What is an 'Optimal Capital Structure'
An optimal capital structure is the best debttoequity ratio for a firm that maximizes its value. The optimal capital structure for a company is one which offers a balance between the ideal debttoequity range and minimizes the firm's cost of capital. In theory, debt financing generally offers the lowest cost of capital due to its tax deductibility. However, it is rarely the optimal structure since a company's risk generally increases as debt increases.
BREAKING DOWN 'Optimal Capital Structure'
A company's ratio of short and longterm debt should also be considered when examining its capital structure. Capital structure is most often referred to as a firm's debttoequity ratio, which provides insight into how risky a company is for potential investors. Determining an optimal capital is a chief requirement of any firm's corporate finance department.

Traditional Theory Of Capital Structure
The theory that when the Weighted Average Cost of Capital (WACC) ... 
Capital Structure
A mix of a company's longterm debt, specific shortterm debt, ... 
Capitalization Structure
The proportion of debt and equity in the capital configuration ... 
LongTerm Debt To Capitalization ...
A ratio showing the financial leverage of a firm, calculated ... 
Capitalization Ratios
Indicators that measure the proportion of debt in a companyâ€™s ... 
Recapitalization
Restructuring a company's debt and equity mixture, most often ...

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. 
Professionals
Introduction To Cost Of Capital
Cost of capital is very important for business budgeting and planning. 
Professionals
Introduction To Financial Leverage And Capital Structure Policy
We introduce you to capital structure and bankruptcy. 
Professionals
Financial Leverage And Capital Structure Policy
We look at the details of a firm's capital structure, financial leverage, the optimal capital structure and realworld capital structures. 
Professionals
Bankruptcy Costs And Optimal Capital Structure
We look at how debt and equity work together to form the optimal capital structure. 
Professionals
Tax and Bankruptcy Costs
CFA Level 1  Tax and Bankruptcy Costs. Learn what effects taxes and bankruptcy costs have on capital structure. Contrasts the benefits of tax with the costs of possible bankruptcy. 
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. 
Investing
Capital Structure
Capital structure is the combination of the debt and equity a company uses to finance its longterm operations and growth. 
Economics
Financial Leverage In Corporate Capital Structure
Corporate management uses financial leverage to increase earnings per share and returnonequity. 
Economics
Explaining Cost Of Capital
Cost of capital is the cost of funds used to finance a business.

What is considered a high debttoequity ratio and what does it say about the company? ...
Learn how to make sense of the debttoequity numbers of a company when looking for good investment opportunities. Read Answer >> 
How do bankruptcy costs affect a company's capital structure?
Understand the Modigliani and Miller theory of capital structure. Learn how the theory shows how bankruptcy costs affect ... Read Answer >> 
Is there value in comparing companies from different sectors by using the debttoequity ...
Find out why using the debttoequity ratio for reviewing companies doesn't always make for an applestoapples comparison. Read Answer >> 
What is the formula for calculating the debttoequity ratio?
Find out how to use this fundamental financial ratio to help assess a company's performance. Read Answer >> 
A company issues some shares in order to finance the purchase of some more production ...
The correct answer is: a) This transaction will increase the assets of the company and its equity by the same amount. Hence, ... Read Answer >> 
What is capital structure theory?
Discover capital structure theory as it relates to financial management and the methods in which companies attempt to raise ... Read Answer >>