Course: Corporate Finance; Contributor: Zulfiqar Hasan
Topic: Basics of Corporate Finance
Students of BBA Program, MBA Program or any other business programs can be benefited from this lecture slides.
Generally capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities.
A firm's capital structure is then the composition or 'structure' of its liabilities.
Some times a company needs to change its current capital structure. In finance, it is called restructuring.
Factors That Influence a Company's Capital-Structure Decision: Business Risk, Companies Tax Exposure, Financial Flexibility, Management Style, Market position, Growth rate of the company etc.
The value of a firm is defined to be the sum of the value of the firm’s debt and the firm’s equity.
V = B + S
Here, B = Market value of the firm debt
S = Market Value of the Equity
V= Value of the Firm
If the goal of the management of the firm is to make the firm as valuable as possible, the the firm should pick the debt-equity ratio that makes the pie as big as possible.