavy debt loads that constrain other firms during industry slumps, Bosch has positioned itself to navigate the auto sector's inevitable cyclical downturns without taking on excessive financial risk.