👊WHAT IS CAPITAL STRUCTURE?
The
capital structure can be defined as the value composition and proportion of
various type of an enterprise, especially the relationship and combination of the
debt and also the equity. Usually, the capital structure was a mixture of the long-term
debt, short-term debt, current liabilities, long-term liabilities, preferred stock,
or common stock, investment, and etc.
👉DIFFERENT TYPE OF CAPITAL STRUCTURE?
There is an actually different type of capital structure
that available and use by the different companies. However, it can commonly
divide into three types, which is aggressive capital structure, moderate
capital structure, and conservative capital structure. Capital structure can be defined
as a strategic and the nature of the enterprise. The different types of capital
structure could use to measures the company cost level, elasticity, and also risk level. These three factors were really important and could be a huge
influence or impact on the company investor’s investment, trust, and support.
This is because that the changing and form of the capital structure will
actually bring impact to the shareholder and owners’ equity. But however, how
to measures and find out what type of capital structure was and have by the
company, then it needs to discuss about the leverage of the capital structure.
👆HOW TO MEASURES THE CAPITAL STRUCTURE?
As
it discusses leverage, it can say that one of the main purposes and consideration
of the capital structure was to maintain the balance between the assets and
the equity which was the leverage ratio between them. For example, if there was
45% of the debt and 50% of the asset can be count as high leverage. It can
be said that the company that has a high leverage ratio is the company with an aggressive
capital structure. This is because they have used, they capability and potential
to handle the debt effectively. In another word, the company has put more input
to produce more output to increase value, stimulate and lead to a higher growth
to the company but higher risk compares with low leverage capital structure.
However, the company that has a lower capital structure will have low debt, and
this was because they play carefully and stable which is more to a conservative
capital structure. This type of capital structure usually leads to lower growth
to the company, but it was safer than a high leverage capital structure.
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