homework help

Capital Structure Patterns in the United States

Personalized homework help for all major subjects.

Order confidently with our risk free, 14-day money-back guarantee.

  • ✔️ No sign-up required
  • | 🔒 100% Confidential

Our Expert Writers

We proudly boast a team of expert professionals with verified academic credentials, selected for their proven skills and flexibility through a strict process.

Engage with experts from the top universities across the globe.

Get Homework Help Instantly

Say goodbye to homework stress! 📚 Just share your details and we’ll whip up an affordable quote in no time – often within 15 minutes.

Get started now for FREE!

Submit Your Homework

Let our experts help you with your college homework

 The Empirical Evidence

Previously explained in Chapter 15, by now you can have a brief idea on the basic patterns involved in financing. Therefore, let us now consider few key points of the financial pattern that publicly traded corporations’ follows to function in USA.

I know that there is not much information available about the financing of private firms. However, here in this book I have tried to simplify it by taking a systematic approach aided with proper evidence.

Providing you with the most advanced research these are what I conclude after going through all evidences and information. Sharing my knowledge with you can clearly depict what we have come across till date.

22.1 How to Measure Leverage

Measuring the total debt of the company in the market can help you to move forward. This will help you later to know the future of the firm’s financial matters. Let’s start with Leverage Ratios:

22.1 A Book or Market Value?

Basically Firms comprise of:

Capital Structure Patterns in the United States 1

Understand to measure the value of equity. You need to decide between:

  • The market value of equity
  • The book value of equity

Therefore, decide on the falling things that it is based on:

  1. Market Value –always measured upon economic value
  2. Book value – varies in books of accounting every year. Preferably, becomes less.

Generally in the United States publicly traded enterprises:

The market value =2× as large as the book value

Do not always go with this for the ratios will vary from firm to firm. But, the most important thing to remember about the firm who depends on its book value is that they will always sign contracts and bonds depending on their book value.

22.1 B Total Leverage: The Total-Liabilities-To Total-Assets Ratio

According to the previous formula what you can understand, I have tried to illustrate it measuring through IBM:

Capital Structure Patterns in the United States 2

To calculate the market worth:

On a balance sheet

Book value of assets – Equity’s + Equity’s market value

Example:  for 2001: $90,303 − $23,448 + $208,437 = $275,292

Capital Structure Patterns in the United States 3

Thus we can conclude that normally the old firms have less ratio of market debt. Similarly in case of IBM, we can see the pattern of the market worth= 2× the book value. These things come into consideration during interpretation. Therefore, the way a reporter highlights about the company will differ with how the CEO will portray the leverage ratio. However, as a researcher or student you keep your analysis simple abiding by the equation rules through comparison with different firms.

If you have problem understanding then just remember:

Closely related ratio = liabilities to equity ratio.

Thus you can see that it depends on the same inputs:

  • Liabilities
  • Equity

However, you will not get the denominator by adding it.

Capital Structure Patterns in the United States 4

Sometimes, you can face difficulty with handling ratios of equity that is denominated. The problem it has that it’s book worth can be less or even sometimes negative.

Again previously when we said there is no need of adding it, it doesn’t apply to WACC computations. Here, the requirement is of a denominated ratio that has been added. Read on to know other details!

Capital Structure Patterns in the United States 5

22.1 C Financial Leverage: The Financial-Debt-To-Financial Capital Ratio

Ratio of Liabilities-to-asset contains mainly the non-financial claims. For example

  • Accounts payable
  • Invented Liabilities

Thus, non-financial liabilities are often ignored. Therefore, you can break these financial claims:

  • Long-term debt
  • short-term liabilities debt

And thus, obtaining the ratio of debt-to-capital becomes easy.

