Capital Structure or Capitalization is defined as the combination of Debt and Equity for a businesses’ financing and operational needs as well as to fund its long term growth.
Capital Structure Explained
A company can raise capital through different channels for its short term as well as long term business needs. The company tries to optimize resources through both equity and debt for creating a balanced mix of capital funding.
Features of Capital Structure
Some features of Capital Structure of a company are:
1. A company which wants to retain total control will try to avoid raising capital through selling equity.
2. Raising money through an IPO is costlier than availing a loan or through debentures.
3. Using more Debt than equity is considered as an aggressive capital structure.
4. The Debt to Equity or D/E ratio is used as a measure to compare a company’s capital structure.
