Financial Structure

What is a 'Financial Structure'

The specific mixture of long–term debt and equity that a company uses to finance its operations. This financial structure is a mixture that directly affects the risk and value of the business. The main concern for the financial manager of the company is deciding how much money should be borrowed and the best mixture of debt and equity to obtain. The financial manager also has to find the least expensive sources of funds for the company to use.


Also referred to as capital structure.




BREAKING DOWN 'Financial Structure'

Financial structure is divided into the amount of the company's cash flow that goes to creditors and the amount that goes to shareholders. Each business will have a different mixture depending on its needs and expenses. Therefore, each company will have its own particular debt-equity ratio. For example, a company could issue bonds and use the proceeds to buy stock or it could issue stock and use the proceeds to pay its debt.

RELATED TERMS
  1. Recapitalization

    Restructuring a company's debt and equity mixture, most often ...
  2. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, ...
  3. Capitalization Structure

    The proportion of debt and equity in the capital configuration ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  5. Debt Financing

    When a firm raises money for working capital or capital expenditures ...
  6. Financial Risk

    The possibility that shareholders will lose money when they invest ...
Related Articles
  1. Term

    What's Recapitalization?

    Recapitalization is the restructuring of a company’s debt and equity mixture.
  2. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  3. Personal Finance

    Target Corp: WACC Analysis (TGT)

    Learn about the importance of capital structure when making investment decisions, and how Target's capital structure compares against the rest of the industry.
  4. Investing

    Capital Structure

    Capital structure is the combination of the debt and equity a company uses to finance its long-term operations and growth.
  5. 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.
  6. 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.
  7. Investing Basics

    Breaking Down Optimal Capital Structure

    An optimal capital structure shows the best balance of debt to equity a company can have in order to minimize its cost of capital.
  8. Economics

    Financial Leverage In Corporate Capital Structure

    Corporate management uses financial leverage to increase earnings per share and return-on-equity.
  9. Investing

    Total Debt to Total Assets

    Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.
  10. Brokers

    Lowe's Stock: Capital Structure Analysis (LOW)

    Examine Lowe's Companies' equity capitalization, debt capitalization and enterprise value to analyze trends in the retailer's capital structure.
RELATED FAQS
  1. Which financial ratio best reflects capital structure?

    Learn about the debt-to-equity ratio and why this metric is widely considered the most useful reflection of a company's capital ... Read Answer >>
  2. How does a company's capitalization structure affect its profitability?

    Learn about capitalization structure and how the combination of debt and equity a company uses to fund operations can affect ... Read Answer >>
  3. What is the most widely used gearing ratio?

    Understand the most commonly used gearing, or leverage, ratio used to evaluate a company's financial condition, the debt ... Read Answer >>
  4. What are the benefits and shortfalls of the Herfindahl-Hirschman Index?

    Learn about the differences between equity and debt financing and how they impact financials. Find out how businesses determine ... Read Answer >>
  5. When should a business avoid debt financing?

    Read about the optimal use of debt in a business capital structure and how to know when a business should avoid further debt ... Read Answer >>
  6. How can I use the debt-to-capital ratio to evaluate a stock?

    Understand the significance of the debt to capital ratio of financial leverage, and learn how investors and analysts make ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center