Abstract
Traditionally the capital structure of a firm has been defined as the book value of its common stock, its preferred stock, and its bonds, or fixed liabilities. These items are considered to be the “permanent” financing of the firm. The special importance given to them, however, may lead to error in financial analysis. Thus a company which has only common shares in its capital structure is often described as conservatively or safely financed. But if, for example, the firm has considerable trade debt outstanding, owes on a bank loan, or is tied up with long-run rental contracts, it may not be “safely” financed.
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© 2007 Springer Science+Business Media, LLC
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Guerard, J.B., Schwartz, E. (2007). Debt, Equity, the Optimal Financial Structure and the Cost of Funds. In: Quantitative Corporate Finance. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-34465-2_10
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DOI: https://doi.org/10.1007/978-0-387-34465-2_10
Publisher Name: Springer, Boston, MA
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