What is Capital Structure? According to Gerestern Berg, "Capital structure of a company is the composition or making of its capitalization and it includes all long term resources" It is combination of all the Long and Medium term sources of finances. Like-: equity, preference, debentures, loans, bonds, reserves, etc .Also known as capital mix
Features of Appropriate Capital Structure Profitability-: The capital structure mix should leads to maximization of profitability. It means that it must reduce the cost of financing and maximize earnings Solvency-: The pattern of the capital structure should be so devised that it ensures that firm/business do not run towards the risk of becoming insolvent. Flexibility-: The capital structure should be flexible in nature so that it can meet the changing economic conditions of the company. Conservatism: The capital structure should be conservative in the sense that the debt content the total capital structure does not exceed the limit which company can bear. Control-: The capital structure should be such devised that risk of control on management and working does not loss and transfers in the hands of external institutions.
Sources of Capital There many and many sources from where you can get the money or finances for your business. The some of the popular sources are: l. Share Capital a. Equity share capital b. Preference share capital Il. Bonds Ill. Debentures IV. Reserves / Retained Earnings V. Bank Loans VI. Bank overdrafts VII. Sale of Assets VIlI Lease financing IX. Venture Capital
SOURC ES INTERN AL EXTERN AL VENTURE CAPITAL DEBENTU RES BANK LAONS SHARE BONDS CAPITAL RETAINED SALE OF EARNINGSASSETS PREFEREN CE EQUITY
2 1 Equity cops lock bonds Debenture Bonds
Indresh Pratap SINGH
I have done MBA and teaching since last 2 years! I work on 3 things-: 1)Building Interest, 2)Concreting knowledge base, 3)Concept wise focus