Determining the Proportion: Preference V/s Equity Shares
A share is a unit of ownership in a company and has an exchangeable value influenced by market forces. As per Section 43 of the Companies Act, 2013, a company’s share capital is categorized into two types: equity shares and preference shares. Preference Share Capital Preference share capital is the money a company raises by…
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Overview: Cost of Debt, Taxation, & Capital Structure
The cost of debt is the interest rate a company pays on its debt, and it is influenced by taxation and the company’s capital structure. Cost of Debt The cost of debt includes interest payments and other borrowing costs such as fees and penalties. It is a crucial factor in a company’s financial health and…
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Various Theories/Approaches on Capital Structuring Explained
This article explains the assumptions and key aspects of approaches to capital structuring, including the Net Income Approach, Net Operating Income Approach, Traditional Position, Modigliani-Miller (MM) Theory, Pecking Order Theory, Irrelevance Theory, Relevance Theory, Trade-off Theory, and Agency Costs Theory. Overview of Capital Structure Theories Capital structure theories explore the relationship between a company’s capital…
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Factors Influencing Decision on Capital Structuring
A company’s capital structure is influenced by various factors, including its size, profitability, growth prospects, and the availability of funds. Additional factors include the company’s credit history, tax position, and the cost of debt. Factors that affect a company’s capital structure can be broadly categorized into two groups: Internal Factors: External Factors: In conclusion, capital…
Read article Understanding Leverage and Gearing
Leverage and gearing are financial terms that refer to the use of debt by a company to increase investment exposure and potential returns. These terms are often used interchangeably; however, regional preferences exist. In British English and European finance, the term “gearing” is more common, while American finance typically uses “leverage.” Leverage refers to the…
Meaning of Capital Structuring of a Company
Capital structure is the combination of debt and equity used by a company to finance its operations and growth. It is a core component of a company’s financial strategy, determining the optimal mix of debt and equity to fund business activities. Striking the right balance between these components impacts costs, risks, and growth potential. A…
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