Choosing a Capital Structure

  1. 10.1 Understand how to choose a capital structure.

A capital structure is the mix of long-term equity financing and debt financing that firms use to support their international activities. Capital structure affects the profitability and stability of the firm and its international operations. Companies obtain capital in two basic ways: by borrowing it or by selling shares of ownership in the firm. Equity financing is selling shares of stock to investors, which provides them with an ownership interest—that is, equity—in the firm. The firm can also retain earnings—that is, reinvest profit rather than paying it out as dividends to investors. In new companies, founders often provide equity financing from their personal ...

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