Capital Structure Patterns in the United States 6

Step 1: Another conclusion can be drawn that publicly traded companies decide their finance capital to remain between ½ & 1/3 of total liability of the firm

Step 2: In measuring the 2nd financial leverage you need to divide

Financial Debt

Financial Capital

Refer to Table 15.1 for more data:

Capital Structure Patterns in the United States 7

Thus you can take the financial ratios of debt-to-capital as:

Capital Structure Patterns in the United States 8

If you are trying to figure out financial stability of a company start by going through the measurements which uses the company’s:

  • Short-term liabilities
  • Not the short-term financial debt

Here, you can see yourself considering three factors while calculating the short-term liability ratio:

  • Assets
  • Equity
  • Cash holdings

However, always remember that different analysts will refer to different procedure but the main formula remains same. You need to select the formulas that will give results in for of the firm you choose.

Capital at market worth – cash holdings (also the short-term holdings) = enterprise value

Here also the ratio of financial-debt-to-equity ratio considers similar inputs. But, this below amount will not be required for evaluating weighted average cost of financial capital

Capital Structure Patterns in the United States 9

22.1 D Comparing Total and Financial Leverage Ratios—and WACC

Comparison between Ratio of liabilities-to-assets & ratio of debt-to-capital ratio

  • They are cousins
  • Firms can have same ranks despite the use of different measures
  • Ratio of liabilities-to-assets takes into account the liabilities which are non-financial. In case of the ratio of debt-to-capital it will always ignore that factor.

Now start dissecting few terms

Claim: which a firm gives in exchange to a person when it receives assets from him/her

Financial Claims: comes from either shareholders or their bondholders. Therefore, the money is contributed directly to the firm.

Non-financial claims – the contribution is equal to the financial claims but not a monetory transaction.

In case of IBM:

Firm didn’t pay the full amount of its Employees’ contribution. Therefore, the employees still owe it to the firm. Thus this amount remains as a part of their firm assets.


  • Sometimes in non-financial liability the firm is subjected to give regular payments
  • If the firm fails to pay it can also result in bankruptcy
  • All payments should be made from the firm’s funds
  • It is done before the calculation of income tax that falls under the category of corporate finance.

The reasons shows why you should go for ratios of liabilities-to-asset compared to ratio of debt-to-capital.

When calculating never ignore the non-financial liability as it may hamper your results.

Financial debt = the marginal source that the firm receives as funding.

Financial debt is paid in dollar that the firm will raise in the next project

Now a firm needs to keep in mind that while comparing productivity that is coming from the next corporate project they need to consider the cost of financial capital done on financial claims.

Now moving on to WACC calculation you will see that compared to the above evaluation, this is easier.

E.g., IBM’s 2003 cost of financial capital that is calculated on its debt & equity. Here do not consider non-financial liability’s cost. Thus as per my previous calculations obtained in reference to an estimation done by CAPM-type, around 7%  the firm may have had its equity’s cost.

Thus to evaluate WACC follow the below mentioned formula:

Capital Structure Patterns in the United States 10

The result 6.5% can be considered as a rough estimated cost of financial capital derived over the funds that IBM should have taken into consideration at a more early stage.  However, this only applies to 2003 projects of IBM.

How bad are Mistakes?

Financial Debt-To-Assets

Sometimes it also happens:

Financial debt ratio

—————————— = leverage measure

Assets Value

E.g.,for using assets’ book values:

Capital Structure Patterns in the United States 11

Always remember that any company can play with their leverage ratio. It can be easily reduced by slowly increasing the firm’s non-financial liabilities.

Consider a case, if IBM added another amount of $100 billion dollars in favour of non-financial liability or they had received an extra obligation of income tax amounted to another $100 billion, other variables unchanged, and then they would have a reduced ratio of financial-debt-to-assets from $23.6/$104.5 ≈ 23% to $23.6/$204.5 ≈ 12%.

Capital Structure Patterns in the United States 12

22.1 E A Flow-Based Approach: The Interest Coverage Ratio

Worry not, for I can suggest you another altogether different approach so that you can measure indebtedness. Your measurement can be done by considering the running obligations that the company loses for its debt relative to the flow of money entering the firm’s books.

Thus it gives you a time out from all levels of

  • Equities
  • Liabilities
  • Debts

Thus this naturally flowing money’s ratio = ratio of interest coverage.

It measures:

Company’s operating income that goes to the debt service (primarily the payments received through interests)

It evaluates the enterprise’s financial distress in the coming future.

