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Definition of the subject:
A capital structure is a measure of a company’s ability to finance several of its operations, growth as well as investments by channelizing funds. It is essentially a mixture of common equity, profit-loss ratio, long-term debt, preferred equity as well as particular kinds of short-term debts. Equity in other words may be classified as shares, common or preferred stock as well as retained earnings. Debt refers to bond issues. Both short-term and long-term payable debts are considered a component of capital structure. As a subject, capital structure is an indication of the firm’s debt and equity ratio as it offers insight to the risk-taking qualities of a company. A company highly financed solely by debt signifies that it is at great risk as this particular company is highly levered.
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