Tag Archives | Capital Structure

Calculation of Point of Indifference | Capital Structure

After reading this article you will learn about Calculation of Point of Indifference. The EPS, earnings per share, ‘equivalency point’ or ‘point of indifference’ refers to that EBIT, earnings before interest and tax, level at which EPS remains the same irrespective of different alternatives of debt-equity mix At this level of EBIT, the rate of […]

Reasons Necessitating Change in Capitalisation

This article throws light upon the ten main reasons necessitating change in capitalisation. The reasons are: 1. To Restore Balance in the Financial Plan 2. To Simplify the Capital Structure 3. To Suit Investor’s Needs 4. To fund Current Liabilities 5. To Write off the Deficit 6. To Capitalize Retained Earnings 7. To Clear Default […]

Top 17 Factors Determining the Capital Structure

This article throws light upon the top seventeen factors determining the capital structure. The factors are: 1. Financial Leverage 2. Growth and Stability of Sales 3. Cost of Capital 4. Risk 5. Cash Flow Ability to Service Debt 6. Nature and Size of a Firm 7. Control 8. Flexibility 9. Requirements of Investors 10. Capital […]

Capital Gearing: Meaning and Significance

After reading this article you will learn about Capital Gearing:- 1. Meaning of Capital Gearing 2. Significance of Capital Gearing 3. Trade Cycles. Meaning of Capital Gearing: The term ‘capital gearing’ refers to the relationship between equity capital (equity shares plus reserves) and long-term debt. It may be planned or historical, the latter describing a […]

Top 4 Theories of Capital Structure

This article throws light upon the top four theories of capital structure. The theories are: 1. Net Income Approach 2. Net Operating Income Approach 3. Traditional Approach 4. Modigliani and Miller Approach. Theory # 1. Net Income Approach:  According to this approach, a firm can minimise the weighted average cost of capital and increase the […]

Capital Structure: Forms, Importance and Planning

After reading this article you will learn about Capital Structure:- 1. Forms of Capital Structure 2. Importance of Capital Structure 3. Planning. Forms of Capital Structure: The capital structure of a new company may consist of any of the following forms: (a) Equity Shares only (b) Equity and Preferences Shares (c) Equity Shares and Debentures […]

Calculation of Point of Indifference and Uncommitted Earnings

After reading this article you will learn about the Calculation of Point of Indifference and Uncommitted Earnings per Share. Point of indifference refers to that EBIT level at which earnings per share (EPS) remains the same irrespective of different alternatives of debt-equity mix. While calculating the equivalency point, the provision for repayment of debt or […]

Capital Structure: Definition, Assumptions and Classification

After reading this article you will learn about Capital Structure:- 1. Introduction to Capital Structure 2. Definitions of Capital Structure 3. Assumptions 4. Classification. Introduction to Capital Structure: Capital structure refers to the permanent financing of the company, represented by owned capital and loan/debt capital (i.e.. Preferred Stock, Equity Stock, Reserves and Long- term Debts). […]

Capital Structure Trend in the Private Sector

This article throws light upon the top three factors of capital structure trend in the private sector. The factors are: 1. Debt-Equity Norms 2. Review of the Norms 3. Industry Practice. Capital Structure Trend: Factor # 1. Debt-Equity Norms: We know that the norm of debt-equity ratio is 2: 1. The same is also followed […]

7 Major Factors Influencing Capital Structure

This article throws light upon the seven major factors influencing capital structure. The factors are: 1. EBIT – EPS Analysis 2. Cost of Capital 3. Cash Flow Analysis 4. Control 5. Timing and Flexibility 6. Nature and Size of the Firm 7. Industry Standard. Factors Influencing Capital Structure: EBIT – EPS Analysis Cost of Capital […]

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