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 ***** developing its operations or about consolidating its position on the market. The capital structure is a sensible issue th*****t will be tackled alongside practical considerations. In the end, the author will highlight his conclusions on the topic.

*****troduction

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

Fac*****rs affecting the capital structure

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

1) Capital structure and time are strongly correlated terms, with the historic elements affecting ***** ***** capital ***** of the ***** to a great extent. For example, firms from the p*****t 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 ********** and the behavior of companies back in the '80s. The financial statements indicate *****, in the past, companies decided to accept an extra financial leverage, reaching an important amount from ***** *****tal assets, in order to consolidate the corporate control. (Harris and Raviv -1991, page 334). ***** situation is today somehow ***** beca*****e commercial entities prefer to balance the assets with ***** liabilities. The differentiation policy is well used also ***** the financial market - managers engage in different financial 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 ***** ***** 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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