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Lay Man Case Study

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In lay man words capital structure is the way a company finances its assets through the combination of assets and liabilities .Capital structure is the combination of sources from which long term funds are required to raise the business .In common words the composition of long term funds comprising of equity , preference and long term loans.. Capital structure is how a firm finances its overall operations and growth by using different sources of funds i.e. debt and equity . Debt comes in the form of bond issues or long-term note payables , while equity is classified as common stock , preferred stock or retained earnings. A company is a mixture of long term debt , common equity and preferred equity …show more content…

Capital structure is a part of the financial structure and refers to the proportion of the various long term sources of financing. It denotes some degree of permanency as it excludes short term sources of financing .There are considerations by management and the stakeholders over what mix of debt and equity to use. Should be debt financing used in order to earn a higher return? Should more equity financing be used to avoid the risk of debt and bankruptcy? A company's capitalization describes the composition of a company's permanent or long-term capital, which consists of a combination of debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a company's capital structure is an indication of FINANCIAL FITNESS. capital structure likewise recommends the proportion between possessed capital and acquired capital. While arranging the capital structure, fitting harmony in the middle of obligation and value is key. There is no rigid guideline in choosing the organization of capital structure. The organization can go just for value capital or the organization may choose a sure proportion in the middle of value and credit …show more content…

It is also known as owned capital or ownership capital. Various constituents of owned capital are:
1. Equity Capital
In components of capital structure, equity share capital represents the ownership capital of the company. It is the permanent capital and cannot be withdrawn during the lifetime of the company. They are the real risk bearers, but they also enjoy rewards. Their liability is restricted to their capital contributed. Equity shares are popular among the investing class. “Equity Capital is also known as 'Owned Capital' or 'Risk Capital' or 'Venture Capital.'”
2. Preference Capital
In components of capital structure, preference shareholders are also owners of the firm, and they get preference regarding payment of dividends and repayment of Capital. They are cautious investors. Preference Shares carry a stipulated dividend. Preference Shares are of different types such as:
• Redeemable and Non-Redeemable,
• Convertible and Non-Convertible,
• Cumulative and Non-Cumulative preference shares.
3. Retained

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