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 ***** position on the market. The capital structure is a sensible issue that will be tackled alongside practical considerations. In the end, the author ***** highlight his conclusions on the topic.

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Besides its savings and investments, a p*****rticular company must rely on foreign resources of financing in order to develop ***** activities or consolidate the c*****porate ***** on ***** market. Among the long term financing 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 other types of ***** - wages to employees, unpaid dividends to shareholders. The capital structure of a ***** is to be selected according to many criteria, which will further on ***** in this paper. Funds, which are the engine behind the performance of a comp*****ny on the market, must be raised by all means ***** methods - from the creditors, suppliers, banks, populati*****, 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 ********** present the situation.

Fac*****rs affecting ***** ***** structure

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

1) Capital structure and time are strongly correlated terms, with the historic elements **********g the ***** 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 comparison between companies *****day ***** the behavior ***** companies back in ***** '80s. The financial statements indicate that, in the past, companies decided to acce***** an extra fin*****cial leverage, reaching an important amount from the total assets, in order to consolidate the corporate control. (Harris and Raviv -1991, page 334). The situation is today 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 financial projects in order to diminish ***** risk - for example issue shares, bonds and other securities, take loans ***** credits and ask for refundable funds (subsidies, structural funds). The business risk notion is highly related to ***** leverage and ***** structure - as a company with a high financial burden could be put in the ***** of default and eventually bankruptcy.

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