Also read Deferr Tax Treatment in PSAK and Example of Journal Entries Types of Business Capital Structure business capital structure . Capital structure with high leverage High Leverage Capital Structure This capital structure is characteriz by the use of a high proportion of borrow capital debt in comparison with own capital equity. Companies tend to use more loans than their own capital to fund operational and investment activities.
Example A technology
Startup company recently rais Switzerland WhatsApp Number Data capital from venture investors to develop products and expand its operations. The company decid to use a highly leverag capital structure to raise the additional funds ne at a lower cost of capital. Here are the details Loan Capital These companies take loans from banks and bonds to obtain additional funds. They use a loan of with annual interest of . Share Capital Apart from loans companies also raise capital through the sale of shares to venture investors. They receiv an investment of in preferr stock from a venture capital firm.
With this capital structure
The company can raise additiona Sweden Phone Number List l funds of at a relatively low cost of capital. However companies also have high levels of debt and have to pay annual interest on the loans they take out. Nonetheless they hope that the rapid growth and high profits from new product development will outweigh the additional costs associat with this highly leverag capital structure. . Capital structure with low leverage Low Leverage Capital Structure On the other hand this capital structure has a higher proportion of own capital than borrow capital. Companies in this capital structure tend to rely less on debt and more on equity to finance operational and investment activities. manufacturing company has manag to accumulate its own capital from profits earn over the years.