Concept Map: Capital Structure

Stockholder funds serve to safeguard the

interests of the stockholders. This is

made possible by having the

stockholders maintain more equity than

An organization that doesn't fund its

the creditors' contribution. operations with long-term

Debt-free/
debt. Almost all of the owners'

financial needs are met.

Trust Fund
Unlevered business.

Doctrine
The volume of

business involved in

running the business. The capacity of the

influenced by the
company to raise

factors: Demand,
long-term capital

Sales price, Cost,

Ability to adjust sale

price for the changes

Business
Risk Capital Financial
Flexibility
when necessary.

in cost, Level of

operating Structure
Debt interest payments are

Managerial deductible from gross margin

Inclination for tax purposes.

Firm's tax The end result of this treatment

Financial
Position is a lower income, which

lowers the business's tax rate

Managers have
Leverage and lowers its income tax.
various perspectives

on the capital

structure. If the money provided by

the long-term creditors

exceeds what the owners

have contributed.