Components of Capital Structure in Manufacturing Industry

The firms major sources is capital structure decision on its value, growth and survival. The Capital Structure decision remains one of the most controversial subjects in the world of finance. Capital Structure refers to the mix of debt and equity which a company uses to finance its long term operations. A company may have to raise capital from different sources such as Common Equity and Preferred Equity, Long-Term Debt, specific Short-Term Debt to finance its assets. Each source of fund has its charge. Dividend is paid to suppliers of Equity and Preference Share capital and interest is paid to lenders of Debt capital. Debt financing creates a fixed charge on profits of the company. Although the dividend on Preference Share Capital can be postponed in absence of profits in a particular year, both Debt capital and Preference Share Capital create a fixed charge and this charge is in the form of interest or dividend which has to be paid irrespective of the amount of earnings.