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Capital Structure Overview

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7 views9 pages

Capital Structure Overview

Uploaded by

vinay.jagannathuniversity
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capital Structure

Overview

Submitted by: Jyoti Sharma


Sonali Kamari
Shristi Dubey
Manya Singh
Arti kumari
Anjali Jha
Capital
Structure
Overview
Capital structure refers to the mix of debt and equity a company
uses to finance its operations. It's a crucial aspect of financial
management that can significantly impact a company's
performance and growth.
Financial Structure
Debt Equity Mix

Debt financing involves Equity financing involves The optimal capital


borrowing money, such as selling a stake in the structure is a balance of
loans or bonds, that must company, such as through debt and equity that
be repaid with interest. the issuance of shares, in minimizes the company's
exchange for capital. overall cost of capital and
maximizes shareholder
value.
Capitalization
Paid-in Capital Retained Earnings
Funds received from investors in Profits that the company has not
exchange for shares of the company's distributed to shareholders, but has
stock. instead reinvested in the business.

Long-term Debt Short-term Debt


Loans and bonds that the company Loans and other obligations that the
must repay over a period of more than company must repay within one year.
one year.
Trading on Equity
1 Leverage
Using debt financing to amplify the return on equity, but also
increasing the risk.

2 Financial Risk
The higher the debt-to-equity ratio, the greater the financial risk to
the company and its shareholders.

3 Opportunity Cost
The trade-off between the potential rewards of leverage and the
risks it poses to the company's financial health.
Optimum Capital Structure

1 Maximize Shareholder Value 2 Minimize Cost of Capital


The optimal capital structure is the The goal is to find the right balance of
one that maximizes the value of the debt and equity that minimizes the
firm and, in turn, the wealth of its company's overall cost of financing.
shareholders.

3 Manage Financial Risk 4 Maintain Flexibility


The capital structure should carefully The optimal structure should allow
balance the risks and rewards of debt the company to adapt to changing
and equity financing. market conditions and strategic
needs.
Factors Affecting Capital Structure

Industry Norms Growth Asset Structure Managemen


Opportunitie t Philosophy
The typical The type and
s
capital structure Companies with quality of a The risk tolerance
within the high growth company's assets and strategic
company's potential may can affect its vision of a
industry can rely more on ability to obtain company's
influence its own equity financing debt financing. management
structure. to fund team can shape
expansion. its capital
structure.
Internal and External Factors

Internal Factors External Factors Risk Management


Factors within the Factors outside the Balancing internal and
company's control, such as company's control, such as external factors to create
profitability, growth plans, market conditions, interest an optimal capital structure
and management rates, and government that manages financial risk.
preferences. regulations.
Thank you

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