Definition of 'Capital Structure'
There are two main types of capital structure:
* **Debt capital** is money borrowed from lenders, such as banks or bondholders. Debt capital typically has a fixed interest rate and a maturity date.
* **Equity capital** is money invested by shareholders in exchange for shares of stock. Equity capital does not have a fixed interest rate or maturity date.
The optimal capital structure for a company will vary depending on its industry, its growth prospects, and its risk tolerance. A company with a high risk profile may want to use more debt capital to finance its assets, while a company with a low risk profile may want to use more equity capital.
The capital structure of a company can be analyzed using a number of ratios, such as the debt-to-equity ratio, the interest coverage ratio, and the debt-to-assets ratio. These ratios can help investors and creditors assess the financial health of a company and its ability to repay its debts.
Capital structure is an important decision for any company, and it should be carefully considered before making any changes.
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