PPT: Financing Decisions- Capital Structure | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


CAPITAL  STRUCTURE  
DECISIONS
Page 2


CAPITAL  STRUCTURE  
DECISIONS
CAPITAL STRUCTURE
? Capital structure is the mix of the long-term sources of 
funds used by a firm. It is made up of debt and equity 
securities and refers to permanent financing of a firm. It 
is composed of long-term debt, preference share capital 
and shareholders’ funds.
? In simple words it refers to the particular distribution of 
debt and equity that makes up the finances of a company.
Page 3


CAPITAL  STRUCTURE  
DECISIONS
CAPITAL STRUCTURE
? Capital structure is the mix of the long-term sources of 
funds used by a firm. It is made up of debt and equity 
securities and refers to permanent financing of a firm. It 
is composed of long-term debt, preference share capital 
and shareholders’ funds.
? In simple words it refers to the particular distribution of 
debt and equity that makes up the finances of a company.
Ideal capital structure
? It should minimize cost of capital.
? It should reduce risks.
? It should give required flexibility.
? It should provide required control to the owners.
? It should enable the company to have adequate  finance.
? It should maximize the value of the firm
Page 4


CAPITAL  STRUCTURE  
DECISIONS
CAPITAL STRUCTURE
? Capital structure is the mix of the long-term sources of 
funds used by a firm. It is made up of debt and equity 
securities and refers to permanent financing of a firm. It 
is composed of long-term debt, preference share capital 
and shareholders’ funds.
? In simple words it refers to the particular distribution of 
debt and equity that makes up the finances of a company.
Ideal capital structure
? It should minimize cost of capital.
? It should reduce risks.
? It should give required flexibility.
? It should provide required control to the owners.
? It should enable the company to have adequate  finance.
? It should maximize the value of the firm
OPTIMUM CAPTIAL STRUCTURE
? Optimal capital structure refers to the combination of 
debt and equity in total capital that maximizes the value 
of the company. 
? An optimal capital structure is designated as one at 
which the average cost of capital is the lowest which 
produces an income that leads to maximization of the 
market value of the securities at that income.
Page 5


CAPITAL  STRUCTURE  
DECISIONS
CAPITAL STRUCTURE
? Capital structure is the mix of the long-term sources of 
funds used by a firm. It is made up of debt and equity 
securities and refers to permanent financing of a firm. It 
is composed of long-term debt, preference share capital 
and shareholders’ funds.
? In simple words it refers to the particular distribution of 
debt and equity that makes up the finances of a company.
Ideal capital structure
? It should minimize cost of capital.
? It should reduce risks.
? It should give required flexibility.
? It should provide required control to the owners.
? It should enable the company to have adequate  finance.
? It should maximize the value of the firm
OPTIMUM CAPTIAL STRUCTURE
? Optimal capital structure refers to the combination of 
debt and equity in total capital that maximizes the value 
of the company. 
? An optimal capital structure is designated as one at 
which the average cost of capital is the lowest which 
produces an income that leads to maximization of the 
market value of the securities at that income.
? Optimal capital structure may be defined as that 
relationship of debt and equity which maximizes the value 
of company’s share in the stock exchange.
? Capital structure at which the weighted average cost of 
capital is minimum and which maximizes value of the firm
Cont …