Capital structure refers to the mix of debt and equity financing a company uses to fund its operations and growth. It is crucial because it influences a company's risk, cost of capital, and financial flexibility, thereby impacting shareholder value and overall financial health.

Capital Structure

Capital structure

Debt financing involves a company raising capital by borrowing money, typically through issuing bonds or taking loans, which must be repaid with interest. It allows companies to access funds without diluting ownership but requires careful management of repayment obligations to avoid financial distress.

Debt Financing

Equity financing involves raising capital through the sale of shares in a company, providing investors with ownership stakes and potential dividends. This method of financing does not require repayment like debt financing, but it dilutes existing ownership and may lead to loss of control for original owners.

equity financing

Company operations

Company growth

Risk influence

Cost of capital is the rate of return that a business must earn on its investment projects to maintain its market value and attract funds. It serves as a critical benchmark for making investment decisions, as it represents the opportunity cost of using capital for a specific project instead of alternative investments.

cost of capital

Financial flexibility refers to the ability of an individual or organization to adapt to unexpected financial needs or opportunities with minimal disruption. It is crucial for maintaining financial stability and achieving long-term financial goals by ensuring access to cash or credit when needed.

financial flexibility

Shareholder value is a business approach that focuses on maximizing the returns to shareholders through dividends and stock price appreciation. It emphasizes aligning management decisions with shareholder interests, often prioritizing short-term financial performance over long-term growth and sustainability.

shareholder value

Financial health refers to the state of one's personal financial situation, encompassing the ability to manage expenses, save for future goals, and withstand financial shocks. It is a comprehensive measure that includes income, expenditure, savings, investments, and debt management, indicating overall financial stability and security.

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