Optimal Capital Structure
The capital structure of a company refers to the mix of the long-term finances used by the firm. It is the financing plan of the company. Financing the firm’s assets is a very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital along with equity shares is called financial leverage or trading on equity. The long term fixed interest bearing debts is employed by a firm to earn more from the use of these sources than their cost so as to increase the return on owner’s equity. It is true that capital structure cannot affect the total earnings a firm but is can affect the share of earnings available for equity shareholders. The capital structure decision can influence the value of the firm through the cost of capital and trading on equity or leverage. The optimal capital structure Continue reading