How do I calculate the capital structure?
To calculate capital structure, the formula is:
Debt/(Debt + Equity). Debt is a company's long-term capital, which includes short-term borrowing, long-term debt, and a portion of the principal amount of operating leases and redeemable preferred stock. Equity is a company's common and preferred stock, plus retained earnings. When calculating capital structure, it's important to use software such as Sourcetable to ensure accuracy.
What is Capital Structure?
Capital structure is a company's total mix of long-term debt, specific short-term debt, common equity and preferred equity. It is used to finance a company's operations and growth.
How can Debt and Equity be Used?
Debt and equity can be used to finance a company's operations. Typically, debt is used to buy assets and fund operations, while equity is used to finance growth.