Grade Booster student workshops are back in cinemas for 2022. Learn more

Business

Study Notes

Capital Structure

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

The capital of a business represents the finance provided to it to enable it to operate over the long-term. The capital structure refers to the balance of this finance in terms of how much is equity (or share capital) and how much is is in the form of debt.

There are two parts to the capital structure of a business:

EQUITY

This is the capital provided by shareholders or the owners of a business. Equity capital includes:

  • Share capital invested into the business
  • Profits retained in the business rather than paid out to the owners

DEBT

Debt comes in various forms, but the most common types of debt are:

  • Long-term business loans
  • Mortgages

GEARING AND THE CAPITAL STRUCTURE

A financial ratio that considers the capital structure of a business is the gearing ratio.

This examines the relative mix of debt capital as compared with the total capital employed by a business.

Boston House,
214 High Street,
Boston Spa,
West Yorkshire,
LS23 6AD

Tel: +44 0844 800 0085

© 2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.