{"id":6522,"date":"2021-09-19T18:18:13","date_gmt":"2021-09-19T12:48:13","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=6522"},"modified":"2025-10-07T20:10:40","modified_gmt":"2025-10-07T14:40:40","slug":"capital-structure-meaning","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/capital-structure-meaning\/","title":{"rendered":"Capital Structure Meaning &#8211; Principles of Capital Structure"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large is-resized\"><img decoding=\"async\" width=\"1024\" height=\"576\" data-src=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-1024x576.jpg\" alt=\"Capital Structure Meaning\" class=\"wp-image-6531 lazyload\" style=\"--smush-placeholder-width: 1024px; --smush-placeholder-aspect-ratio: 1024\/576;width:768px;height:432px\" title=\"\" data-srcset=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-1024x576.jpg 1024w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-300x169.jpg 300w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-768x432.jpg 768w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-1536x864.jpg 1536w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning-640x360.jpg 640w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/09\/Capital-Structure-Meaning.jpg 1920w\" data-sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-text-align-center\"><strong>Capital Structure Meaning<\/strong><\/h2>\n\n\n\n<p>A company can raise its capital from different sources<span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">, such as\u00a0<strong>owned capital,<\/strong>\u00a0<strong>borrowed capital,<\/strong>\u00a0or both. Owned capital consists of equity share capital, preference share capital, reserves, and surplus. On the other hand, borrowed sources include<\/span> debentures, loans, etc.<\/p>\n\n\n\n<p>A combination of different sources is used in capital structure. It is nothing but a \u2018<strong>security mix.<\/strong>\u2019<\/p>\n\n\n\n<p><a href=\"https:\/\/en.wikipedia.org\/wiki\/Capital_structure\" target=\"_blank\" rel=\"noreferrer noopener\">Capital structure<\/a> means \u2018<strong><em>mix up of various sources of funds in desired proportion<\/em><\/strong>\u2019. To decide capital structure means, to decide upon the ratio of different types of capital.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Definition of Capital Structure<\/h4>\n\n\n\n<p><strong>R. H. Wessel: \u201c The long-term<em> sources of funds employed in a business enterprise<\/em><\/strong>\u201d.<\/p>\n\n\n\n<p><strong>John Hampton:<\/strong> \u201c<strong><em>A firm\u2019s capital structure is the relation between the debt and equity securities that make up the firm\u2019s financing of its assets<\/em><\/strong>\u201d.<\/p>\n\n\n\n<p>Thus capital structure is composed of owned funds and borrowed funds. Owned funds include share capital, free reserves and surplus, whereas, borrowed funds represent debentures, Bank loans, and long-term loans provided by financial institutions.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Principles of Capital Structure<\/h4>\n\n\n\n<p>Two basic principles are observed while making decisions about capital structure.<br>(1) The ratio of \u2018debt to equity\u2019 should always be geared to the degree of earning stability.<br>(2) The capital structure must be balanced with an adequate \u2018equity cushion\u2019 to absorb the shocks of the business cycle and to afford flexibility.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/scholarsclasses.com\/blog\/factors-affecting-working-capital\/\" target=\"_blank\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/factors-affecting-working-capital\/\" rel=\"noreferrer noopener\">Factors affecting Working Capital requirement<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":6531,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[2587],"class_list":["post-6522","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-misc","tag-capital-structure-meaning"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6522","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=6522"}],"version-history":[{"count":6,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6522\/revisions"}],"predecessor-version":[{"id":39343,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/6522\/revisions\/39343"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/6531"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=6522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=6522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=6522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}