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Corporate Finance Essay

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Below is an essay on "Corporate Finance" from Anti Essays, your source for research papers, essays, and term paper examples.

The purpose of this report is to analyze the comments made by the financial director to whom the details of capital structure are unimportant, funds are taken from whatever source is available at the time, and where cost of capital is predominantly taken into consideration over the capital structure when choosing a source of fund. We will therefore try and determine if a company’s capital structure holds any importance in the making of financial decisions, if availability of a fund is what we need to consider before choosing a source of fund, other sources of funds that a company can use, as well as the relationship that may exists between capital structure, and cost of capital. It seemed also important to take into account Modigliani and Miller’s theorem where it is stated that in a perfect market, the way in which a firm is financed is irrelevant to its value.

                            “Capital structure is the mixture of debt and equity resulting from the decisions on financing operations,” Pike, R. & Neal, B. (2006). Debt would generally entail any bond issues, or long term notes payable. On the other hand equity encompasses common stock, preferred stock, or retained earnings. Short term debt, for instance working capital requirements is also considered to be part of the capital structure. Capital structure, put in simpler terms, means the ratio of debt to equity. A capital structure to many is a means for investors to know how risky a firm is, as it is generally acknowledged that the more a firm is financed by debts, the more risk it faces. It should however be noted that a capital structure does more than that. A healthy capital structure at the heart of a company could prove to be a stepping stone to a company achieving more with less, a concept that gave rise to the consideration of capital efficiency.

                            Achieving an optimal capital structure, which has been the Holy Grail for financial managers, is believed not to exist...

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"Corporate Finance". Anti Essays. 18 Jun. 2018


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Corporate Finance. Anti Essays. Retrieved June 18, 2018, from the World Wide Web: https://www.antiessays.com/free-essays/Corporate-Finance-78819.html