Capital Stack

The capital stack refers to the hierarchy of investors' claims on a company's assets and earnings. It is structured like a pyramid, with different layers representing various types of financing. At the top are equity investors, who own shares and take on more risk for potentially higher returns. Below them are debt investors, who lend money and receive fixed interest payments, prioritizing repayment. Each layer varies in risk and return, influencing how profits and asset claims are distributed. Understanding the capital stack helps investors assess the risks and rewards associated with financing a business or project.