Question

Under what conditions do you think that the finance manager does not have to think about capital structure issue?

Answer 1

Capital structure is the particular combination of debt and equity used by a company to finance it’s overall operation and growth. A firm has to choose an appropriate mix of equity of debt in such a way that it maximize the wealth of shareholders and reduce the overall weighted average cost of capital.

Conditions when finance manager does not have to think about capital structure issue:

- If the company is debt free then finance manager do not need to think about capital structure because in that case company can raise fund only though equity.

- If the company is private limited company then company can not raise fund through equity therefore in that case also finance manager do not need to think about capital structure because fund have to raise only through debt.

In any other case finance manager have to think about capital structure.

I hope this clear your doubt.

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