Deciding Capital Structure

Deciding Capital Structure

The capital structure refers to the kind and proportion of
the different securities for raising funds. After deciding about the quantum of funds
required it should be decided which type of security should be raised. It may be wise to
finance fixed securities through long term debts. Long-term funds should be employed to
finance working capital also. Decision about various sources of funds should be linked to
cost of raising funds. If cost of rising funds is high, then such sources may not be useful.
A decision about the kind of the securities to be employed and the proportion in which
these should be used is an important decision which influences the short term and the
long term planning of the enterprise.