Capital Structure is referred to as
the ratio of different kinds of securities raised by a firm as long-term finance
. The capital structure involves two decisions- Type of securities to be issued are equity shares, preference shares and long term borrowings (Debentures).
What do you mean by capital structure?
Capital structure is
the particular combination of debt and equity used by a company to finance its overall operations and growth
. Equity capital arises from ownership shares in a company and claims to its future cash flows and profits. … Short-term debt is also considered to be part of the capital structure.
What are the factors of capital structure?
- Cash Flow Position: …
- Interest Coverage Ratio (ICR): …
- Debt Service Coverage Ratio (DSCR): …
- Return on Investment: …
- Cost of Debt: …
- Tax Rate: …
- Cost of Equity: …
- Floatation Costs:
What are the factors affecting the capital structure of a firm?
According to Brigham and Houston (2011) in Sawitri and Lestari (2015) there are 12 factors that influence the determination of capital structure decisions namely,
sales stability, asset structure, leverage operating, business risk, growth rates, profitability, taxes, controls, management attitudes, measures corporate
…
What are the factors affecting capital structure Class 12?
Various factors influencing capital structure are: (i)
Position of cash flow Size of projected cash flow must be considered before issuing
debt. Cash flow must not only cover fixed cash payment obligations but there must be sufficient cash for smooth working of the business. (ii) Return on Investment (Ro!)
What are the types of capital structure?
- Equity Capital. Equity capital is the money owned by the shareholders or owners. …
- Debt Capital. Debt capital is referred to as the borrowed money that is utilised in business. …
- Optimal Capital Structure. …
- Financial Leverage. …
- Importance of Capital Structure.
What is capital structure example?
Since capital structure is the
amount of debt or equity
or both employed by a firm to fund its operations and finance its assets, capital structure is typically expressed as a debt-to-equity ratio. … Using our previous examples, Company A has $150,000 in assets, and $50,000 in liabilities.
What are the 4 types of capital?
The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth. The four major types of capital include
working capital, debt, equity, and trading capital
.
What are 2 types of capital?
In business and economics, the two most common types of capital are
financial and human
.
How is capital structure calculated?
Capital structure refers to the relative proportion of common stock, preferred stock and debt in a a company’s total capital employed. It is normally expressed as
a percentage of market value of each component of capital to the sum of the market values of all components of capital
.
What are the factors affecting cost of capital?
- Market Opportunity. …
- Capital Provider’s Preferences. …
- Risk. …
- Inflation. …
- Federal Reserve Policy. …
- Federal Budget Deficit or Surplus. …
- Trade Activity. …
- Foreign Trade Surpluses or Deficits.
What are the external factors affecting capital structure?
- a. General economic conditions. While planning the capital structure, the company needs to consider the general conditions existing in the economy. …
- b. Behaviour of interest rates. …
- c. Policy of the lending institutions. …
- d. Taxation policy. …
- e. Statutory restrictions.
What is meant by capital structure state any four factors affecting the choice of capital structure?
Factors affecting capital structure are:
Period of financing
– When company wants to raise finance for short period, it goes for loans from banks and other institutions; while for long period it goes for issue of shares and debentures. … Interest on debentures has to be paid regardless of profit.
What are the advantages of capital structure?
Equity Advantages
Capital structure also
provides flexibility in raising funds
. One advantage to equity financing for small business is that it is generally more available than debt financing. If your business is unproven, lenders have nothing to base future cash flows on.
What is capital structure strategy?
The key to capital structure strategy is
balancing risk and reward
. Companies commonly finance acquisitions, growth capital, recapitalizations and other business expenditures with external funding sources, rather than relying solely on internal cash flows.
What is a good capital structure?
What Is Optimal Capital Structure? The optimal capital structure of a firm is
the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital
. … Thus, companies have to find the optimal point at which the marginal benefit of debt equals the marginal cost.
