Every firm needs few basics that will help run the same. These are called the corporate charter. This represents and identifies various things. This helps identify the person in actual power in the first place.
Also it helps facilitate the claims that are financial as well as non-financial by nature. Though the main objective of this subject is the capital structure.
Let’s take an example. Supposedly you own a building. Now you bought it with mortgage. But unfortunately for you of course this building is never fully yours. Of course one must realize that they cannot just sell the same whenever they like.
There are other claimants of this building. But then again you have to take up all the ownership responsibilities. You will have to pay the tax, and maintenance for the house. Now this is the same scenario that people may find in the corporate world as well.
The shareholders are usually partial owners, but they have to have some limits mentioned as well. Claims can be classified in to two major groups of course. One is the financial while other is the non-financial claim.
Financial claims are also known as securities no doubt. These are often debt as well as the equity as well. It is known as such because they need to be registered with the Securities and Exchange Commission also known as the SEC.
There are various obligations as well. These are called the non-financial claims of course.
There are two different aspects of the claims that are only meaningful. These are:
Cash Flow Rights and the Control Rights.
15.1 A Cash Flow Rights as Payoff Diagrams
The learned date that you get interested in is the cash flow right that you learned in the chapter 6. The money value that you get in hand makes a value suffix of the capital structure. This structure party is mostly compared to the value that is of a competitive value of the bond and share holding persons.
In case the market is made to get a calculative approach towards the liabilities and also the very conceptual version that needs the closure. There is the relative version that exists and makes a valid point.