Capital structure is the relation of the equity and debt capital possessed and used by the company. Evidently, in order to develop and exist, every company needs money, so every businessman should invest money into his company to improve the quality and quantity of its work.
It is obvious that it is quite difficult to start your own business if you possess little money, so the only way out is to borrow it somewhere. As a result the company lives on debt capital, as the whole production, the salary for employees and the whole development of the company depends on the borrowed money.
Equity capital is the capital which belongs to the employer or the founder of the company. He risked his money to start business, that is why equity capital is much more important for him.
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A smart businessman will seldom risk his equity capital trying to broaden his company or to increase the choice of production, so the only way out is the debt capital. It is safer to borrow many and then return the debt if the company becomes profitable enough, but one should remember that the debt capital is quite a risky point, because the debts should be paid on time. That is why if an expert wants to evaluate the success of the company and its ability to survive in stressful and unfavorable situations, like crisis, he pays the key attention to its capital structure. Every investor who chooses the safest company for investment also analyzes its capital structure to see whether the company can pay debts and avoid bankrupting.
The question of capital structure is quite a serious one, because the success and stability of every company depends on it. If a student is interested in capital structure and wants to increase his knowledge on this topic, he is able to ask the professor for the permission in the form of a well-composed research proposal. A successful capital structure research proposal is expected to be interesting, logical and informative. A student should present the scope of the research, methodology and predictions briefly to make the professor believe that the topic is really worth investigation.
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