Advertisement

Internal Factors influencing Capital Structure?


The Factor which play vital role in Capital Structure determination are divided into two: -
(A)    Internal Factor: -
1.        Requirement of Capital: - When a new business is started, it cannot issue variety of securities. This is because there is considerable risk involved at initial stages of new company. The ideal structure for new company is to raise capital through equity shares.

2.       Size and nature of business: -The size of the business has great impact on its capital structure. Large manufacturing companies have huge investments in fixed assets such as land, machinery, building etc. further this fixed assets can be offered as securities against issue of debentures.

3.       Growth of Business firm: -Different capital structure may be required at various stages of development of company. At initial stages of development, equity and short term loans are the main sources of finance. When a company grows in size, it can utilize sources of finance such as preference shares, debt capital, etc.

4.       Adequate and stable earning: -The business firms with stable earning will have 'stable earnings per share' (i.e. EPS) such companies can utilize source of debt capital as they can easily pay a fixed rate of interest. Therefore, developed companies usually employ (use) more amount of loan capital. The business firm with unstable earning should not opt debt in their capital structure, as they may face difficulty in meeting fixed amount of interest.

5.       Cash position: -The companies expecting large and stable cash inflow in future can utilize large amount of debt capital in their capital structure. It quite risky for those companies whose cash inflow is unstable and unpredictable to have debt capital.

6.       Period of finance: -While framing capital structure the 'period for which finance is needed' should also be considered. If funds are required on regular basis, the company should raise funds through issue of equity shares.

7.       Attitude of Management: -The capital structure is influenced by attitude of persons in the management. The management's attitude towards 'control of firm'. Should be noted minutely if the management has strong will of exclusive control, then preference shares and debt capital are used as source of finance.

8.       Future plan and development: -While designing capital structure, management should keep in mind the future development and expansion plans. Equity capital can be issued in the beginning. The debenture and preference shares may be issued in future to finance development plans.


9.       Trading on equity: -The use of borrowed capital for financing a firm is known as Trading on equity. The policy of 'Trading on equity' is based on premise (principle) that, if the rate of interest on debt is lower than rate of companies earning, the equity shareholder will enjoy advantage in the form of additional profit. But if the company earnings are not sufficient, it may face financial crisis. The interest on debt has to be paid even in case of loss. The whole earnings may exhaust (waste) in payment of interest.

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

SUBJECTS

HINDI ENTIRE PAPER SOLUTION

MARATHI PAPER SOLUTION

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 COMMERCE, 2nd March, 2019

HSC MATHS PAPER SOLUTION SCIENCE 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

HSC Maharashtra Board Papers 2020

(Std 12th English Medium)

HSC ECONOMICS MARCH 2020

HSC OCM MARCH 2020

HSC ACCOUNTS MARCH 2020

HSC S.P. MARCH 2020

HSC ENGLISH MARCH 2020

HSC HINDI MARCH 2020

HSC MARATHI MARCH 2020

HSC MATHS MARCH 2020


SSC Maharashtra Board Papers 2020

(Std 10th English Medium)

English MARCH 2020

HindI MARCH 2020

Hindi (Composite) MARCH 2020

Marathi MARCH 2020

Mathematics (Paper 1) MARCH 2020

Mathematics (Paper 2) MARCH 2020

Sanskrit MARCH 2020

Sanskrit (Composite) MARCH 2020

Science (Paper 1) MARCH 2020

Science (Paper 2)

Geography Model Set 1 2020-2021


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

No. 1 Simple Hack, you can try out, in preparing for Board Exam

How to Study for CBSE Class 10 Board Exams Subject Wise Tips?

JEE Main 2020 Registration Process – Exam Pattern & Important Dates


NEET UG 2020 Registration Process Exam Pattern & Important Dates

How can One Prepare for two Competitive Exams at the same time?

8 Proven Tips to Handle Anxiety before Exams!

BUY FROM PLAY STORE

DOWNLOAD OUR APP

HOW TO PURCHASE OUR NOTES?

S.P. Important Questions For Board Exam 2022

O.C.M. Important Questions for Board Exam. 2022

Economics Important Questions for Board Exam 2022

Chemistry Important Question Bank for board exam 2022

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

Physics – Section II – Science- Important Question Bank for Maharashtra Board HSC 2022 Examination

Important-formula



THANKS