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Capital Structure

Capital structure refers to the way a company finances its operations and growth through a mix of debt (loans, bonds) and equity (stocks). Essentially, it’s the balance between money borrowed and funds raised by selling ownership shares. A company’s capital structure affects its overall risk and return; more debt can lead to higher returns but also greater financial risk. Investors analyze this structure to evaluate the firm’s financial stability and potential for growth. A well-chosen capital structure helps a company effectively manage its costs and achieve its business objectives.

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    Capital structure refers to the way a company finances its operations and growth through a combination of debt (loans, bonds) and equity (stocks, shareholders' investments). A strong capital structure balances these sources to minimize costs and maximize financial stability. For example, using too much debt can increase risk due to repayment obligations, while relying solely on equity can dilute ownership. Companies aim to find the right mix to support their goals, manage risk, and enhance their value over time. Understanding capital structure is key to grasping how businesses manage their finances effectively.