What is Capital Structure, Definition of Capital Structure

Define Capital Structure, Meaning of of Capital Structure

Capital Structure relates to the combination of sources from which long term funds are required to raise the business. In other words, it means the composition of the firm's long term funds comprising of equity, preference and long-term loans.

According to Gerstenberg, the definition of capital structure follows: ↓

“Capital Structure of a company refers to make-up of its Capitalization”.

Capital Structure also suggests the ratio between owned capital and borrowed capital. While planning the capital structure, proper balance between debt and equity is essential. There is no hard and fast rule in deciding the composition of capital structure. The company can go only for equity capital or the company may decide a certain ratio between equity and loan capital. It is always advisable to have a certain ratio between owned funds and borrowed funds.

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