Importance of Capital Structure in Small and Medium Enterprises: A Study on Lucky Generals

This dissertation analyses the importance of capital structure in increasing the profitability and performance of small and medium enterprises, with a focus on Lucky Generals. It covers the concept of capital structure, determinants of capital structure, challenges faced by SMEs, and more.

Dissertation
(To analyse the importance of capital
structure in increasing the profitability and
performance of small and medium
enterprise)

Table of Contents
INTRODUCTION...........................................................................................................................4
Overview of the topic.............................................................................................................4
Significance of the topic.........................................................................................................4
Research problem...................................................................................................................5
Research aim..........................................................................................................................5
Research objectives................................................................................................................5
Research questions.................................................................................................................6
Research rationale..................................................................................................................6
Structure of the dissertation....................................................................................................6
LITERATURE REVIEW................................................................................................................9
What is the concept of capital structure and small and medium enterprise in the context of
organisation?...........................................................................................................................9
What are the various determinants of capital structure used by Lucky generals in increasing
the profitability and performance?.......................................................................................11
What is the importance of effective capital structure in enhancing the profit and improving the
performance of Lucky generals?..........................................................................................13
The challenges faced by Lucky generals in implementing the effective capital structure for
their organisation..................................................................................................................15
RESEARCH METHODOLOGY...................................................................................................18
DATA ANALYSIS AND FINDING............................................................................................25
Frequency distribution tables...............................................................................................25
Data presentation and interpretation.....................................................................................27
DISCUSSION................................................................................................................................38
CONCLUSION..............................................................................................................................43
RECOMMENDATION.................................................................................................................44
REFERENCES..............................................................................................................................46
APPENDIX....................................................................................................................................50
Questionnaire........................................................................................................................50

INTRODUCTION
Overview of the topic
Capital structure of an organisation is considered as the mixture of two types of capital
structure such as debt and equity. This capital structure is used by the organisation in order to
manage financial decision of the organisation so that business issues can be managed. This is
essential for the organisation that to keep effective capital structure by keeping balance on its
elements so that wise finance decisions can be taken and at the same time efficient business
operations can be executed. Appropriate capital structure helps the organisation to analyse their
financial position and to examine accurate profitability so that overall wealth of the organisation
can be maximised (Hirdinis, 2019). Capital structure is referred as the proportion of money
which is invested by the organisation in different dimensions and when they are collaborated it
creates overall capital of the organisation. The current research report is related with examine the
importance of capital structure in increasing profitability and performance of small and medium
sized organisation. For small organisation their capital is needed to be managed in such a manner
that they can arrange all of their business activities. The report also highlights the challenges
which are being faced by the small and medium sized organisation while implementing effective
structure of capital in their organisation (Siqueira and et. al., 2018). The organisation taken for
the current dissertation is Lucky Generals which is associated with creating advertisement
campaign for their customers. The company is considered within small and medium sized
business sector and currently operating their business in London, UK.
Significance of the topic
The current topic is related with giving higher importance to the small and medium sized
businesses as they can get to know regarding importance of keeping efficient capital structure so
that to increase overall profitability and organisational productivity. With the help of effective
capital structure, the organisation may get to know regarding utilisation of their funds. On the
other hand, this research report is providing significant and in-depth information related with the
manner in which capital structure of the organisation can be used in order to optimise
productivity and profitability (Kao, Hodgkinson and Jaafar, 2018). The information within the
current research is of high use for financial experts as they can take various decisions for their
organisation which would be beneficial for the organisation during long term in context of

financial viability and productivity. The gathered information of the research will also help
various organisation about how they can design and develop a well structure capital for their
company. The present topic is also eye caching for those small and medium enterprise who are
struggling for the fund. With this investigation they can know what all factor is used to
determine their sources through which they can raise fund for their business operation. Thus, the
existing research topic is very much significant for the small and medium enterprises within the
UK.
Research problem
The main research problem which is identified in the present research is that small and medium
enterprises faced is deciding the right source through which they can raise fund. Due to
ineffective capital structure small and medium enterprise cannot able to raise their capital in
accurate manner. This create problem as their business operation cannot be done in appropriate
manner this affect their profit margin in large way. Having the right source to acquire capital is
very necessary as through which organisation are able to run their business function and provide
product or service to the market. This research will help them to mitigate this problem by
identifying the sources as well as overcoming the challenges faced by them while developing a
good capital structure for their company.
Research aim
To analyse the importance of capital structure in increasing the profitability and
performance of small and medium enterprise: “A study on Lucky Generals”.
Research objectives
 To understand the concept of capital structure and small and medium enterprise in the
context of organisation.
 To identify various determinants of capital structure used by Lucky generals in increasing
the profitability and performance
 To analyses the importance of effective capital structure in enhancing the profit and
improving the performance of Lucky generals
 To discern challenges faced by Lucky generals in implementing the effective capital
structure for their organisation.

