Essay - Main Considerations to Influence a Firm's Capital Structure Practical Factors...

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Main Considerations to Influence a Firm's Capital Structure

Practical factors influencing capital structure of a company

This report will present insights about the financial issues a corporate must take into consideration when thinking about developing its operations or about consolidating ***** position on the market. The capital structure is a sensible issue th*****t will be tackled alongside practical considerations. In ***** end, the author will highlight his conclusions on the topic.


Besides its savings and investments, a particular company must rely on foreign resources ***** financing in order to develop its activities or consolidate ***** corporate ***** on the market. Among the long term f*****ancing means one could mention common ***** preferential s*****cks, reinvested profit and ***** term liabilities. The capital ***** is different from the ***** structure of a corporation, which additionally includes other sources of capital, accounts payables and other types ***** liabilities - wages to employees, unpaid dividends to shareholders. The capital structure of a ***** ***** to be selected according ***** many criteria, which will further on present in this paper. Funds, which are the eng*****e behind the performance of a comp*****ny ***** the market, must be raised by all means and methods - from the creditors, suppliers, banks, population, financial institutions. In the next paragraphs, we shall discuss the factors that affect the corporate decision in respect to its ***** structure, offer*****g empirical examples that best present the situation.

***** affecting ***** capital structure

In the ideal economic world, the value of a company is independent of its capital *****. Or, in other words, the financing means of a ***** are not considered ***** estimating the real ***** value, the ***** position ***** that company. But in ***** reality, different factors affect the corporate structure, as we ***** see in the next paragraphs.

*****) Capital structure and time are strongly correlated terms, with the historic elements **********g the financial capital structure of the corporation to a great extent. For example, firms ***** the past may have been more pr***** to finance their long term activities and plans than companies do it nowadays. Let us make a comp*****rison between companies today and the behavior of companies back in ***** '80s. The financial statements indicate *****, in the past, companies decided to accept an extra financial leverage, reaching an important amount from the *****tal assets, in order to consolidate the ***** control. (Harris and Raviv -1991, page 334). The situation is ***** somehow ***** because commercial entities prefer ***** balance ***** assets with ***** *****. The differentiation policy is well used also ***** the financial market - managers engage in different f*****ancial projects in order to diminish the risk - for ***** issue shares, bonds and other securities, take loans ***** credits and ask for refundable funds (subsidies, structural funds). The business risk notion is highly related ***** financial leverage and ***** structure - as a company with a high financial burden could be put in the position of default and eventually bankruptcy.

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