Capital Structure and Profit

Only available on StudyMode
  • Download(s) : 10
  • Published : January 1, 2013
Open Document
Text Preview
Capital Structure and Profit

Capital Structure Definition

A unite of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, whereas equity is classified as common stock, preferred stock or retained earnings. Also, Short-term debt such as working capital requirements is considered to be part of the capital structure.

Capital Structure Explanation

A company's ratio of short and long-term debt are considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how unsafe a company is. Regularly a company more heavily financed by debt poses larger risk, as this firm is relatively highly levered.

Profit Definition
A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes required to maintain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business.  Calculated as:

[pic]

Profit Explanation

Profit is the funds a business makes after office for all the expenses. anyway of whether the business is a couple of kids running a lemonade stand or a publicly traded multinational company, consistently earning profit is every company's goal.  

The pathway toward profitability can be long. For example, online bookseller Amazon.com was founded in 1994 and did not produce its first annual profit until 2003. Many start ups and new businesses fail when the owners run out of capital to maintain the business.

http://www.investopedia.com/terms/c/capitalstructure.asp
tracking img