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Financial Management - CAPITAL STRUCTURE THEORIES

Capital Structure Planning - CAPITAL STRUCTURE THEORIES

   Posted On :  20.06.2018 03:20 am

Companies which do not plan their capital structure may prosper in the short run as they develop as a result of financial decisions taken by the manager without any proper policy and planning. In these companies, the financing decisions are reactive and they evolve in response to the operating decisions.

Capital Structure Planning
 
Companies which do not plan their capital structure may prosper in the short run as they develop as a result of financial decisions taken by the manager without any proper policy and planning. In these companies, the financing decisions are reactive and they evolve in response to the operating decisions.
 
But ultimately they face considerable difficulties in raising funds to finance their activities. With an unplanned capital structure, they will fail to economies use of funds. And this will impact the company’s earning capacity considerably.
 
Our finance manager should be in a position to plan a suitable or optimum capital structure for a company. As we have seen, an optimum structure is one that can maximize the value of the firm in the market.
 
In practice the establishment of an optimum capital structure of a company is indeed a difficult one. It is different and varying among industries and among companies in the same industry. A number of elements and factors influence such a capital structure of a company.
 
These elements and factors are highly psychological, complex and qualitative and they do not always follow same pattern and theory. That is why, given the same company, different decision makers will decide differently on capital structure, as they will have different judgmental background.  
Tags : Financial Management - CAPITAL STRUCTURE THEORIES
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