Question

Which of the following is a determinant of capital structure?

• A. Cash flow statement
• B. Interest coverage ratio
• C. Debt payment coverage ratio
• D. All of these

Hint:

Capital structure decisions are influenced by cash flow, interest coverage ratio, and debt payment coverage ratio. Each of these measures indicates a company's ability to manage debt and equity efficiently.

Answer 1

The Correct Option is D

Step 1: Understanding capital structure.
Capital structure refers to the mix of debt and equity financing used by a company to fund its operations and growth. The determinant of capital structure is influenced by various factors, including cash flow, interest coverage ratio, and debt payment coverage ratio, as all of these factors play a role in determining the optimal capital mix for the company.
Step 2: Analyzing the options.
(A) Cash flow statement: Correct. A company's cash flow is a critical factor in determining its ability to service debt and meet financial obligations, making it a determinant of capital structure.
(B) Interest coverage ratio: Correct. The interest coverage ratio, which measures a company's ability to meet its interest payments, is another key factor in determining its capital structure.
(C) Debt payment coverage ratio: Correct. The debt payment coverage ratio assesses a company's ability to pay off its debt obligations, which directly influences the company's capital structure.
(D) All of these: Correct. All of these factors are essential determinants of a company's capital structure.
Step 3: Conclusion.
The correct answer is (D) All of these, as all the mentioned factors play a crucial role in determining capital structure.