The theory of capital structure is deeply associated with the cost of capital of the company, within the studies that have been carried out on the subject, there are many assessments about the “Optimal capital structure” without reaching a unification of criteria, some defend the idea that the optimum can be reached, the others, however, are convinced that this is not possible, they have only reached the agreement that a good combination of the resources obtained in debts, common shares must be obtained and preferred shares and equity instruments, with which the company can finance its investments.
This goal may change over time as conditions vary.
The way to determine the “Optimal capital structure” is one that maximizes the price of the company’s shares linked to the cost of capital, which therefore has to be minimized.
The factors that influence capital structure decisions are mainly the business risk that is inherent to the operational activities of the company (the higher the risk, the higher the return), the tax position of the company due to the interest that is deductible. of income, the method of depreciation of fixed assets, the amortization of tax losses and the amount of tax rates.
Regarding the types of risk that occur in companies, it could be said that there are three: operational risk, financial risk and total risk, which are closely linked to the company’s capacity.
Operational risk is the risk of not being able to cover operating costs, Financial risk is the risk of not being able to cover financial costs and Total risk is a type of total leverage. (In later articles this topic will be explored in depth.)
- Net profit
- Net operating profit
- Modigliani and Miller