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प्रश्न
What is meant by Capital Structure?
Define 'Capital Structure'
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उत्तर १
Capital structure refers to the ratio of debt and equity in the total capital of a company.
Algebraically,
Capital Structure = `"Debt"/"equity" or "Debt"/"Debt+equity"`
उत्तर २
Capital structure refers to the proportion of debt and equity used for financing business operations. It affects the profitability and financial risk of the business, and hence, companies generally use the concept of financial leverage to set up the capital structure
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संबंधित प्रश्न
Explain briefly any four factors which affect the choice of capital structure of a company.
How does cost of equity affect the choice of capital structure of a company? Explain
Explain the following as factor affecting the choice of capital structure:
Cash flow position
Explain the following as factors affecting the choice of capital structure:
Cost of equity
Explain the following as factors affecting the choice of capital structure:
Return on Investment
Explain the following as factors affecting the choice of capital structure:
Flexibility
Explain the following as factors affecting the choice of capital structure:
Control
Write the external factors influencing capital structure.
What is meant by capital structure?
Write the internal factors influencing Capital Structure.
Owned Capital Borrowed Capital
Answer the following question.
'Determining the relative proportion of various types of funds depends upon various factors.' Explain any six such factors.
Read the following text and answer the following questions on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
Identify the concept of Financial Management as advised by Mr. Ghosh in the above situation.
Read the following text and answer the following questions on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
“Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)”
The proportion of debt in the overall capital is called _______.
Financial leverage is called favourable if :
Which component of capital structure determines the overall financial risk?
Krish limited is in the business of manufacturing and exporting carpets and other home decor products. It has a share capital of ₹ 70 lacs at the face value of ₹ 100 each. Company is considering a major expansion of its production facilities and wants to raise ₹ 50 lacs. The finance manager of the company Mr. Prabhakar has recommended that the company can raise funds of the same amount by issuing 7% debentures. Given that earning per share of the company after expansion is ₹ 35 and tax rate is 30%, did Mr. Prabhakar give a justified recommendation?
Show the working.
When the proportion of debt and equity is such that it results in an increase in the value of equity share the ______ is/are said to be optimal.
______ refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.
