What are the different models of capital structures?

The company's capital structure is a combination of funding sources that provide long -term income. Each company uses a different combination of long -term funding sources, but models of basic capital structures provide financial managers of the Foundation and Direction. Capital structure models include a model of dependence, a model of independence, moderate models and a keyboard order model.

The basic elements of the capital structure models include debt financing and financing your own capital. Debt financing usually takes the form of loans and bonds and financing its own capital, also known as investment financing, which includes different types of shares. Differences in capital structure models are based on the possible impact of debt financing on shares. The basis of each model is a different theory of debt effects.

The dependence models stem from the theory that its own capital is always influenced by debt financing and any amount of debt increasing increases capital costs. In the spinningThe fact that its model, any net income that the company earns, will correspond to the total market value of the company's ordinary shares. This maintains the perfect relationship between revenue and its own capital, but there is almost never a good relationship in functioning markets. Instead, the dependence model can be used as a basis for the capital structure.

Similarly, most businesses would not be able to observe an independence model that believes that no debts can affect the company's capital. For example, the Company can issue bonds and use capital from these bonds to pay higher shares. In other models, the increase in stock sales would be associated with increased dividends and increased debt, but this model would associate the revenue back with the debt. The independence model works in other ways and refuses to recognize the negative impact of the debt on the company's ability to increase capital.

from that dObymodels of dependence and independence are extreme, many businesses use a slight financial structure. Some companies use a tax shield to protect debt from rising. Other businesses can use an independence model on a theoretical basis and at the same time maintain a continuous calculation of the possibility of business failure or bankruptcy due to debt financing. If the risk becomes too high, the company can switch models or reduce its debt.

The

Model KMPing dictates that the company uses the least costly way to increase capital first, and slowly move to more expensive capital if necessary. For example, in the framework of ordering theory, the company could first spend capital capital, then income, then debit capital, if necessary. Debt capital is increased and spent last because it is often the most expensive form of financing.