write in brief features of sound capital structure
Answers
some of the major features of sounds capital structure are follow as
1) maximum return
2) less risky
3) safety
4) flexibility
5) economy
6) capacity
7) control
Maximum Return:
The financial structure of a company should be guided by clear- cut objective. Its objective can be maximisation of the wealth of the shareholders or maximisation of return to the shareholders.
(ii) Less Risky:
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The capital structure should represent a balance between different types of ownership and debt securities. This is essential to reduce risk on the use of debt capital.
(iii) Safety:
A sound capital structure should ensure safety of investment. It should be so determined that fluctuations in the earnings of the company do not have heavy strain on its financial structure.
(iv) Flexibility:
A sound capital structure should facilitate expansion and contraction of funds. The company should be able to procure more capital in times of need and should be able to pay all its debts when it does not require funds.
(v) Economy:
The capital structure should ensure the minimum costs of capital which in turn would increase its ability to generate more wealth for the company.
(vi) Capacity:
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The financial structure of a company should be d3mamic. It should be revised periodically depending upon the changes in the business conditions. If it has surplus funds, the company should have the capacity to repay its debt and reduce interest obligations.
(vii) Control:
The capital structure of a company should not dilute the control of equity shareholders of the company. That is why, convertible debentures should be issued with great caution.
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