To be able to stand tall and exist, every company must make sure that its capital or equity provides the firm the maximum return at the minimum cost. This objective is one of the most important goals of a financial manager and must therefore be fully analyzed by those studying finance. A sound capital structure management can be applied through the proper selection and decision making. Would it be better to issue additional shares of stock? Or does the current situation of the firm and the market gives the company a positive financial leverage in borrowing long-term funds from its creditors or issuing bonds?
An optimum capital structure can only be achieved through a balanced financing by the firm. The management must provide the firm bright financial plans for the company and for its shareholders as well. Executive Summary This paper had discussed the important of a sound capital structure management and financing plans in a company. Also, it had tried to evaluate the different forms of financing. Financing can be done by raising its equity capital or debt capital. Equity capital involves issuing shares while debt capital involves issuing of bonds or incurring long-term liabilities.
In line with this, this paper
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If Ras-Al Khaimah wants to expand its operation and enter the global market, it must take daring moves in its financing. That includes getting its finances more levered through debts. Discussion CAPITAL STRUCTURE For a company to continue its existence, it must have adequate resources to fund its operation. These funds composing the firm’s capital structure may come either through the investors in the form of additional investment or through the creditors in the form of long term bonds.
The goal of every financial manager is to attain an optimum capital structure that can be trusted to keep the cost of financing at lowest, help maintain stability of dividend policy, establish earnings record, and maximize the wealth of stock . Too much reliance on equity capital may mean the loss of voting control and dilution of ownership while too much debt can expose the company to the risk of not being able to pay its fixed financial cost . For year 2008, the equity capital of Ras Al-Khaimah was composed of 484,000,000 ordinary shares with par of AED 1 each.
The firm has the same share capital during 2009 indicating that the management had not issued any additional shares. As part of its common stock equity, reserves and retained earnings are higher in 2009 than in 2008. The total shareholders’ equity of the company increased by 2% from 2008 to 2009 . Meanwhile, the firm had not opted to source its operation through borrowing from creditors and issuing bonds. The firm was very reliant on the capacity of the investors as sources of its financial needs. The firm was only open to short-term bank loans which are not part of what we call equity.