Research questions
 What is the concept of capital structure and small and medium enterprise in the context of
organisation?
 What are the various determinants of capital structure used by Lucky generals in
increasing the profitability and performance?
 What is the importance of effective capital structure in enhancing the profit and
improving the performance of Lucky generals?
 What are the challenges faced by Lucky generals in implementing the effective capital
structure for their organisation?
Research rationale
The major rationale behind selection of this topic is related with gaining in-depth
information related with the topic of capital structure and its importance within small and
medium sized organisation in terms of developing profitability and performance. The current
research is related with developing knowledge of finance aspect so that using such information
Small and medium sized organisation may take advantageous decisions (Andrieu, Staglianò and
Van Der Zwan, 2018). This research also highlights the various challenges which would be
faced by the organisation while deciding the effective capital structure for their company. The
research is aimed at meeting dual perspective of the researcher such as professional and personal.
In the context of personal perspective, the research would develop different skill of researcher
such as interpersonal skills, financial reporting skills, management skills, problem solving skills
and many others. These skills will aid in completing the total dissertation in systematic manner
and with more accuracy. Besides this in the context of professional perspective the research will
develop differential skills within researcher so that in their professional career the same can be
used and career embellishment can be acquired. The various financial skill will help them when
they will be working in an organisation as a manger and using this to decide the best and
appropriate capital structure for their company. Thus, the current research is quite significant in
attaining the dual objective in effective and efficient manner.
Structure of the dissertation
Having the right structure for the dissertation is important as it tells the reader about the way
research is being completed and what all activities are being covered for completing the

investigation in systematic manner. In the current dissertation five major chapter will be included
which are demonstrated as under:
Chapter 1: Introduction: This is the first chapter within the current dissertation in which brief
information related with research topic is mentioned. Under this chapter the research problem is
also identified for which research is conducted and at the same time rationale of the research is
also mentioned. This chapter is important as in this section the aim and objective of the
investigation is included on the basis of which the overall project is being carried out.
Chapter 2: Literature review: Under this section information from different articles and books
are added so that secondary information can be added within the research and at the same time
investigation can be supported by pre-existing information over the research topic. This section
helps the investigator to gain more knowledge on the selected topic in order to conduct
investigation in sound manner. Literature review address the research question so that
investigator can attain their aim and objective as per their choice and thoughts.
Chapter 3: Research methodology: This chapter consists of using different methods so that
study can be exerted within systematic manner. This part in the dissertation will helps the
researcher to extract and accumulate important data so that aim and objective can be achieved.
This is one of the crucial part of the research in which researcher selects such methods which are
beneficial for collecting information related with research topic. In the current research, primary
and secondary data collection methods are used so that to gather information related with the
topic in apt manner. Under the dissertation random sampling method is chosen so that
quantitative methods can be adopted and research results can be acquired.
Chapter 4: Data analysis and discussion: Under this section gathered information are analysed
using different methods so that appropriate demonstrate results of the research topic. This
chapter is essential in making significant results into the research. In this research uses the data
analytical tool so that beneficiary data as per the research need can be acquired. This section then
shows the analysed data in proper format and presentation so that readers can acquires all the
useful data.
Chapter 5: Conclusion and recommendation: Under this chapter summary of the report is
mentioned so that appropriate findings can be exerted within research. This chapter holds high
degree of importance within research as this is helpful in execution of planned aspects as well.
Conclusion and recommendation chapter is very important for the researcher to write this part in

appropriate manner because this catches the eyes of the reader about the research topic in proper
way.

