CAPITAL STRUCTURE

Presented by,
George Mathew
Iind Mcom-PGDIM
 Funds need to manage the company

“Capital structure of a company refers to

composition or make-up of its captalisation
and it includes long term capital resources”
- Gestenberg
 Debt and equity securities
Capitalisation

 Quantitative aspect

 the total amount of securities issued by a

company
Capital structure

 Qualitative aspect

 Kinds of securities and the proportionate

amounts that make up capitalization
Financial Structure

 Entire liability side of balance sheet

Financial structure refers to all the financial

resources marshalled by the firm, short term
as well as long term and all forms of debt as
well as equity
- Nemmers & Grunewald
 Composition of short term debt, long term
debt, shareholder’s fund
Patterns of Capital Structure

 Equity shares only

 Equity shares and Preference shares

 Equity shares and Debentures

 Equity shares, Preference shares and

Debentures
Importance of Capital Structure

 There should be a proper mix of debt and

equity capital in financing firm’s asset

 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
Point of Indifference/Range of Earnings

 Refers to that EBIT, level at which EPS

remains same irrespective of different
alternatives of debt-equity mix
 Rate of return on capital employed = cost of
debt
 Break even level of EBIT for alternative
financial plans
 Can be determined by preparing EBIT chart
or range of earnings chart
THANK YOU……