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

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

Fac*****rs affecting the capital structure

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

*****) Capital structure and time are strongly correlated terms, with the historic elements affect*****g ***** financial capital ***** of the corporation to a great extent. For example, firms from the p*****t 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 ********** ***** the behavior of companies back in the '80s. The financial statements indicate that, in the past, companies decided to acce***** an extra financial leverage, reaching an important amount ***** the ********** assets, in order to consolidate the corporate control. (Harris and Raviv -1991, page 334). The situation is today somehow different beca*****e commercial entities prefer to balance ***** assets with their liabilities. The *****iation policy is well used also in the ***** market - managers engage in different f*****ancial projects in order to diminish the risk - for ***** issue shares, bonds ***** other securities, take loans and cred***** and ask for refundable funds (subsidies, structural funds). ***** business risk notion is highly related to 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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