LITERATURE REVIEW
What is the concept of capital structure and small and medium enterprise in the context of
organisation?
According to the view of Ahmed and Afza (2019), capital structure refers to a specific
combination of equity and debt which is used by an organisation in order to finance its overall
growth and operations. Debt involves borrowed money that which has been taken from the
lender in order to pay back including interest amount. Equity described the rights of the company
without the requirement in order to pay back any further investment. The debt to equity ratio
helps in analysing the risk of the borrowing practices of an organisation. Capital refers to the
most important and crucial factor for starting a business in better manner. The two primary
capital sources for an organisation is Debt and Equity. In order to start a business, a owner invest
their own money or they takes loans from the lender and/or and other financial institution in
order to pay back with interest. There are many types of sources from where an organisation can
easily raise their funds such as equity shares, preference shares, long-term loans, retained
earnings and more. These funds plays an important role in order to operate their business in
effective manner. Capital structure is important for an organisation in order to determine the
overall stability of their business in better manner. The capital structure of an organisation is
divided in two categories which includes equity capital and debt capital. Equity capital refers to
the money which is owned by the owners or shareholders of an organisation. There are two types
of equity capital in capital structure that are retained earnings and contributed capital. Retained
earnings describes the part of profit which has been keep aside in order to help in strengthening
their business. On the other hand, contributed capital described those money which is invested by
the owner while opening their business or the amount which is received from shareholders as a
price for the ownership of an organisation. Debt capital is described as borrowed amount which
is used in operating a business. It is available in different form such as long-term bonds as well
as short term commercial paper. Long term bonds are considered as safest debts as its repayment
period can be expended and only interest amount is required to be repaid while the principal
amount is requires to be paid at the time of maturity. Short term commercial paper is a kind of
short term debt instruments which is used by the companies in order to help in raising the capital
for a shorter period. The organisation whose capital structure is sound which has higher chance

in order to increase the market price of their shares and securities in effective manner. This
makes higher valuation within the market. A good capital structure of an organisation ensures
them that their available funds are used in effective and efficient manner. It also prevents them
from under and over capitalisation in the organisation.
As per the perspective of Raharjo (2018), small and medium sized enterprises are the
businesses that maintain their assets, revenues or a number of workers below a particular
threshold. Every nation has their own meaning of what comprise a small and medium sized
enterprise. In UK the company whose turnover is less that or equal to €10 million as well as less
than 50 employees are considered as small enterprise. On the other hand, the enterprise whose
turnover is less than or equal to €50 million as well as less than 250 employees in order to
operate their functions are considered as medium size business. Small and medium enterprises
plays an crucial role in the economy as it employs large number of people as well as helps in
shaping innovation in the organisation. These are responsible in order to provide employment to
most of the people so, avial their daily needs in effective manner. This makes government of
every country in order to offer certain incentives which includes favourable tax treatment as well
as better access to loans to help small and medium sized business of their country. Many
innovations and technological processes that are attributed through medium and small size
enterprises. SMEs are focus on launching new products and service in the market in order to
become successful in effective. This makes them capable in adapt the changing requirement of
the market in effective and faster way. Capital structure of small and medium enterprise are the
combination of debt and equity amount which is required in order to fund their assets and
operations. Capital structure of small and medium enterprise are smaller than the larger
organisation because their operations are smaller and take low amount. The ideal capital
structure of an enterprise is depend on their specific situation which includes factors like the
business cycle, the cost of capital as well as any existing debt or equity. Small and medium sized
companies involves less number of labour, less capital investment as well as fewer machines in
order to operate their business. The owners of the company are not capable to invest their own
money so they take loan in order to operate their business. There are many types loans programs
are available for the small and medium sized enterprises that are not availed by the large
enterprise. These loans provide help to the companies in order to increase their business capital
to operate their business in better manner. The SMEs helps in providing employment to the more

people which helps in improving the growth of the country due to which government helps them
in order to generate more fund and operate their business in better manner. This will helps
companies in order to operate their business in better manner as well as achieve their goals in
effective manner. This refers to the most effective source that help company in order to raise
their capital and operate their business in better manner. This makes their capital structure
effective in order to increase their growth in the market in better manner.
What are the various determinants of capital structure used by Lucky generals in increasing the
profitability and performance?
In the opinion of Abbadi (2021), capital structure is a term or financial plan or financial
structure of an organisation which describe as composition of the long term funds' sources. The
leverage is a term which describes as proportion of various long term sources of funds to the
total capitalisation of the company. When the extra or marginal cost of each source of an
organisation's long term financing is the same then their capital structure is considered as sound
or optimal. Every organisations are eager in order to analyse their optimal capital structure. The
optimal capital structure of the company is described as their debt are 50% and equity are also
50%. At this level the combined average cost of their capital is minimum which helps them to
operate their business in better manner. There are numerous of determinants related to capital
structure that helps Lucky generals in order to increase their profitability and performance in
better manner. Some of them are described below:
Trading on Equity or financial leverage- Financial leverage is described as use of long
term fixed interest bearing debt, preference share capital and equity share capital. When the
assets of the company is financed by the debt yield a return more than the debt cost then the
earning per share of the company is increase and the owner's investment remain the same. And if
the preference share capital is used in order to acquire assets then the earnings per share is also
increase. In case of debt, the impact of the leverage is felt more in the company because their
cost of debt is lower than the cost of preference share capital as well as the interest they paid on
their debt which is a deductive charge from profit in order to calculate the taxable income while
the preference share dividend is zero (Muharam, 2021). This refers to the most important
determinants of capital structure that help Lucky generals in order to increase their business
profitability and performance.

