Question

what is meant by the term capital structure?

Answer 1

Capital structure is the allocation of debt and equity that a firm uses to fund its operations and expansions. It allows a firm to understand what kind of funding the company uses to finance its overall activities and growth. In other words, it shows the proportions of senior debt, subordinated debt and equity (common or preferred) in the funding. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings.