None Essay Example | Topics and Well Written Essays - 2000 words - 2

None - Essay Example The capital structure of a company will give a companys debt-to-equity ratio. The ratio gives the insights of how the company levels of risk are. A company that is more profoundly financed by debts has greater risks because the company is comparatively highly levered. When taking debts companies should be cautious to make sure that their financial management is sound (Bierman, 2003). The capital structure of a corporation is the backbone of the operations of a particular company. Competent staffs need to be hired to ensure that viable financial decisions are made at all times. Companies should make substantial equity investments to sustain its financial operations at all times. Capital structure is mostly divided into equity capital and debt capital (Bierman, 2003). Equity capital refers to the money that is owned by the shareholders. Equity capital will comprise of contributed capital that is the money invested by the shareholders in exchange for stock of shares ownership. Shareholders will put this cash in a particular company to get a stake and be earning dividends at certain future dates. Equity capital also comprises of retained earnings that is made up of profits that was realized in the past years and have been kept by the firm to strengthen the fund growth or balance sheet, expand the business or use for acquisitions. Most people believe that equity capital is the most expensive type of financing a company because it depends whole on the returns that a company must make to attract investors. Investors will always invest their wealth with the companies that thrive well in the industry. A company that doesnt perform well in the market is not able to finance its operations from the equity capital (Bierman, 2003). The debt capital of a company refers to borrowed money that is at work in the business operations. The most preferred debt capital is the long-term bonds because it