Capital Structure

Definition of Capital Structure as it relates to Finance, Capital Budgeting, Capital Expenditure

Capital Structure refers to the composition of a company's capital, which is divided into equity and debt. It outlines the proportion of each component in the financing mix of a business. When engaging in capital expenditure under capital budgeting, companies must consider their capital structure as it plays a crucial role in determining the cost of capital and the financial risk associated with investments. The capital structure decision involves determining the optimal mix of debt and equity that maximizes shareholder wealth while ensuring the company's solvency and financial stability.

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