Capital Structure
Introduction
Capital structure (CS) is one of the most important aspects of the Financial Management of any organization. It aims is to identify and implement the best capital structure proportion possible that suits the organizations needs and objectives. An optimal Capital structure boosts the prosperity of the company in the long run and reduces the risk.
CS is a mixture of a company 's current and non current debt, common and preferred equity. It 's the way a company finances its functions generally and how it can grow by using different funds resource. The capital structure of a company may be simple, compound or complex. A simple capital structure is composed of one single security base (equity share). While a compound capital structure indicates a combination of two security base in form of equity and preference share capital. The complex capital structure is made up of many security bases, beside the above mentioned shares it includes series of debentures or bonds and loans from other sources. http://finance.mapsofworld.com/corporate-finance/hybrid-financing/capital-structure.html Importance of optimal Capital Structure
A proper capital structure is a serious matter for any business institute. The choice is essential not only to make the most of income to various organizational populations, but also due to the influence of such a choice has on an institute’s capability to tackle its competitive environment. An ideal debt and equity mix reduces the overall cost of capital and increases the return on risk. It also helps the company to achieve its long term as well as short term objectives with efficiency and effectiveness. With a perfect capital mix organizations can take advantages of opportunities when available. The same point was emphasized by Michael Milken, in an article written for the "Wall street journal".
"…capital structure significantly affects both value and risk. The optimal capital structure evolves constantly, and
Capital structure (CS) is one of the most important aspects of the Financial Management of any organization. It aims is to identify and implement the best capital structure proportion possible that suits the organizations needs and objectives. An optimal Capital structure boosts the prosperity of the company in the long run and reduces the risk.
CS is a mixture of a company 's current and non current debt, common and preferred equity. It 's the way a company finances its functions generally and how it can grow by using different funds resource. The capital structure of a company may be simple, compound or complex. A simple capital structure is composed of one single security base (equity share). While a compound capital structure indicates a combination of two security base in form of equity and preference share capital. The complex capital structure is made up of many security bases, beside the above mentioned shares it includes series of debentures or bonds and loans from other sources. http://finance.mapsofworld.com/corporate-finance/hybrid-financing/capital-structure.html Importance of optimal Capital Structure
A proper capital structure is a serious matter for any business institute. The choice is essential not only to make the most of income to various organizational populations, but also due to the influence of such a choice has on an institute’s capability to tackle its competitive environment. An ideal debt and equity mix reduces the overall cost of capital and increases the return on risk. It also helps the company to achieve its long term as well as short term objectives with efficiency and effectiveness. With a perfect capital mix organizations can take advantages of opportunities when available. The same point was emphasized by Michael Milken, in an article written for the "Wall street journal".
"…capital structure significantly affects both value and risk. The optimal capital structure evolves constantly, and
References: • Business ratios and formulas: a comprehensive guide, 2007, By Steven M. Bragg • Financial analysis: tools and techniques: a guide for managers, 2001, Erich A • Financial management: theory and practice, 2008, Eugene F. Brigham, Michael C. Ehrhardt • Financial statement analysis: the investor 's self-study guide to interpreting & analyzing financial statements, 1994, Charles J • Determinants of Capital Structure: Empirical Evidence from the Czech Republic by Patrik BAUER, Finance a .v皞 – Czech Journal of Economics and Finance, 54, 2004. • Sensitivity of Performance to Capital Structure by Ishola Rufus Akintoye, European Journal of Social Sciences – Volume 7, Number 1 (2008) • Finding the Right Financing Mix: The Capital Structure Decision by Aswath Damodaran (Presentation)