Financial Management

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• Questions
• Summary

It refers to a proportion of debt and equity used for financing the operations of business. Capital structure of a business affects both the profitability and the financial risk.

Important factors which determine the choice of capital structure are as follows:

1. Cash Flow Position.
2. Interest Coverage Ratio (ICR).
3. Debt Service Coverage Ratio (DSCR).
4. Return on Investment (RoI).
5. Cost of debt.
6. Tax Rate.
7. Cost of Equity.
8. Floatation Costs.
9. Risk Consideration
10. Flexibility
11. Control
12. Stock Market Conditions.