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What is Capital Structure?
Formula for Capital Structure:
Capital structure = Long-term Debt + Preferred Stock + Net Worth
Capital structure = Total assets – Current liabilities
All formulae and examples are explained when you avail approaches to determine appropriate Capital Structure homework help from 24x7assignmenthelp.com.
Composition of Capital Structure:
This principle suggests that the concept of capital structure tends to maximise the earnings per share and minimise the cost of the capital.
According to this principle, the pattern should be such that the capital does not have to suffer any risk while bringing up a new structure.
The controlling positions of the present owners should stay undisturbed.
The management should find it easier to manoeuvre sources of funds while achieving a combination of securities.
Timing is always critical in financing and more particularly in a growing concern.
Determinants of Capital Structure:
Adoption of equity financing since the sales and the earnings aren’t stable to warrant the issue of debentures with fixed interest. Having an assumed market, steady sales and free from competition easily employ debt in the capital structures.
It is hard for smaller companies to assemble resources. On the other hand, larger companies with greater stability of earnings, strength and reputation, find it easy to raise funds.
The earnings of younger companies are unpredictable, irregular or uncertain. So, they find it difficult to raise capital.
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