Commerce Exam > Commerce Questions > The board of directors has asked us to design...
Start Learning for Free
The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so?
Most Upvoted Answer
The board of directors has asked us to design the capital structure of...
Factors to Consider while Designing Capital Structure
Capital structure refers to the composition of a company's liabilities and equity, including both long-term and short-term debt and equity. While designing the capital structure of the company, the following six factors should be considered:
- Business Risk: The nature of the company's business, its profitability, and stability are critical factors to be considered while designing the capital structure. Companies with higher business risk may prefer lower debt-to-equity ratios to avoid bankruptcy.
- Financial Risk: The company's financial risk is also an essential factor to be considered. Financial risk refers to the company's ability to meet its financial obligations. Companies with a higher financial risk may prefer lower debt-to-equity ratios to reduce the chances of default.
- Cash Flow: The company's cash flow is also a critical factor to be considered while designing the capital structure. Companies with stable cash flows may prefer higher debt-to-equity ratios to take advantage of tax benefits.
- Taxation: The tax implications of the company's capital structure are also essential. Debt financing allows for tax-deductible interest payments, while equity financing does not. Thus, companies may prefer debt financing to take advantage of tax benefits.
- Credit Rating: The company's credit rating is also a critical factor to be considered while designing the capital structure. Companies with higher credit ratings may prefer higher debt-to-equity ratios to take advantage of lower interest rates.
- Market Conditions: The market conditions prevailing at the time of designing the capital structure are also important. Companies may prefer equity financing during bullish market conditions and debt financing during bearish market conditions.
By considering these factors, the company can design an optimal capital structure that maximizes shareholder value while minimizing financial risk.
Community Answer
The board of directors has asked us to design the capital structure of...
|
Explore Courses for Commerce exam
|
|
Similar Commerce Doubts
Top Courses for CommerceView all
The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so?
Question Description
The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so?.
The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so?.
Solutions for The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? in English & in Hindi are available as part of our courses for Commerce.
Download more important topics, notes, lectures and mock test series for Commerce Exam by signing up for free.
Here you can find the meaning of The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? defined & explained in the simplest way possible. Besides giving the explanation of
The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so?, a detailed solution for The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? has been provided alongside types of The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? theory, EduRev gives you an
ample number of questions to practice The board of directors has asked us to design the capital structure of the company. Explain any six factors that you will consider while doing so? tests, examples and also practice Commerce tests.
|
|
Explore Courses for Commerce exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup