Capital structure . Issues: What is capital structure? Why is it important? What are the sources of capital available to a company? What is business risk and financial risk? What are the relative costs of debt and equity? What are the main theories of capital structure?
The capital structure of a firm is the mix of different securities issued by the firm to finance its operations.
Time value of money
Treasury Corporate Preference
Safeway’s high leverage came from an LBO
HP’s low leverage is the HP way
Disney’s low leverage reflects past good performance
GM’s high leverage reflects the oppositeInterpreting capitalstructures
Operating –Variable costs
Leverage –Fixed costs
Financial Earnings before taxes
EPS = Net Income
No. of Shares