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24494429 Advance Financial Management

24494429 Advance Financial Management

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Published by naushad-alam-2109

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Published by: naushad-alam-2109 on Feb 21, 2012
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02/21/2012

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CAPITAL STRUCTURE
Capital structure of a company refers to thecomposition of it¶s capitalization and itincludes all long term capital sources viz.loans, reserves, shares & bonds.--GerestenbergThe capital structure of business can bemeasured by the ratio of various kinds of permanent loan & equity capital to totalcapital. __ Schwarty
 
Capital structure is made of debt & equitysecurities which comprise a firm¶s financingof it¶s assets.
OBJECTIVES OF SUITABLE CAPITALSTRUCTURE :
i) Minimize the cost of capital & maximizethe profit.ii) To have a proper mix of debt & equity, toattain an µOptimal Capital Structure¶.
 
FACTORS AFFECTINGFACTORS AFFECTINGCAPITAL STUCTURE :CAPITAL STUCTURE :
Internal Factors:
i)Financial Leverage
 ±It measures the ability othe firm to make the use of fixed charge bearingsecurities in the capital structure. It enables thefirm to deploy debt funds in the capital structurewith an intention to enjoy reduction in theincidence of tax. Such benefit will result inimproving shareholder¶s value provided--- A) Cost of debt is usually lower than the ROI.B) Interest paid on debt is permissible under Tax laws.

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