September 19, 2019

What are the essential features of sound capital mix?

  • Maximum possible use of leverage
  • Flexible
  • To avoid undue financial/business risk with the increase of debt
  • The use of debt should be within the capacity of the firm
  • It must avoid undue restrictions in agreement of debt
  • Should have minimum possible risk of loss of control
  • The capital structure should be conservative. It should be composed of high grade securities and debt capacity of the company should never be exceeded. 
  • The capital structure should be simple – easily managed and understood by investors. 
  • The debt should be used to the extent that it does not threaten the solvency of the firm. 

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