Question

What is capital structure decisions? Explain the major determinants of capital structure.

Answer 1

Answer:

The factors influencing the capital structure (or determinants of capital structure) are discussed as follows: Financial Leverage or Trading on Equity: The use of long term fixed interest bearing debt and preference share capital along with equity share capital is called financial leverage or trading on equity.

Answer 2

To be more accurate, the term ‘capital structure’, or financial structure, or financial plan of a company refers to the composition of the long-term sources of funds.

The term ‘leverage’ is also used to refer to the proportion of different long-term sources of funds to the total capitalisation of the firm.