CS Executive · Corporate Accounting and Financial Management · Capital Structure
Which of the following best describes the 'capital structure' of a company in financial management?
Capital structure is the mix of long-term sources of finance, namely equity, preference capital and long-term debt, that a company uses to fund its operations and assets. It concerns how permanent funds are raised, not the asset composition or liquidity position.
- AThe mix of long-term sources of funds such as equity, preference capital and long-term debt used to finance its assetsCorrect
- BThe total of fixed assets and current assets shown on the asset side of the balance sheet
- CThe ratio of current assets to current liabilities at the year end
- DThe sequence in which dividends are paid to different classes of shareholders
Explanation
Capital structure refers to the proportion of long-term funds drawn from equity, preference shares, debentures and term loans. The asset total and current ratio relate to asset composition and liquidity, not to the financing mix.
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