What is the capital structure of target?
The target capital structure of a company refers to the capital which the company is striving to obtain. In other words, target capital structure describes the mix of debt, preferred stock and common equity which is expected to optimize the stock price of a company.
How do you determine target capital structure?
The optimal capital structure is estimated by calculating the mix of debt and equity that minimizes the weighted average cost of capital (WACC) of a company while maximizing its market value. The lower the cost of capital, the greater the present value of the firm’s future cash flows, discounted by the WACC.
What factors affect the target capital structure?
This study finds that these property firms do practice target capital structure which is influenced by certain firm characteristics like non-debt tax shield, asset structure, profitability, firm size, growth opportunity and liquidity in their capital structure and they also time their security issuance.
What do you mean by capital structure?
Capital structure refers to the specific mix of debt and equity used to finance a company’s assets and operations. From a corporate perspective, equity represents a more expensive, permanent source of capital with greater financial flexibility.
What are some factors that you must consider when determining the entity’s target capital structure?
The various factors which influence the decision of capital structure are:
- Cash Flow Position:
- Interest Coverage Ratio (ICR):
- Debt Service Coverage Ratio (DSCR):
- Return on Investment:
- Cost of Debt:
- Tax Rate:
- Cost of Equity:
- Floatation Costs:
What is capital structure write any five factors which influence the decision of capital structure?
Some of the major factors influencing capital structure are as follows: 1. Financial Leverage or Trading on Equity 2. Expected Cash Flows 3. Stability of Sales 4.
What is the purpose of capital structure?
The purpose of capital structure is to provide an overview of the level of the company’s risk. As a rule of thumb, the higher the proportion of debt financing a company has, the higher its exposure to risk will be.
What includes capital structure?
Capital structure can be a mixture of a company’s long-term debt, short-term debt, common stock, and preferred stock. A company’s proportion of short-term debt versus long-term debt is considered when analyzing its capital structure. Debt is one of the two main ways a company can raise money in the capital markets.