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    Definition of Capital Structure

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    What do you understand by a Capital Structure? What basic principles will you advocate in the matter of deciding on a proper pattern of capital structure for a company? Explain with one illustration.

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    Solution Preview

    Capital structure refers to the combination of the long term debt and stockholders' equity portions of the balance sheet. Together those two components of a balance sheet provide the liquidity with which to purchase assets. Most companies need some assets before they can produce revenue.

    The big question is to decide what percentage of the capital structure will be debt ...

    Solution Summary

    In a 258 word response, the solution gives the definition of capital structure followed by five criteria which might help a company decide about how much debt versus equity. There is also a simple application of the principles listed.