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Optimal capital structure - Important factors

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Because of the difficulty in determining a firm's optimal or target capital structure, financial managers depend on both quantitative analysis and judgment in practice. What are the factors, which are important to consider for optimal capital structure.

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Solution Summary

This posting list down all important factors, which managers should consider while deciding about the target or optimal capital structure for the company. These factors are classified into 10 broad categories and then indicators in each of them are discussed.

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Important Factors

Cash Flow - uncertainty about future cash flows, Sensitivity of cash flow with respect to interest rates, inflation, currency rates and the economy, operability of the cash flows by lenders

Market Condition - interest rates, inflation, currency rates; state of the stock market

Profitability and stability - ...

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