The paper "Analysis of Company’ s Capital Structure" is a great example of a report on finance and accounting. The aim of this white paper is to show that either the individual can test that the company’ s capital structure is influenced by their past experiences or not. Later small examples show the past experience impact on the capital structure decisions. Lastly, the capital structure decisions affect pecking-order theory, and trade-off theories are given. The capital structure of the firm includes mainly includes the head of “ equity” and “ debt” . The proportion of these together actually forms a complete capital structure.
Then the share price of the firm in the market is low, then the firm usually uses more debt financing than equity financing, whereas, when the market price of the shares is higher than the firm uses more equity financing than the debt financing. The capital structure of each firm usually changes each year due to many internal and external factors that directly affect the capital structure of the firm. Below a complete description of the effect of past experience on the capital structure is given with their impact on trade-off and pecking order theories. A simple test can show that the past experience of the companies has affected their capital structure decisions and this simple test is their historical market values of the shares.
The market valuations of the firm affected a lot in capital structure decisions. If we organize an analysis of the prices of equity than we come to know that the prices of the firm share didn’ t remain the same and fluctuates a lot. This directly affects the capital structure of the firm.
According to Taggart and Marsh, the past market-to-book ratios are taken by the companies to understand what should be their market structure in the future. Usually, for this, the Weighted Average method is chosen by the firm to weight all the past market-to-book ratio to know that when and how much equity they should give in the market and how much financing should be taken from the debt side. Usually, we can test the effect of past experience on the company’ s capital structure if we know there past financial structure.
Net debt issues and net equity ratios of the firm shows that either they have any past experience affect the companies capital structure.
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