successful development of the company, stable positive financial results of its activities largely depend on what the capital structure of the company.
In the economic literature, the term capital structure is understood the ratio between debt (borrowed) and total equity of the organization that are necessary for its sustainable development.On how this optimal ratio of capital depends on the overall implementation of the long-term development strategy of the organization.
The composition of the capital structure of the concept of the organization include debt and equity.
Equity includes assets of the organization that uses it to create some of the assets of the organization and who belong to it by right of ownership.The capital structure of the property includes the following components:
- additional capital (represented by the value of the property, which is made in addition to the founders of the funds that make up the share capital; it is the cost of which are formed on the revaluation of assets as a result of changes in its value, as well as other revenues);
- reserve capital (this is the part of the equity company that stands out from the profit to repay the potential loss or damage);
- retained earnings (the primary means of accumulating assets of the organization, formed from the gross profit after payment of fixed income taxes and after deductions for other needs of those profits);
- special purpose funds (part of net profit that the organization aims at production, or social development);
- Other reserves (such reserves are required in the case of upcoming major expenses are included in cost of products or services).
Loan capital is represented by the organization involved money or other property values based on their return, which are necessary to finance the development of the organization.Typically, these include long-term bank loans and loans on bonds.
It should be noted that the optimal capital structure of the company - it is the ratio of equity and debt, which is able to maximize the overall value of the organization.
In economic practice, no clear recommendation on how to create the best possible capital structure.On the one hand it is assumed that the average cost of debt capital is lower than their own.Consequently, the increase in the share of cheaper debt capital will cause a decrease in the weighted average cost of capital.However, in practice, in this case we can arrive at a lower cost firm which depends on the market value of equity organization.
also attract loan capital has a number of limitations, and the growth of debt directly affects the ability to fail.In addition, existing debt significantly restrict the freedom of action when dealing with finances.
Therefore, the organization's capital structure - a rather complicated and unpredictable element of the financial component of the enterprise, which requires competent and thorough approach to it.
