Capital Structure Theory
Capital structure theory examines the mix of different sources of funding that a company utilizes to finance its operations and growth. This includes analyzing the proportions of debt and equity in a company's capital structure, as well as the costs and benefits associated with each type of financing. The goal of capital structure theory is to determine the optimal mix of debt and equity that maximizes a company's value and minimizes its cost of capital. This theory is essential for understanding how companies make decisions about financing and how these decisions impact their overall financial health and performance.