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Debt, Equity, the Optimal Financial Structure and the Cost of Funds

In: Quantitative Corporate Finance

Author

Listed:
  • John B. Guerard

    (McKinley Capital Management, Inc.)

  • Eli Schwartz

    (Lehigh University)

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.

Suggested Citation

  • John B. Guerard & Eli Schwartz, 2007. "Debt, Equity, the Optimal Financial Structure and the Cost of Funds," Springer Books, in: Quantitative Corporate Finance, chapter 0, pages 223-245, Springer.
    • Handle: RePEc:spr:sprchp:978-0-387-34465-2_10
    DOI: 10.1007/978-0-387-34465-2_10
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