Have you heard of Capital Structures? Capital structure is the particular combination of debt and equity used by a company to finance its overall operations and growth. Equity capital arises from ownership shares in a company and claims to its future cash flows and profits. Short-term debt is also considered to be part of the 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. The main concern of this principle is to earn maximum Earnings per share with a minimum cost of financing. Interest rates and tax rates control the cost of financing. Debt capital is cheaper. A company's mix of sources of long-term financing is called its capital structure. This financing typically involves sources of long-term capital, including common equity, preferred stock, and bonds. To keep the cost of raising capital low, many businesses subscribe to a capital structure policy.

Aparika Sharma

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