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

In: Quantitative Corporate Finance

Author

Listed:
  • John B. Guerard Jr.

    (McKinley Capital Management, LLC)

  • Anureet Saxena

    (McKinley Capital Mgmt, LLC)

  • Mustafa N. Gültekin

    (University of North Carolina Chapel Hill)

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.

Suggested Citation

  • John B. Guerard Jr. & Anureet Saxena & Mustafa N. Gültekin, 2022. "Debt, Equity, the Optimal Financial Structure, and the Cost of Funds," Springer Books, in: Quantitative Corporate Finance, edition 3, chapter 0, pages 215-237, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-87269-4_10
    DOI: 10.1007/978-3-030-87269-4_10
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