What is meant by capital structure? Explain three factors affecting capital
structure.
plz give a long answer
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What is meant by capital structure? Explain three factors affecting capital
structure.
plz give a long answer
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Answer:
Capital structure is also influenced by government regulations. For instance, banking companies can raise funds by issuing share capital alone, not any other kind of security. Similarly, it is compulsory for other companies to maintain a given debt-equity ratio while raising funds.
Explanation:
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ANSWER :
It can be calculated as debt-equity ratio or as the proportion of debt out of total capital.
Capital structure calculated as Debt-equity ratio :
Capital structure calculated as proportion of debt out of total capital :
↬ Three factors affecting the choice of capital structure are :
NOTE :
↬ On the basis of ownership, the sources of business finance can be classified into two broad categories. These are :
➥ Owners' funds include equity shares capital, preference shares capital, reserve and surpluses or retained earnings.
➥ Borrowed funds include different types of loans, debentures, public deposits etc.
➥ Capital structure of a company affects both the profitability and the financial risk.
➥ To decide the capital structure of a company or busines firm involves determining the relative proportion of various types of funds which is depends on various factors. Hence, these factors affect the choice of capital structure.