Capital Structure
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CAPITAL STRUCTURE
DEFINITION • ACCORDING TO C.W.GERSTENBERG
“CAPITAL STRUCTURE REFERS TO THE KIND OF SECURITIES THAT MAKE UP THE CAPITALISATION.”
DISTINCTION BETWEEN CAPITALISATION AND CAPITAL STRUCTURE
- CAPITALISATION OF THE BUSINESS OR DETERMINATION OF THE TOTAL QUANTUM OF CAPITAL REQUIREDBY THE FIRMTO FINANCE ITS OPERATIONS - DETERMINATION OF PROPORTION OF DIFFERENT KIND OF CAPITAL COMPRISING CAPITALISATION i.e., CAPITAL STRUCTURE
OPTIMAL CAPITAL STTRUCTURE • OPTIMAL CAPITAL STRUCTURE REFERS TO AN IDEAL COMBINATION OF VARIOUS SOURCES OF LONG TERM FUNDS IN SUC H A WAY AS TO MINIMISE THE OVERALL COST OF CAPITAL AND MAXIMISE THE MARKET PRICE PER SHARE.
CHARASTERISTICS • • • • • • • •
SIMPLICITY MINIMUM COST MAXIMUM RETURN MINIMUM RISK MAXIMUM CONTROL FLEXIBILITY PROPER LIQUIDITY FULL UTILISATION
OBJECTIVE AND IMPORTANCE • • • • • •
MINIMISATION OF COST MAXIMISATION OF RETURN MINIMISATION OF RISKS RETENTION OF CONTROL ADEQUATE LIQUIDITY FULL UTILISATION
DECISION OF CAPITAL STRUCTURE • • • •
TRADING ON EQUITY CAPITAL GEARING FINANCIAL LEVERAGE COST OF CAPITAL
DEFINITION • ACCORDING TO C.W.GERSTENBERG
“CAPITAL STRUCTURE REFERS TO THE KIND OF SECURITIES THAT MAKE UP THE CAPITALISATION.”
DISTINCTION BETWEEN CAPITALISATION AND CAPITAL STRUCTURE
- CAPITALISATION OF THE BUSINESS OR DETERMINATION OF THE TOTAL QUANTUM OF CAPITAL REQUIREDBY THE FIRMTO FINANCE ITS OPERATIONS - DETERMINATION OF PROPORTION OF DIFFERENT KIND OF CAPITAL COMPRISING CAPITALISATION i.e., CAPITAL STRUCTURE
OPTIMAL CAPITAL STTRUCTURE • OPTIMAL CAPITAL STRUCTURE REFERS TO AN IDEAL COMBINATION OF VARIOUS SOURCES OF LONG TERM FUNDS IN SUC H A WAY AS TO MINIMISE THE OVERALL COST OF CAPITAL AND MAXIMISE THE MARKET PRICE PER SHARE.
CHARASTERISTICS • • • • • • • •
SIMPLICITY MINIMUM COST MAXIMUM RETURN MINIMUM RISK MAXIMUM CONTROL FLEXIBILITY PROPER LIQUIDITY FULL UTILISATION
OBJECTIVE AND IMPORTANCE • • • • • •
MINIMISATION OF COST MAXIMISATION OF RETURN MINIMISATION OF RISKS RETENTION OF CONTROL ADEQUATE LIQUIDITY FULL UTILISATION
DECISION OF CAPITAL STRUCTURE • • • •
TRADING ON EQUITY CAPITAL GEARING FINANCIAL LEVERAGE COST OF CAPITAL
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