Debt, Equity, the Optimal Financial Structure, and the Cost of Funds

John B. Guerard, Anureet Saxena () and Mustafa N. Gültekin
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John B. Guerard: McKinley Capital Management, LLC
Anureet Saxena: McKinley Capital Mgmt, LLC
Mustafa N. Gültekin: University of North Carolina Chapel Hill

Chapter Chapter 10 in Quantitative Corporate Finance, 2022, pp 215-237 from Springer

Abstract: Abstract Traditionally the capital structure of a firm has been defined as the book value of its common stock, its preferred stock, and its bonds, or fixed liabilities. These items are considered to be the “permanent” financing of the firm. The special importance is given to them, however, which may lead to an error in financial analysis. Thus, a company which only has common shares in its capital structure is often described as conservatively or safely financed. But if, for example, the firm has considerable trade debt outstanding, owes on a bank loan, or is tied up with long-run rental contracts, it may not be “safely” financed.

Date: 2022
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DOI: 10.1007/978-3-030-87269-4_10

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