capital structure

Capital structure

The makeup of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and long maturities.

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Capital Structure

How a company finances its operations. The three most basic ways to finance are through debt, equity (or the issue of stock), and, for a small business, personal savings. Capital structure usually refers to how much of each type of financing a company holds as a percentage of all its financing. Generally speaking, a company with a high level of debt compared to equity is thought to carry higher risk, though some analysts do not believe that capital structure matters to risk or profitability.

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capital structure

See capitalization.

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capital structure

See capital stack.

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Capital Structure

What Does Capital Structure Mean?

The combination of a company's long-term debt, specific short-term debt, common equity, and preferred equity; the capital structure is the firm's various sources of funds used to finance its overall operations and growth. Debt comes in the form of bond issues or long-term notes payable, whereas equity is classified as common stock, preferred stock, or retained earnings. Short-term debt such as working capital requirements also is considered part of the capital structure.

Investopedia explains Capital Structure

The proportion of short-term and long-term debt is considered in analyzing a firm's capital structure. When people refer to capital structure, they most likely are talking about a firm's debt/equity ratio, which provides insight into how risky a company is. Usually a company financed heavily by debt poses greater risks because it is highly leveraged.

Related Terms:
• Cost of Debt
• Debt Financing
• Long-Term Debt
• Retained Earnings
• Shareholders' Equity