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CS Executive · Corporate Accounting and Financial Management · Capital Structure

Which statement best distinguishes 'capital structure' from 'financial structure'?

Capital structure refers only to long-term sources of funds such as equity, preference shares, debentures and term loans, whereas financial structure covers all liabilities, including short-term borrowings and current liabilities. So capital structure is a subset of financial structure.

  1. ACapital structure includes current liabilities, while financial structure excludes them
  2. BBoth terms are identical and cover the entire liabilities side without any difference
  3. CCapital structure covers only fixed assets, while financial structure covers current assets
  4. DCapital structure covers long-term sources of funds, while financial structure covers the entire liabilities side including short-term sourcesCorrect

Explanation

Financial structure is the whole right-hand side of the balance sheet, including current liabilities and short-term borrowings. Capital structure is the narrower long-term part of it.

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