Capital Structure and Financial Leverage

This article discusses the concepts of capital structure and financial leverage. Capital structure refers to the mix of debt and equity that a company uses to finance its operations. Financial leverage is the use of debt to magnify the returns to shareholders. The article discusses the factors that determine a company’s capital structure, including the company’s risk, growth prospects, and tax status.

Questions

• What is capital structure?
• What is financial leverage?
• What are the factors that determine a company’s capital structure?

Answers

• Capital structure refers to the mix of debt and equity that a company uses to finance its operations.
• Financial leverage is the use of debt to magnify the returns to shareholders.
• The factors that determine a company’s capital structure include the company’s risk, growth prospects, and tax status.