Starting a business requires capital, which may be either Debt or Equity. The capital structure takes shape through equity and debt used by a company to finance its operations and growth.
Capital structure is determined by using various sources of long-term funds raised by a firm, including equity shares, preference shares, retained earnings, long-term loans, debt instruments, etc.

Optimal Capital Structure

Optimal capital structure is the perfect mix of equity and debt financing that aids in maximizing the business valuation while keeping the cost of capital minimize.
Optimal capital structure is vital for a company as it determines the overall stability of a company.

Below listed factors highlight the importance of optimal capital structure:

  1. The optimal capital structure increases the market value of the shares and securities of the company, which will lead to a higher business valuation.
  2. A good capital structure ensures the effective usage of the available funds by preventing over or undercapitalization.
  3. It helps the company to increase its profits due to the low cost of debt financing.
  4. It enables the company to provide more returns to shareholders.
  5. An optimal capital structure aids in maximizing shareholder’s wealth while minimizing the cost of the capital.
  6. A good capital structure makes the company flexible to increase or decrease the debt capital as per the situation.
  7. An optimal capital structure assists in better selling off a business. Quite often, the buyer’s decision to ‘buy or not-buy’ depends on how simple and transparent or complicated the capital structure of a company is. Complex structures can lead to lower offer prices or even jeopardizing the deal.

What we can offer

Our finance experts understand clients’ long-term objectives of business viability. We critically examine the capital structure of the company and make a recommendation for an optimal capital structure that leads to more shareholders’ wealth and lesser debt financing cost. We provide clear solutions to capital structuring issues that assist our clients in achieving their long-term goals.

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