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Unformatted text preview: use of fixed operating Describe the types of capital, external assessment of capital structure, the capital structure
of non-U.S. firms, and capital structure theory. Two LG1 LG2 LG3 CHAPTER 11 basic types of capital—debt capital and equity capital—make up a firm’s capital structure. They differ
with respect to voice in management, claims on income and assets, maturity, and tax treatment. Capital structure can be externally assessed by using financial ratios—debt ratio, times interest earned
ratio, and fixed-payment coverage ratio. Non-U.S.
companies tend to have much higher degrees of indebtedness than do their U.S. counterparts, primarily because U.S. capital markets are much more developed. Similarities between U.S. corporations and
those of other countries include industry patterns of
capital structure, large multinational company capital structures, and the trend toward greater reliance
on securities issuance and less reliance on banks for
Research suggests that there is an optimal capital
structure that balances the firm’s benefits and costs of
debt financing. The major benefit...
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This document was uploaded on 03/30/2014.
- Spring '14