Financial Management: Principles and Applications, 13/e

Chapter Summaries

15.1 Describe a firm’s capital structure. (pgs. 484–488)

Summary:

A firm’s financial structure is the mix of all items that appear on the right-hand side of its balance sheet. This includes all of the firm’s current liabilities as well as long-term debt and owners’ equity. For purposes of analyzing a firm’s financing decisions, we typically limit our consideration to the firm’s capital structure, which includes interest-bearing liabilities, such as short- and long-term debt, and equity (preferred and common). Although it is common practice to evaluate a firm’s capital structure using book values, as we learned in Chapter 14, we should use market values when analyzing a firm’s capital structure as part of a cost of capital ...