What is Capital Structure?

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p align&equals;"justify">A capital structure concerns the composition of the liability of a company or more specifically&comma; the relative participation of the several financing sources in the composition of the total obligations&period; Capital structure decision is very essential for any organization&semi; every organization desires a mix or arrangements that eventually achieves or increases its profitability and overall value&period; Capital structure is an arrangement of debt&comma; equity and further resource of financing which are used for endowment of long-term assets&period; Main contributors of capital structure are debt and equity&period; Different alternatives are available to companies to finance&semi; for example through issuing shares&comma; securities or debts&period;&&num;160&semi; Organizations achieve different combinations of huge or small amount of debts&period; Every organization tries to have the best combination which increases its efficiency&comma; profitability and market value&period; <&sol;p>&NewLine;<p align&equals;"justify">&&num;160&semi;<&sol;p>&NewLine;<p align&equals;"justify">These types of decisions are very difficult in uncertain economy&period;&&num;160&semi; In various developing countries&comma; the existence of macro environment factors such as lofty interest rates&comma; volatility in economy and political situations are important factors for the different combination of capital structure&period; Consequently&comma; the financing decisions experience a significant rise of costs&comma; in addition to the diminution of the economic activity which also raise the uncertainty&period; <&sol;p>&NewLine;<p align&equals;"justify">&&num;160&semi;<&sol;p>&NewLine;<p align&equals;"justify">Many theories and practical approaches contributed on capital structure give abundant literature&period; There are many diverse characteristics that influence a company’s capital structure and a firm must endeavor the optimal or best mix of financing&period; After analyzing many different factors&comma; a company set up target capital structure&comma; which ultimately becomes its optimal structure&period; Capital structure entails the substitution between risk and return&period; With employing the more debt increases the risk level in the companies earning flow&period; But&comma; a greater amount of debt directs prominent predictable rates of returns&period; Consequently&comma; equilibrium between risk and return is accomplished by optimal capital structure&comma; which is the ultimate objective of any organization&period;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi;&&num;160&semi; &NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;