Capital Structure Of A Company

1285 Words Dec 3rd, 2015 6 Pages
I. EXECUTIVE SUMMARY/ABSTRACT

The Part-I of this paper analyzes the Treasury Manager and his various approaches towards the Capital Structure, by showing arguments for and against each theory. We discuss about four types of approaches that may be taken by the treasury manager while considering the Capital Structure of a Company. We have discussed Rolls Royce PLC’s capital structure strategy and analyzed the capital structure of the company over the past 10 years using an empirical case/research. The Part-II of this paper shows the relationship between private equity groups and leverage. We discuss about how the leverage is used by private equity groups to reduce the risk, by showing an empirical case of Blackstone Group.

II. INTRODUCTION

Capital structure is the proportion of debt and equity in which a corporate finances its business. The capital structure of a company/firm plays a very important role in determining the value of a firm. There are various theories which propagate the ‘ideal’ capital mix / capital structure for a firm.

A corporate can finance its business mainly by 2 means i.e. debts and equity. However, the proportion of each of these could vary from business to business. A company can choose to have a structure which has 50% each of debt and equity or more of one and less of another. Capital structure is also referred to as financial leverage, which strictly means the proportion of debt or borrowed funds in the financing mix of a…
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