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Finance > Corporate Finance > Sources > Capital Structure

Capital Structure

One of the most important aspects in Corporate Finance is the "structuring" or balancing of debt and equity, short term and long term funds. The capital structure of the companies and financial ratios (debt-equity ratio, long-term to short-term debt etc.) vary from company to company within the same industry and industry to industry within the same regional set up. Thus sugar, jute and shipping etc. (equity base is small but capital requirements are substantial) necessarily have to function with (and afford) a high gearing i.e. a larger proportion of debt to equity would be needed for them, but a similar high gearing for say, textiles or leather industry (very thin and fluctuating margins) will kill it with interest burden, at the first sign of trouble. The capital structure of the corporate, therefore, is a subject of careful study and any miscalculation or under financing, can make the industry still born.


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