What is capital structure?

Capital structure refers to the composition and proportional relationship of various capitals of enterprises. Theoretically speaking, there are two kinds of capital structure: generalized capital structure refers to the composition of all capital, that is, the comparison between self-owned capital and debt capital; In a narrow sense, capital structure refers to the contrast between self-owned capital and long-term debt capital, and short-term debt capital is managed as working capital. The sole proprietorship of modern enterprises is rare. It is possible and necessary for every enterprise to raise the required funds through different channels and ways. The capital cost, constraints, financing income, related risks and creditor's rights of various capitals will be different. At present, the capital structure of enterprises has attracted much attention, because capital structure, as the value composition of enterprises, contains a series of structural problems of enterprises and is a comprehensive reflection of the following structures in financial decision-making and planning: (1) financing interest structure. Fund-raising activities themselves do not create profits, but through fund-raising activities, the final operating results of enterprises can be changed and influenced. Different financing methods have different effects on the future earnings of enterprises. The financing interest structure mainly means that the establishment and change of the capital structure of an enterprise should be conducive to the maximization of the ultimate interests of the enterprise (such as the profit rate of its own capital, earnings per share and enterprise value). (2) Financing risk structure. Financing risk is mainly caused by debt financing. The higher the corporate debt ratio, the higher the financing cost and the greater the financing risk. Reducing enterprise risk is the basic point of capital structure problem. (3) Financing property right structure. Different financing channels form different enterprise property rights structures. Capital structure is the basic carrier of enterprise property right structure, and the change of capital structure is essentially the change of enterprise property right relationship. (4) Financing cost structure. Financing cost is the price that financing must pay. The difference of financing cost under different financing methods and channels requires enterprises to realize the rationalization of weighted capital cost. (5) Time structure of fund-raising. The difference in the quantitative relationship between long-term funds and short-term funds makes the risks, financing costs and financing flexibility of enterprises very different. The capital structure must consider the term structure of various financing. (6) Spatial structure of financing. The spatial structure of financing shows the quantitative proportional relationship among international financing, domestic financing and internal financing. Therefore, the capital structure is the result of a systematic and comprehensive summary of the expected income, capital cost, financing risk and property right distribution of enterprises. The design of capital structure is to seek a reasonable balance among financial leverage, financing cost and financing risk in the process of enterprise financing. Whether the capital structure is reasonable or not, to a great extent, determines the debt repayment and refinancing ability of enterprises and their future profitability. At present, the capital structure studied by most enterprises usually refers to the ratio of long-term liabilities to owners' equity (in joint-stock companies, it refers to the ratio of long-term liabilities to shareholders' equity). Generally speaking, the problem of capital structure is the problem of debt ratio, that is, how much debt accounts for in the total capital of an enterprise.