Planning the capital structure is one of the most complex areas of financial decision making because of the inter-relationships among components of the capital structure and also its relationship to risk, return and value of the firm. The term, "capital" usually denotes the long term funds of the firm. Debt capital and ownership capital are the two basic components of capital. Equity capital, as one of the components of capitalization, comprises equity share capital and retained earnings.
Preference share capital is another distinguishing component of total capital. According to E W Walker, the concept of capital structure includes the following namely; • The proportion of long term loans;
• The proportion of equity capital and
• The proportion of short term obligations
In general, the experts in finance define the term capital structure to include only long term debt and total shareholders' investment.
Financial structure means the composition of the entire left hand side (liabilities side) of the balance sheet. Financial structure refers to all financial resources acquired by the firm. It includes all forms of long as well as short term debts and equity. Thus practically speaking there is no difference between capital structure and...