Capital Structure


DEFINITION of 'Capital Structure'

A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.


Loading the player...

BREAKING DOWN 'Capital Structure'

A company's proportion of short and long-term debt is considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered.

  1. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  2. Levered Free Cash Flow

    The free cash flow that remains after a company has paid its ...
  3. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...
  4. Equity Financing

    The act of raising money for company activities by selling common ...
  5. Capitalization Table

    A spreadsheet or table that shows ownership stakes in a company, ...
  6. Optimal Capital Structure

    The best debt-to-equity ratio for a firm that maximizes its value. ...
Related Articles
  1. Retirement

    Is Google Stock Suitable for Your IRA or Roth IRA?

    Discover if Google is an appropriate investment for an IRA and whether it is more appropriate for a traditional IRA or a Roth IRA.
  2. Investing

    Capital Structure

    Capital structure is the combination of the debt and equity a company uses to finance its long-term operations and growth.
  3. Fundamental Analysis

    Discounted Cash Flow Analysis

    Find out how analysts determine the fair value of a company with this step-by-step tutorial and learn how to evaluate an investment's attractiveness for yourself.
  4. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  5. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  6. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  7. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  8. Investing Basics

    The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  9. Investing Basics

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  10. Mutual Funds & ETFs

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.
  1. On which financial statements does a company report its long-term debt?

    A company lists its long-term debt on its balance sheet under liabilities, usually under a subheading for long-term liabilities. Long-Term ... Read Full Answer >>
  2. Why is it useful for investors to calculate Net Operating Profit After Tax for over-leveraged ...

    It is useful for an investor to calculate net operating profit after tax (NOPAT) for overleveraged companies, because the ... Read Full Answer >>
  3. How do bankruptcy costs affect a company's capital structure?

    A higher amount of debt in a company's capital structure increases interest payments and the risk of bankruptcy. A company ... Read Full Answer >>
  4. What are preferred shares?

    Preferred shares represent an ownership stake in a company. Owners of preferred shares have a claim on the company's assets ... Read Full Answer >>
  5. How can I use Net Operating Profit After Tax (NOPAT) to compare companies and make ...

    Since net operating profit after tax (NOPAT) is used to measure a company's operating income without the effects of capital ... Read Full Answer >>
  6. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  7. How can an investor evaluate the leverage of an insurance company?

    For investors conducting fundamental analyses of insurance companies, leverage can have multiple definitions. Insurance leverage ... Read Full Answer >>
  8. Does the tradeoff model or the pecking order play a greater role in capital budgeting?

    The static trade-off theory and the pecking order theory are two financial principles that help a company choose its capital ... Read Full Answer >>
  9. What are the benefits and shortfalls of the Herfindahl-Hirschman Index?

    Equity and debt are the two sources of financing accessible in capital markets. The term "capital structure" refers to the ... Read Full Answer >>
  10. Why should I register as a Limited Liability Company (LLC) if I am self-employed ...

    Debt affects a company's levered beta in that increasing the total amount of a company's debt will increase the value of ... Read Full Answer >>
  11. Why should a company buy back shares it feels are undervalued instead of redeeming ...

    Repurchase and redemption are associated with different classes of stock. Common shares can be bought back by the issuing ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center