What Is Optimal Capital Structure?

Optimal capital structure means that within a certain period of time, the weighted average cost of capital WACC of the capital raised by the enterprise is the lowest to maximize the value of the enterprise. It should be the company's target capital structure (TargetCapitalStructure).

Optimal capital structure

Under the condition of acknowledging the existence of an optimal capital structure, different scholars also have great disputes about the value of the optimal capital structure. There are two main views: the optimal capital structure is a specific value; the optimal capital structure is an interval. For example, Zhang Yan (2004) believes that due to the influence of many factors, the optimal capital structure is not a fixed value, but should be a range of change. Within this range, the company's

The research on the optimal capital structure has more than 50 years of history, but so far, there are still many disputes in the academic community on the optimal capital structure. These disputes are mainly reflected in the following three aspects:

First, the meaning of optimal capital structure.

Second, the question of the existence of an optimal capital structure is whether there is an optimal capital structure. One faction denies the existence of an optimal capital structure, early

And suboptimal capital structure

Suboptimal capital structure and optimal capital structure:

The optimal capital structure we usually talk about refers to the ideal optimal capital structure. This article believes that the ideal optimal capital structure is a long-term and continuous pursuit of corporate goals. The ideal optimal capital structure is a specific value, not an interval. However, due to various factors, enterprises cannot reach the ideal optimal capital structure at any time. In addition, due to the limitation of cognitive ability, people have not reached the point of fully understanding the decision basis and value of the ideal optimal capital structure. The ideal capital structure is a capital structure that exists in theory, but is very difficult to achieve in reality.

We can only influence the capital structure by influencing and manipulating the relevant variables we can control and control, so that the sub-optimal capital structure approaches the ideal optimal capital structure. However, due to many factors affecting the optimal capital structure, we cannot understand, so When the optimal capital structure is approached by affecting the variables we can control, we can consider that a sub-optimal capital structure has been achieved. The gap between the suboptimal capital structure and the optimal capital structure is affected by variables that cannot be controlled by us.

Under the conditions of optimal capital structure, the corporate value of listed companies achieves the greatest. At any time, a listed company has a unique capital structure

Comparative cost of capital

Due to the limitation of people's cognitive ability, people's understanding of the optimal capital structure has not reached the level of complete understanding. Therefore, in real life, how to achieve the optimal capital structure is a difficult problem.

The optimal capital structure includes two meanings: the first layer refers to the suboptimal capital structure, and the second layer refers to the ideal optimal capital structure. The optimal capital structure usually refers to the ideal optimal capital structure.

Therefore, in real life, companies can only choose the optimal capital structure in reality-the suboptimal capital structure. The sub-optimal capital structure refers to the capital structure under the condition that the financial indicators of the enterprise are healthy and the enterprise's sustainable development ability is strong. The suboptimal capital structure is not a specific, fixed value, but a variable interval. Only the relevant variables that can be grasped and controlled by influence and manipulation can affect the capital structure, so that the sub-optimal capital structure approaches the ideal optimal capital structure, but because many factors affecting the optimal capital structure cannot be understood, or even understand Nor can it be controlled, making it difficult for the capital structure in reality to reach the ideal optimal capital structure. Therefore, when the optimal capital structure is approached by affecting the variables that can be controlled, it can be considered that a sub-optimal capital structure has been achieved. Under the guidance of this idea, the suboptimal capital structure is an interval containing the ideal optimal capital structure. The gap between the suboptimal capital structure and the optimal capital structure is affected by variables that cannot be controlled.

When an enterprise's financial indicators are within a safe range and then reach the excellent standard, the capital structure of the enterprise is a sub-optimal capital structure. According to the theory of influencing factors of capital structure, the capital structure of an enterprise is affected by various financial indicators of the enterprise. These indicators include solvency indicators, profitability indicators, growth indicators, etc. Obviously, when the various financial indicators of the enterprise are in excellent condition At the same time, they will have a beneficial impact on the capital structure, so that the current capital structure is conducive to the realization of maximum corporate value. Conversely, if certain financial indicators in the enterprise deteriorate, the capital structure is certainly not optimal.

The capital structure that can promote the sustainable and healthy development of an enterprise may be closer to a suboptimal capital structure. When the capital structure of an enterprise is close to the optimal capital structure, the value of the enterprise is conducive to maximization. Under this condition, the enterprise has strong competitiveness and vitality. Enterprises can not only survive, but also develop well. If the enterprise can continue to develop healthily for a long period of time, it means that the capital structure of the enterprise is suitable for the enterprise, and the capital structure at this time may be a suboptimal capital structure.

The capital structure of the best companies in the same industry is close to the sub-optimal capital structure. Although it is said that the optimal capital structure of different enterprises is different, within the same industry, there are certain similarities between the enterprises, so the optimal capital structure is relatively close. The best companies in the same industry indicate that the company's financial indicators are relatively healthy, the company's sustainable development ability is strong, and the company's competitiveness is relatively strong. Therefore, the capital structure of the best company in the same industry can be used as a reference standard for the second-best capital structure of the company.