CAPITAL STRUCTURE Meaning and
Definition
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Capital structure refers to the combination of long-term funds, including debt and equity, used by a company to finance its overall operations and investments. It represents the composition of a company's financing sources, indicating the proportion of various securities or financial instruments that comprise its total capitalization.
A company's capital structure is built upon the decisions made regarding the amount of debt and equity used for financing purposes. Debt refers to funds borrowed from external parties, such as banks or bondholders, which must be repaid over a specific period, including both principal and interest. Equity, on the other hand, represents funds raised from shareholders or owners of the company, who become partial owners in return for their investment.
The main objective of establishing an appropriate capital structure is to strike a balance between debt and equity financing that maximizes a company's market value while minimizing the overall cost of capital. Factors such as industry norms, cost of borrowing, risk appetite, and market conditions influence the capital structure decisions made by a company.
By determining the ideal mix of debt and equity, companies aim to optimize their performance and financial stability. A judiciously designed capital structure can impact a company's ability to raise funds, its cost of capital, financial leverage, risk profile, and overall creditworthiness.
Overall, the capital structure plays a crucial role in determining the financial health and sustainability of a company, reflecting the way it chooses to finance its operations and investments.
Common Misspellings for CAPITAL STRUCTURE
- xapital structure
- vapital structure
- fapital structure
- dapital structure
- czpital structure
- cspital structure
- cwpital structure
- cqpital structure
- caoital structure
- calital structure
- ca0ital structure
- caputal structure
- capjtal structure
- capktal structure
- capotal structure
- cap9tal structure
- cap8tal structure
- capiral structure
- capifal structure
- capigal structure
Etymology of CAPITAL STRUCTURE
The word "capital" has its roots in the Latin word "caput", which means "head" or "top". It was used to refer to wealth or assets that form the basis of a person or business's economic power. "Structure" derives from the Latin word "structura", which means "building" or "construction". When combined, "capital structure" refers to the arrangement or composition of a company's financial resources, including equity (ownership) and debt (borrowings), which form the foundation for its operations and growth. The term originated in the field of finance and accounting.
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