What is capital structure and why it is important?
Introduction:
While selecting a capital structure main motive of the company is shareholders wealth maximization and reduce weighted average cost of capital. In other words, the goal of effective capital structure is to maximize the worth of the company and to decrease the cost of capital.
Capital structure:
Capital structure is defined as mixture or proportion of all kinds of capital such as debt, equity and preference. It is also called as financial leverage or financial mix. In other words, capital structure is defined as the composition or make up of its capitalization and it includes all long-term capital resources.
Capital structure denotes to the proportions or mixtures of equity share capital, long-period credits, preference share capital, retained earnings, debentures, and other long-period sources of funds in the whole amount of capital which a company must raise to run its operations of business.
Step by step
Solved in 3 steps
