The capital structure is the mix of sources from which the long term funds required by a business can be generated, that is, what should be the proportion of equity, preference capital, internal implant sources and other sources of funds in total amount of capital that a company can generate for his work.
Is a picture of different types of financing used by a company to acquire the necessary resources for the operations and growth. Commonly, and consists of investments of shareholders (equity) and long-term loans (debt), but, unlike financial structure, there is no short-term loans (e.g. uncovered) and liabilities (e.g. commercial credit).
Refers to a corporate finance. For an example of a company has introduced a business owner invested 130 billion has been returned and 70 billion went as bad debt ratio total debt financing, in this example, the 80% of the company is referred to as leverage.
The capital structure is said to be the optimum structure when the company has chosen such a combination of equity and debt, so that the wealth of company is the greatest. At this the cost of capital structure is minimal and the market price per share is highest.
There are several schools of thought with regard to capital structure theories. The net revenue, Net Operating Income approach and the traditional approach are the three main methods used to calculate the optimal capital structure.
However, it is difficult to find good debt and equity mix where this would be good because it is difficult to measure with a fall in the market value of a share of shareholders ‘ equity due to the increased risk due to high content of debt in the capital structure.
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