Explain in detail the various forms of capital structure
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Capital Structure: Forms, Importance and Planning
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After reading this article you will learn about Capital Structure:- 1.
Forms of Capital Structure 2.
Importance of Capital Structure 3.
Planning.
Forms of Capital Structure:
The capital structure of a new company may consist of any of the following forms:
(a) Equity Shares only
ADVERTISEMENTS:
(b) Equity and Preferences Shares
(c) Equity Shares and Debentures
(d) Equity Shares, Preferences Shares and Debentures.
Importance of Capital Structure:
The term ‘Capital structure’ refers to the relationship between the various long-term forms of financing such as debenture, preference share capital and equity share capital. 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 in financing the firm’s assets.
The use of long-term fixed interest bearing debt and preference share capital along with equity shares is called financial leverage or trading on equity. The long-term fixed interest bearing debt 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.
Article shared by :
After reading this article you will learn about Capital Structure:- 1.
Forms of Capital Structure 2.
Importance of Capital Structure 3.
Planning.
Forms of Capital Structure:
The capital structure of a new company may consist of any of the following forms:
(a) Equity Shares only
ADVERTISEMENTS:
(b) Equity and Preferences Shares
(c) Equity Shares and Debentures
(d) Equity Shares, Preferences Shares and Debentures.
Importance of Capital Structure:
The term ‘Capital structure’ refers to the relationship between the various long-term forms of financing such as debenture, preference share capital and equity share capital. 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 in financing the firm’s assets.
The use of long-term fixed interest bearing debt and preference share capital along with equity shares is called financial leverage or trading on equity. The long-term fixed interest bearing debt 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.
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The various forms of capital structure
Explanation:
- The capital structure is the way the organization's financial assets through the combination of the equity, debt, and securities and can be a mixture of the company's long term debt and the short term debits and common stocks.
- This structure allows the forms to understand what type of the funding the company uses to finance its overall activities and growth.
- There are various forms of the capital structure as equity shares only, equity and preference shares and equity and debentures only and debt capital structure equity share and debentures and equity shares preference and debentures and all in one.
- The equity share or a common stock is a form of ownership and a type of security and the shareholders have the right to vote.
- A preferential share are a form of stocks that may have a combination of features that is not possessed by the common stocks and is considered a hybrid instrument.
Learn more about the various forms of capital structure.
- brainly.in/question/2942435 answered by Brainly User.
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