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Organization's Capital Structure

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What components make up an organization's capital structure? How might an organization go about developing its optimal capital structure? In addition to quantitative variables, what other factors should an organization consider when it is making capital structure decisions?

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This solution of 266 words explains what components makes an organization's capital structure using the Chartered Financial Analyst. It also recommends ways an organization can develop its structure and other factors to consider. Reference used is included.

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According to the Chartered Financial Analyst ® Institute (2008), the capital structure of an organization is the "mix of debt and equity that the company uses to finance its business" (p. G-6). Thus, a firm's optimal capital structure is the specific mix of debt and equity that minimizes the company's cost of capital and hence, maximizes the value of the firm.

In developing its optimal capital structure, the company can ...

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