Assignments
MB0045-Financial Management
Unit-7 Capital Structure
Program
: MBA
Semester
:I
Subject Code
: MB0045
Book Id
: B1134
Subject Name
: Financial Management
Unit number
:7
Unit Title
: Capital Structure
1
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MB0045-Financial Management
Unit-7 Capital Structure
Introduction
•
The capital structure of a company refers to the mix of long-term finances used by the firm. In short, it is the financing plan of the company. •
The capital structure should add value to the firm.
•
The value of a firm is dependent on its expected future earnings and the required rate of return.
•
The objective of any company is to have an ideal mix of permanent sources of funds in a manner that it will maximise the company’s market price.
•
The proper mix of funds is referred to as optimal capital structure.
•
The capital structure decisions include debt-equity mix and dividend decisions. 2
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MB0045-Financial Management
Unit-7 Capital Structure
Objectives
Session Objectives:
To
•
•
•
understand,
Features of an ideal capital structure
Factors affecting the capital structure
Various theories of capital structure
3
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C oEXT d e n t i a l
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MB0045-Financial Management
Unit-7 Capital Structure
Features of an Ideal Capital Structure
•
Profitability - The firm should make maximum use of leverage at a minimum cost.
•
Flexibility - An ideal capital structure should be flexible enough to adapt to changing conditions.
•
Control - The structure should have minimum dilution of control.
•
Solvency - Use of excessive debt threatens the very existence of the company. 4
PREVIOUS HOME
C oEXT d e n t i a l
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MB0045-Financial Management
Unit-7 Capital Structure
Factors Affecting Capital Structures
•
Leverage - The use of fixed charges sources of
Unit-7 Capital Structure
Program
: MBA
Semester
:I
Subject Code
: MB0045
Book Id
: B1134
Subject Name
: Financial Management
Unit number
:7
Unit Title
: Capital Structure
1
HOME
C oEXT d e n t i a l
N nfi
MB0045-Financial Management
Unit-7 Capital Structure
Introduction
•
The capital structure of a company refers to the mix of long-term finances used by the firm. In short, it is the financing plan of the company. •
The capital structure should add value to the firm.
•
The value of a firm is dependent on its expected future earnings and the required rate of return.
•
The objective of any company is to have an ideal mix of permanent sources of funds in a manner that it will maximise the company’s market price.
•
The proper mix of funds is referred to as optimal capital structure.
•
The capital structure decisions include debt-equity mix and dividend decisions. 2
PREVIOUS HOME
C oEXT d e n t i a l
N nfi
MB0045-Financial Management
Unit-7 Capital Structure
Objectives
Session Objectives:
To
•
•
•
understand,
Features of an ideal capital structure
Factors affecting the capital structure
Various theories of capital structure
3
PREVIOUS HOME
C oEXT d e n t i a l
N nfi
MB0045-Financial Management
Unit-7 Capital Structure
Features of an Ideal Capital Structure
•
Profitability - The firm should make maximum use of leverage at a minimum cost.
•
Flexibility - An ideal capital structure should be flexible enough to adapt to changing conditions.
•
Control - The structure should have minimum dilution of control.
•
Solvency - Use of excessive debt threatens the very existence of the company. 4
PREVIOUS HOME
C oEXT d e n t i a l
N nfi
MB0045-Financial Management
Unit-7 Capital Structure
Factors Affecting Capital Structures
•
Leverage - The use of fixed charges sources of