What is Capital Structure

In simple words, capital structure is the structure of long term liabilities. We have to buy the asset, we need money. This money can be collected by issuing shares and debentures. Fund through equity shares will become our equity share capital. Fund through debentures will become our debt. Company will choose the best combination of both share capital and debt for minimize the overall cost of capital. This best combination of share capital and debt is the capital structure of company.


For example, if we see the balance sheet of Andhra Bank, its total assets are Rs. 125683 Crores. So, getting all these assets, company has made its capital structure. company has issued share capital of Rs. 559 crores. Company has taken debt of Rs. 114078 crores. It means 0.48% is equity financed and  99.51% is debt financed. Maximum debt came in the form of customer's deposited money. But in other companies, share capital may be 10% to 70% of total source of fund. Capital structure is fully dependent on the capital structure planning which is the main part of the duty of finance manager.

More Resources of Capital Structure :

Importance of Capital Structure
Theories of Capital Structures
Factors Affecting Capital Structure

Important for Students : {This written lecture is the part of CS Professional Programme's Financial Management's Notes}