This scenario takes shape as the company fails to match up to the running debt’s it faces.

However you may notice that there is a problem you can face with this method. The output that comes from measuring the cash flows every year will differ at a bigger rate from year to year.You can also come up with some negative results coz corporate finance varies.

Thus you can understand that obligation coming from principal repayment can be more inflexible than the obligations a firms face from interest payment. Addition to this, a company has to match up to their obligations towards non-financial sources.

However this method throws light on your equation on a different aspect of leverage. Thus, remember a point that you can never make a capital structure fall under a proper category by only calculating through one ratio of indebtedness. You always need to have different styles and angles for measuring capital structure of a company situated in the United States.

Capital Structure Patterns in the United States 13

Links of Previous Main Topic:-

Links of Next Financial Accounting Topics:-

Your Price: $11.00 $10.00

Pricing may change based on requirements

Descriptive text for the image

Get Homework Help In

Maths and Statistics


Humanities & Arts


Essay Writing

How Our Homework Service Works

FAQ number 1

Share your requirements

FAQ number 2

Make secure payment

FAQ number 3

Get homework answers

FAQ - Frequently Asked Questions

Discover quick answers in our FAQ, covering the most common customer questions about our homework help service.

Is your homework service confidential?


Absolutely! Confidentiality is one of the basic guarantees of our service at MyHomeworkHelp.com.

When our customers make their homework orders, they know their information remains 100% confidential.

Even your homework writer will not be provided with your personal details. So, when you hire a professional homework helper on our website, rest assured that your information will remain private and safe.

For a comprehensive understanding of how we protect your privacy, please refer to our Privacy Policy.

Who will help me with my homework?


We work with subject experts from all over the world. We hire them with the help of complex tests in the disciplines of their expertise. We also verify the IDs and academic transcripts of our homework writers to be sure that our experts have a bachelor's or master’s or a PhD degree. This is how we can be sure of the proficiency of our panel of experts who will help you with your homework.

Is it legal to ask for help with homework?


Seeking homework help is perfectly fine and shows your proactive approach to overcoming challenges. But it's important to use our homework service to enhance your understanding, not to replace your own efforts.

Our homework service offers original solutions for personal use, including:

  • Generating ideas or arguments for your research.
  • Deepening your subject comprehension.
  • Direct citation, with proper referencing.

However, it's crucial to avoid plagiarism by not submitting our work as your own. Make sure to check your institution's academic integrity policies before using our services. Our goal is to support your educational journey in a responsible and beneficial way. Refer our honor code for more details.

Is myhomeworkhelp.com legit?


Yes, myhomeworkhelp.com is completely legitimate. We've been successfully connecting students with top experts worldwide since 2012, offering direct, secure communication for a seamless learning experience. With over thousands of students helped and a commitment to innovative, effective education tools, we're dedicated to making learning easier and more accessible for everyone.

You can read our reviews here on Trustpilot and Sitejabber (Independent, verified reviews from buying customers) like you!

Is there a possibility of plagiarism in my completed order?


Unlike our competitors who use cheap and ineffective in -house plagiarism software, MyHomeworkHelp.com uses credible software to check your homework solution originality. We guarantee that your paper will pass TurnItIn checks with a low percentage of similarity. In addition, we also check submitted papers for ai-content using Originality.ai.

You will receive a complemantary plagiarism free report with your completed order.

What makes you one of the best homework help website?


We are not number 1 (yet!). We're an independent, bootstrapped business standing up to Big EdTech for last 12 years. So it means a lot that folks like you are willing to consider our services for your educational needs.

Myhomework Help is recognized as one of the premier websites for homework answers for three key reasons.

  1. Firstly, we pride ourselves on the expertise and qualifications of our tutors/experts, who are selected through a rigorous vetting process to ensure they can provide best academic assistance across a wide range of subjects.
  2. Secondly, our response time to student inquiries is fast (as early as few minutes), reflecting our understanding of the importance of timely support in an academic setting.
  3. Lastly, we keep our pricing very student friendly. Our aim is to provide the best learning experience to students like yourself without burning a hole in your pockets.