Importance Of Capital Structure Planning

So capital structure means the arrangement of capital from different sources so that the long term funds needed for the business are raised.

Importance of capital structure planning. Proper planning of capital structure requires proper analysis of both short term and long term financial requirements of company. Capital structure planning which aims at the maximisation of profits and the wealth of the shareholders ensures the maximum value of a firm or the minimum cost of capital. Importance of capital structure planning of capital structure. There are various factors which needs to be considered by management for deciding a balance proportion of debt and equity.

It is very important for the financial manager to determine the proper mix of debt and equity for his firm. Guidelines for capital structure planning. In principle every firm aims at achieving the optimal capital. Hence finance scholars and practitioners agree that debt financing gives rise to tax shelter which enhances the value of the firm.

The term structure means the arrangement of the various parts. The following are the guidelines of capital structure planning.