External Factors influencing Capital Structure?



1.       Market Condition: -The pattern of capital is also influenced by prevailing market conditions. Readiness of investors to purchase shares, interest rate, stages of business cycle, tax, risk of investment, etc together form market conditions.

2.       Attitude of Investor: -Attitude of investor also plays an important role in determination of capital structure. The investor s who is ready to take risk and expect higher returns prefer equity shares for investment. On the contrary, cautions investors, who are interested in safe and assured income, invest in debentures.

3.       Cost of Capital: -Cost of capital is one of the important factors while designing capital structure. The cost of capital is the minimum return expected by its supplier. The expected return depends upon the degree of risk. The high degree of risk is assumed by shareholders than debt holder. In case of debt holder, the rate of interest is fixed, while rate of dividend given to shareholder is not fixed.

4.       Government rules and regulation: -Statutory obligations play important role in capital structure decision. The SEBI has prescribed Debt: equity ratio norm of 2:1. A higher debt-equity ratio of 3:1 has been permitted for large capital intensive project. The small industrial projects are given concession and aid by government to avail more debt capital as compared to equity capital.

5.       Attitude of financial institution: -If financial institution prescribes high terms of lending, then management has to move to other source of financing. If financial institutions prescribe easy terms of lending, it would be advantageous to obtain funds at cheaper rate.

6.       Rate of Interest: -The prevailing rate of interest plays vital role in determining capital structure. If prevailing interest rates are higher, firms will delay debt financing. On the other hand, if prevailing interest rates are lower, firm will opt debt financing.

7.       Taxation: -Interest paid against debt is tax deductable expenditure. Dividend is not considered as tax deductable expenditure for the company. As such, issue of debt is more advantageous than issue of share capital.


8.        Competition:- The firm which are facing cut-throat competition prefer to issue equity shares because their earnings are not certain and adequate. But the companies which have monopolies may issue debt capital because of certainty of earnings.

PDF FILE TO YOUR EMAIL IMMEDIATELY PURCHASE NOTES & PAPER SOLUTION. @ Rs. 50/- each

SSC MATHS I PAPER SOLUTION

SSC MATHS II PAPER SOLUTION

SSC SCIENCE I PAPER SOLUTION

SSC SCIENCE II PAPER SOLUTION

SSC ENGLISH PAPER SOLUTION

SSC & HSC ENGLISH WRITING SKILL

HSC ACCOUNTS NOTES

HSC OCM NOTES

HSC ECONOMICS NOTES

HSC SECRETARIAL PRACTICE NOTES

2019 Board Paper Solution

HSC ENGLISH SET A 2019 21st February, 2019

HSC ENGLISH SET B 2019 21st February, 2019

HSC ENGLISH SET C 2019 21st February, 2019

HSC ENGLISH SET D 2019 21st February, 2019

SECRETARIAL PRACTICE (S.P) 2019 25th February, 2019

HSC XII PHYSICS 2019 25th February, 2019

CHEMISTRY XII HSC SOLUTION 27th, February, 2019

OCM PAPER SOLUTION 2019 27th, February, 2019

HSC MATHS PAPER SOLUTION 2nd, March, 2019

SSC ENGLISH STD 10 5TH MARCH, 2019.

HSC XII ACCOUNTS 2019 6th March, 2019

HSC XII BIOLOGY 2019 6TH March, 2019

HSC XII ECONOMICS 9Th March 2019

SSC Maths I March 2019 Solution 10th Standard11th, March, 2019

SSC MATHS II MARCH 2019 SOLUTION 10TH STD.13th March, 2019

SSC SCIENCE I MARCH 2019 SOLUTION 10TH STD. 15th March, 2019.

SSC SCIENCE II MARCH 2019 SOLUTION 10TH STD. 18th March, 2019.

SSC SOCIAL SCIENCE I MARCH 2019 SOLUTION20th March, 2019

SSC SOCIAL SCIENCE II MARCH 2019 SOLUTION, 22nd March, 2019


XII CBSE - BOARD - MARCH - 2019 ENGLISH - QP + SOLUTIONS, 2nd March, 2019


BUY FROM PLAY STORE

DOWNLOAD OUR APP



HOW TO PURCHASE OUR NOTES?




S.P. Important Questions For Board Exam 2020


O.C.M. Important Questions for Board Exam. 2020


Economics Important Questions for Board Exam 2020


Chemistry Important Question Bank for board exam 2020


Physics – Section I- Important Question Bank for Maharashtra Board HSC Examination


Physics – Section II – Science- Important Question Bank for Maharashtra Board HSC 2020 Examination


MUST REMEMBER THINGS on the day of Exam


Are you prepared? for English Grammar in Board Exam.


Paper Presentation In Board Exam


How to Score Good Marks in SSC Board Exams


Tips To Score More Than 90% Marks In 12th Board Exam


How to write English exams?


How to prepare for board exam when less time is left


How to memorise what you learn for board exam