Capital Structure

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  • The percentage composition of a company's debt and equity structure used to finance the acquisitions of the company's assets. The capital structure of a company comprises debt and equity. This combination is referred to as the debt-to-equity ratio. This ratio is meaningful in determining the riskiness of a company. Creditors can use this ratio in determining whether a loan should be given to the company. All companies need capital to fund their long-term expansion goals and short-term financing needs. The short-term needs may include investment in inventories, payment of taxes and salaries, advertising, and basic operating expenses. The long-term needs may include purchasing capital equipment, buildings, plants, and other assets that can be used to generate revenues. Companies usually have a target debt-to-equity ratio that ...

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