Question

What is meant by capital structure?

Hint:

Capital structure = Combination of debt and equity funds used for financing business activities.

Answer 1

Definition: Capital structure refers to the
mix of debt and equity used by a company to finance its overall operations and growth.
Components of Capital Structure:

Equity Capital: Funds raised through ownership shares such as equity shares and retained earnings.
Debt Capital: Borrowed funds like debentures, loans, and bonds.
Preference Capital: Hybrid form of financing with features of both equity and debt.

Importance: - A well-balanced capital structure minimizes the cost of capital. - It provides financial stability and maximizes shareholders’ wealth.