Overview of Capital Structure Dimensions and Importance to Organisation

Abstract

Theoretical literature has documented a number of definitions of the term capital structure. Like most other terms in finance, no consensus exists on any of the definitions. According to Aliu (2010), a firm‟s capital structure refers to the combination of its financial liabilities and its equities. It is the way a corporation finances its assets through some mix of equity and debt.   In line with this, Abdul (2010), Saad (2010), Shehu (2011), Michael (2012) and Ishaya and Abduljaleel (2014) referred to it as a mix of different types of securities (long-term debt, common stock) which are issued by a firm to finance its assets. Semiu and Collins (2011) also referred to it as the proportions of capital at work in a business by type, namely, equity capital and debt capital, each of which having its own benefits and drawbacks. From the foregoing, capital structure is simply a firm‟s financial framework, which comprises of a firms retain earnings, debt financing and equity financing in order to maintain the business entity in financing its operations.