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 corpor*****te must take into consideration when thinking about developing its operations or ***** consolidating its position on the market. The capital structure is a sensible issue th*****t will be tackled alongside practical considerations. In ***** end, the auth***** ***** highlight his conclusions on the topic.

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Besides its savings and investments, a p*****rticular ***** ***** rely on foreign resources ***** financing in order to develop ***** activities or consolidate ***** corporate ***** on the market. Among ***** long term financing means one could mention common ***** preferential s*****cks, reinvested profit and long term liabilities. The capital structure is different from the ***** structure of a corporation, which additionally includes other sources ***** *****, accounts payables and other types of ***** - wages to employees, unpaid divid*****s to shareholders. The capital structure of a company ***** to be selected according to many criteria, which will further on ***** in this paper. Funds, which are the eng*****e behind ***** performance ***** a company ***** the market, must be raised by all means ***** 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, offering empirical examples that best present the situation.

Factors affecting ***** capital structure

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

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

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