Capital structure is the percentage of the equity and debt capital used for the functioning of a firm and its wise management. Naturally, in order to exist and function well a firm requires much money. There are many ways of getting money for the financing of the firm but there are two most important and popular ones: equity and debt capital. Equity capital is the money which was invested in the firm directly by the founders of the company.
It is obvious that the risk of failure is high, that is why equity capital is considered to be the most valuable capital, because if the business fails, the owners lose their money. In order to be on the safe side they borrow more money by different means and form debt capital of the company. Debt capital is generally formed from the bonds and long-term borrowings and is supposed to be less risky.
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Naturally, it is easier to operate the borrowed money that to invest your own money into the company and improve the company from your own purse. The advantage of the debt capital is that bonds are long-term borrowings and a company has dozens of years to pay the debt. On the other hand, if the percentage of debt capital is too high, the company will probably fail to pay the debt and will be close to bankrupting when there is time to return the money to shareholders. So, the problem of capital structure is quite unpredictable and requires responsibility and professional management, only then finance will work for the company and bring profit to its owners.
Capital structure is the important problem for the analysis, so if one wants to dwell on the aspects of the topic, he can try to prepare a good capital structure research paper. A professional research paper demonstrates the aim of the investigation, the predicted results of the research, analyzes the topic in detail, focuses on its core principles and analyzes the advantages and disadvantages of equity and debt capital for the normal functioning and development of a company. The student is supposed to summarize the paper well and evaluate the relevance of the topic f capital structure and suggest his own solutions to the existing problems in the organization of capital structure.
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