What is difference between capitalisation and capital structure and financial leverage
Answers
Capitalisation
1. It is a quantitative aspect of an enterprise's financial planning.
2. It refers to the total amount of securities issued by a firm.
Capital structure
1. It is concerned with the qualitative aspect.
2. It refers to the types of securities and their proportionate amounts which makes up capitalisation. A firm can issue three types of securities. They are Debentures, Equity shares and Preference shares. The capital structure of an enterprise refers to the decision about the proportion of these securities.
Some people include even the proportion of short-term debt in capital structure. They refer to the capital structure as financial structure.
Financial structure
1. It refers to the entire liabilities side of the balance sheet.
2. It consists of a specified percentage of short-term debt, long-term debt and shareholder's funds.