Structure decision

THE CAPITAL

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 CAPITAL
STRUCTURE

Capital structure is defined as the

mix of various long term sources of
funds broadly classified as debt and
equity. Hence capital structure is
also referred to as ‘Debt Equity Mix’
of a company.
 Capital structure decision

company’s financing decision

or capital structure decision
is concerned with the
sources of funds from where
long term finance is raised
and the proportion in which
the total amount is raised
using these sources of funds.
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What should be the
Issue
THE THREE

Does capital structure

Is there any
affect value of a firm? Or
mix of debt and
Is there any relationship optimal capital
equity? between capital structure?

structure and firm’s
value?

 IDEAL
Capital structure
Minimize cost
of capital

Reduce
risks
Give required
flexibility
Provide required
control to the
owners
the company will be
Maximize the value
able to have
of the firm
adequate finance
 It refers to the combination of
OPTIMUM dept and equity in total capital
CAPTAL that maximizes the value of the
STRUCTURE company. It is designated as one
at which the average cost of
capital is the lowest.
 TYPES OF
Capital structure

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 It is the capital
owned by
shareholders or
business owners

U I T Y
EQ L
A P I T A
C
 Equity
TYPES 0F

Retained earnings Contributed capital

 Dept Capital
is the capital that the
owner loan to have the
fund that needed in the
business

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 Dept
FORMS OF

Long -term Short-term

Bonds Commercial Paper
 theories
net operating Traditional
Net income
income theory theory
theory
Modigliani-miller
theory
You
THANK

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