Capital structure refers to the capital structure (debt and equity) of a company. Shares are the common and preferred stocks/shares of a company plus retained earnings.
How do you determine the capital structure of a firm?
By looking at the debt-to-equity ratio, you can calculate the company's capital structure. The Debt Ratio is calculated by dividing Debt (Debt Ratio) by Total Equity. The difference between assets and liabilities determines working capital or liquidity (current cash flow).
Which capital structure strategy is best?
Finding the right combination of debt and equity financing for your company's capital structure can optimize market value while reducing your cost of capital. Debt financing is tax deductible and therefore theoretically has the lowest cost of capital.
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