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 ***** 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 ***** ***** rely on foreign resources ***** financing in order to develop ***** activities or consolidate ***** corporate position on the market. Among ***** long term f*****ancing means one could mention common ***** preferential s*****cks, reinvested profit and ***** term liabilities. The capital structure is different from the ***** structure of a corporation, which additionally includes other sources ***** *****, accounts payables and ***** types of ***** - wages to employees, unpaid dividends to shareholders. The capital structure of a company is to be selected according ***** many criteria, which will further on ***** in this paper. Funds, which are the eng*****e behind the performance ***** a comp*****ny ***** 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, offer*****g empirical examples that *****st present the situation.

Fac*****rs *****ing ***** ***** structure

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

1) Capital structure and time are strongly correlated terms, with the historic elements affect*****g ***** ***** capital structure of the ***** to a gre*****t extent. For example, firms from 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 *****day ***** the behavior of companies back in the '80s. The financial statements indicate *****, in ***** past, companies decided to accept an extra financial leverage, reaching an important amount from the total assets, in order to consolidate the ***** control. (Harris and Raviv -1991, page 334). The situation is *****day somehow ***** beca*****e commercial entities prefer to balance the assets with ***** liabilities. The differentiation policy is well used also in the financial market - managers engage in different f*****ancial projects in order to dim*****ish ***** risk - for ***** ***** shares, bonds ***** other securities, take loans and credits and ask for refundable funds (subsidies, structural funds). ***** business risk notion is highly related ***** financial leverage and capital structure ***** as a company with a high financial burden could be put in the position ***** default and eventually bankruptcy.

2). The size

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