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    FM Report Capital Structure - Start Up Financial Decision

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    helen grace samontanez
    The document discusses capital structure and leverage ratios. It defines capital structure as the mix of debt and equity used to finance a company's operations. It then defines leverage ratio as the ratio of a company's debt to equity, which indicates how much of a company's assets are financed through internal vs external sources. A high leverage ratio means more debt financing relative to equity, while a low ratio means more equity financing. The document notes leverage ratios tend to be higher in capital-intensive industries that require more investment, while service industries often have lower ratios with less reliance on debt. Different capital structures are suited to the specific needs of different types of businesses.

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    FM Report Capital Structure - Start Up Financial Decision

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    helen grace samontanez
    5 views13 pages
    The document discusses capital structure and leverage ratios. It defines capital structure as the mix of debt and equity used to finance a company's operations. It then defines leverage ratio as the ratio of a company's debt to equity, which indicates how much of a company's assets are financed through internal vs external sources. A high leverage ratio means more debt financing relative to equity, while a low ratio means more equity financing. The document notes leverage ratios tend to be higher in capital-intensive industries that require more investment, while service industries often have lower ratios with less reliance on debt. Different capital structures are suited to the specific needs of different types of businesses.

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    FM Report Capital Structure – Start up financial decision

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    The document discusses capital structure and leverage ratios. It defines capital structure as the mix of debt and equity used to finance a company's operations. It then defines leverage ratio as the ratio of a company's debt to equity, which indicates how much of a company's assets are financed through internal vs external sources. A high leverage ratio means more debt financing relative to equity, while a low ratio means more equity financing. The document notes leverage ratios tend to be higher in capital-intensive industries that require more investment, while service industries often have lower ratios with less reliance on debt. Different capital structures are suited to the specific needs of different types of businesses.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    Download as pptx, pdf, or txt
    5 views13 pages

    FM Report Capital Structure - Start Up Financial Decision

    Uploaded by

    helen grace samontanez
    The document discusses capital structure and leverage ratios. It defines capital structure as the mix of debt and equity used to finance a company's operations. It then defines leverage ratio as the ratio of a company's debt to equity, which indicates how much of a company's assets are financed through internal vs external sources. A high leverage ratio means more debt financing relative to equity, while a low ratio means more equity financing. The document notes leverage ratios tend to be higher in capital-intensive industries that require more investment, while service industries often have lower ratios with less reliance on debt. Different capital structures are suited to the specific needs of different types of businesses.

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    of 13

    CAPITAL STRUCTURE – START UP FINANCIAL

    DECISION
    PRESENTED BY HELEN GRACE V. SAMONTANEZ / JERRILE MAE SORIANO
    CAPITAL STRUCTURE

     Capital structure refers to the mix of debt and equity capital that a
    company uses to finance business operations, capital expenditures,
    acquisitions, and assets.
    CAPITAL STRUCTURE

     You can understand a firm’s capital structure by looking at its


     Leverage Ratio - debt-to-equity ratio
    LEVERAGE RATIO (DEBT – TO – EQUITY)

     Part of the Ratio Analysis framework under Financial Risk


    Category.
     Proportion of Debt versus the proportion of Equity
    LEVERAGE RATIO (DEBT – TO – EQUITY)

     It tells us how the assets/investment/company is financed


     Is it from internal sources (shareholders equity)
     Is it from external sources (bank, loans, bonds)
    LEVERAGE RATIO (DEBT – TO – EQUITY)

     High Leverage Ratio – the company have higher proportion of


    debt as compared to equity.
    LEVERAGE RATIO (DEBT – TO – EQUITY)

     Low Leverage Ratio – the company have lower proportion of debt


    as compared to equity.
    FORMULA AND SAMPLE

     Debt divided by Equity


    INTERPRETATION AND APPLICATION

     Debt to Equity Ratio varies depending on the type of organizations.


     High Leverage Ratio – Use by capital intensive sector (Energy, Oil & Gas,
    Automobile Mfg, Utilities Sector).
     Low Leverage Ratio -Use by labor intensive sectot
    INTERPRETATION

     Debt to Equity Ratio varies depending on the type of organizations. If its highly
    capital intensive sector, like Energy/Utilities/Oil and Gas,/Automobile, we can find
    that their leverage is high, can be at 10 to 12 ratio. Because their investment is so
    large, and they might have not enough equity capital so they look for external
    sources (debt).
    INTERPRETATION

     Debt to Equity Ratio for Service Industry, very common to find


    0.5 ratio, they might not be dependedt to debt at all because they
    don’t need investment for capital expenditures
    WHY DO DIFFERENT COMPANIES HAVE DIFFERENT CAPITAL
    STRUCTURE?

     Firms in different industries will use capital structures better suited


    to their type of business.
     Capital-intensive industries like auto manufacturing may utilize more
    debt, while (high leverage ratio)
     Labor-intensive or service-oriented firms like software companies may
    prioritize equity (low leverage ratio)
    THE END.

     Thank you!

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