What is the structure of capital?

Successful development of the enterprise, stable positive financial and economic performance of its activities largely depends on what the structure of the company's capital.

In the economic literature, the term capital structure refers to the ratio between the borrowed (attracted) and the own capital of the organization, which is necessary for its sustainable development. From the extent to which this ratio of capital is optimal, the implementation of the organization's long-term development strategy depends on the whole.

The structure of the concept of the organization's capital structure include borrowed and equity.

Own capital includes the assets of the organization that it uses to create a certain part of the organization's property and which belong to it on the basis of ownership. The structure of own capital includes the following components:

- additional capital (represented by the value of the property contributed by the founders in addition to the funds forming the authorized capital, these are the values that are formed when revaluing property as a result of changes in its value, as well as other revenues);

- reserve capital (this is the part of the company's equity that is allocated from the received profit in order to pay off potential losses or losses);

- Undistributed profit (it is the main means of accumulation of the organization's assets, it is formed from gross profit after payment of the established profit tax, and also after deductions for other needs from this profit);

- special purpose funds (part of net profit, which the organization directs to production or social development);

- other reserves (such reserves are necessary in case of forthcoming large expenses, which are included in the cost of production or services).

The borrowed capital of the organization is represented by attracted funds or other property values on the basis of their return, which are necessary to finance the development of the organization. Typically, they include long-term bank loans, as well as loans on bonds.

It should be noted that the optimal structure of the organization's capital is the ratio of equity and debt, which can maximize the total cost of the organization.

In economic practice there is no clear recommendation on how to form the best structure of capital. On the one hand, it is generally accepted that the average price of borrowed capital is lower than its own. Consequently, an increase in the share of cheaper borrowed capital will reduce the weighted average cost of capital. However, in practice in this case it is possible to come down to the value of the firm, which depends on the market value of the organization's own capital.

Also, attracting borrowed capital has a number of restrictions, and the growth of debt obligations directly affects the ability to go bankrupt. In addition, existing debt obligations significantly limit the freedom of action in dealing with finance.

Therefore, the organization's capital structure is a rather complex and unpredictable element of the financial component of the enterprise, requiring a competent and scrupulous approach to it.