Advertisements
Advertisements
Questions
What is meant by Capital Structure?
Define 'Capital Structure'
Advertisements
Solution 1
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"`
Solution 2
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
APPEARS IN
RELATED QUESTIONS
Sakshi Ltd. is a company manufacturing electronic goods. It has a share capital ofRs 120 lakhs. The earning per share in the previous year wasRs 0.5. For diversification, the company requires additional capital ofRs 80 lakhs. The company raised funds by issuing 10% debentures for the same. During the current year the company earned profit ofRs 16 lakhs on capital employed. It paid tax @ 40%.
a. State whether the shareholders gained or lost in respect of earning per share on diversification. Show your calculations clearly.
b. Also state any three factors that favour the issue of debentures by the company as part of its capital structure.
Explain briefly any four factors which affect the choice of capital structure of a company.
What is meant by Trading on Equity?
Explain the following as factor affecting the choice of capital structure:
Floatation costs
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:
Control
Explain any four factors that affect the choice of capital structure of a company.
“Capital structure decision is essentially optimisation of risk-return relationship.” Comment.
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.
Financial leverage is called favourable if :
______ refers to a situation when a company is not able to meet its fixed financial charges.
ICR = ______
Tapan, after leaving his job, wanted to start a Private Limited Company with his son. His son was keen that the company may start manufacturing of Mobile-phones with some unique features. However, Tapan felt that the mobile phones are prone to quick obsolescence and a heavy fixed capital investment would be required regularly in this business. Therefore, he convinced his son to start a furniture business. ______ factor affecting fixed capital requirements is making Tapan choose furniture business over mobile phone.
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.
Which of the following is not a factor affecting capital structure of a company?
