Capital Structure

Capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm’s capital structure is the composition of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 30% equity-financed and 70% debt-financed. The firm’s ratio of debt to total financing, 70% in this example, is referred to as the firm’s leverage