What are the different types of capital structure theory?
The company's capital structure is its financial structure minus the current obligation, leaving a combination of long -term financing of the company. The capital structure consists of solid assets such as debt, permanent shares and long -term investments. How to structure permanent finances is the primary focus of several types of capital structure theory. These theories include the hypothesis of independence, the hypothesis of dependence and several mild theories that balance between independence and addiction.
Most businesses seek to achieve optimal capital structure, which is a combination of funding sources that minimize the cost of increasing capital to finance new businesses. The theory of optimal capital structures is unique for every business, so different businesses enroll in different theories. Financial analysts use a number of elements to determine the structure of capital. These often include the stem values of shares, expected cash dividends, capital, debt and earnings.
TheIndependence of the capitolports structure is generally considered to be an extreme hypothesis. This position provides that the costs of capital and prices of the company's ordinary shares are independent of the selection of the company's financial effect. According to independence theory, no debt financing amount can affect the company's shares price. The accounting approach known as net operating income or Noi uses the accounting approach to record assets and liabilities within this system.
The dependence hypothesis is the opposite of the theory of the capital of independence and is usually also considered an extreme idea. This theory assumes that a greater financial leverage on the company's capital costs. It is assumed that market trends capitalize or discount expected revenues of ordinary shareholders in relation to demand for the shares of the company. Revenues become synonymous with net income and accounting evaluate this using this income orni approach.
In fact, most business situations require capital structure theory that combines or alleviates these two extreme theories. The theory of independence is defective because too much financial leverage can eventually cause society to go bankrupt or fail. The theory of dependence of the capital structure is misleading because the financing of debt can and often increases the value of outstanding shares.
Fashion often comes in the form of a tax shield that alleviates debt financing by enabling debt failure and protecting shares investors using the Tax Code as a shield saving costs. This maintains the cost of capital somewhat independent of the lever effect, while still acknowledging that the debt can affect shares. Financial managers may try to control the debt by calculating debt capacity, which determine the maximum proportion of debt, which can be handed over by the company's capital structure.