Gujarat BoardEnglish MediumSTD 12 CommerceOCMFINANCIAL MANAGEMENT5 Marks
Question
What are the characteristics of ideal capital structure?
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Answer
An ideal capital structure should have the following characteristics:
Simplicity: It becomes easy to administer capital structure, if lesser varieties of securities are issued.
Profitability: The capital structure should be planned in such a way that profit remains optimum.
Adequate finance: Various sources should be combined properly so that adequate finance can be obtained.
Flexibility: Capital structure of the company should be flexible so that it can be changed as per the requirements and circumstances.
Economy: Various sources should be combined in a manner that optimizes the cost of capital.
Balancing: There should be a proper equilibrium between owner’s capital and borrowed capital.
Liquidity: The capital structure should be so designed that few sources can be liquidated when needed so as to set-off the liability and debts of the company in time.
Attractiveness $($Impressive$):$ Capital structure should be designed in such a manner that investors find it impressive. An impressed investor will stay loyal to the company and even invest more.
Solvency: The proportion of borrowed capital should not be so large that burden of interest cannot be borne by the company and risk of insolvency increases.
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