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Strategic Financial Management

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1. What is capital structure? Why does it matter in terms of a company's financial performance? How does a company's capital structure affect overall risk?

2. What are major areas of risk in financial management? What are major areas of financial risk in your company? Which risk management techniques are important to your company? Why?

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Solution Summary

Capital structure is defined. Why it matters in terms of a company's financial performance is examined. The major areas of risk in financial management is determined.

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1. What is capital structure? Why does it matter in terms of a company's financial performance? How does a company's capital structure affect overall risk?

Capital structure of a company can be defined as the mix of different source of funds that includes long term debt, short term debt, common equity, and preferred shares. Company uses the mix of all this source of funds to finance its operations.

Company financial performance has a high impact of the capital structure. If a company is using more debt in its capital structure it will have more tax incentive and less number of shareholders as compared to the capital structure with more equity. Due to this the earning per share (EPS) of the company increases. If it uses more equity then ...

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Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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