Growth and Stability of sales- The growth and stability of sales of an organisation
influenced their capital structure in effective manner. When the sales of an organisation are
expected to remain stable, then they can effectively increase their high level of debt. The stability
of the sales ensures that the Lucky generals will not face any problems in order to meet their
fixed commitments of repayment of debt with their interest amount. The rate of their sales
growth will affects their capital structure decision in which they need to decide from where they
need to raise their funds in order to increase their profitability and performance.
Cost of Capital- Every amount that is invested in an organisation has a cost. Cost of
capital is described as the minimum return which is expected by their suppliers. The expected
return of the suppliers is depend of the risk which is assumed by the investors. The shareholders
of an organisation assumed high level of more risk than the debt holders (Kaur and Kaur, 2021).
The rate of dividend for the shareholders is not fixed as well as boards of directors does not have
any legal obligations in order to pay dividends even if the company made profit or not in the
particular financial year. This makes company in order to provide large number of dividend
when their organisation earn profit. This makes Lucky general in order to determine the cost of
capital that help company in order to know from where they can raise their capital for improving
their business's performance and profitability.
Risk- There are two kinds of risk which are required to be considered while planning for
the capital structure of a business which includes financial risk and business risk. Business risk
described as variability to earnings before paying interest and taxes. This risks are can be caused
internal and external. Due to improper mix of products, non-availability of raw material, absence
of strategic management, incompetence to face competition and many more the internal risk is
caused. The internal risk of the company is associated with the efficiency of the company in
order to conduct their operations within the broader environment (Glazyrin, 2021). When the
operation condition of the company is change then it cause external business risk. The Lucky
general of the company need to analyse their risk in order to address them effectively and operate
their business in better manner and increase their probability and performance.
Cash flow- The conversation is the one of the feature of a sound capital structure. It does
not means that employing a small amount of debt or employing no debt in the organisation. It is
basically related to the assessment of fixed charges liability which is created by the use of
preference capital or debt in the capital structure of an organisation. This makes them able in

order to generate money for meeting these fixed charges. The fixed charges of an organisation
involves payment of preference dividend, interest and principal. When the company employs
higher amount of preference capital and debt then their high. Whenever an organisation is
thinking in order to raise their additional debt, they should analyse their expected future case
flows in order to meet their fixed charges. This will also helpful for the Lucky generals in order
to improve their performance and profitability.
Control- When an organisation wants additional capital then their management need to
raise the funds without losing their control over their business. When the company raised their
funds through equity shares then the control of their existing shareholders is diluted (Bùi, 2020).
This makes company to focus on raising their funds through fixed interest bearing debt and
preference share capital. This will helps in saving the control of company's existing shareholders.
This makes Lucky generals in order to raise capital from fixed interest bearing debt and
preference share capital for improving their performance and profitability and save the control of
their owners and shareholders.
What is the importance of effective capital structure in enhancing the profit and improving the
performance of Lucky generals?
According to the point of view of Brealey, and et.al (2018), Capital structure is define as
the term of specific mix of equity and debt which is used as a finance in assets and operations of
company. It is also refers to the amount of debt and equity which puts to used by the company. It
is all about how company gets the funds for their operation and growth. There are many
importance of capital structure which helps to minimize the cost of capital, helps to provide
control to owners, reduces the risk of business related, maximize the firm value. Capital structure
helps the company increasing the profits and benefits from the return to stakeholders. It is also
helps to maximise the shareholder capital's and minimise the cost of capital. In relation to Lucky
generals, capital structure helps to improve the performance and also increase the profit of the
organization. It is helps to maximizes the market value of a firm. It is helps to increase the share
price etc. there are some major importance of capital structure which are as follow-
 Investment opportunities: Capital structure helps to increase the opportunities for the
company which helps to find new investment opportunities in the market. It is also helps
to increase the confidence levels of debt's suppliers. Investment opportunities helps to

provide many beneficial support to suppliers where they can easily and confidentially
invest their capital for the firm's growth.
 Country growth: Capital structure helps to increase the rate of investment of the country
and also helps to increase the firm's growth by future wealth creating investment
opportunities. By the capital structure the country's growth will be increased. In relation
to Lucky general, it is helps to increased the growth of the firm and also increased the
country growth.
 Cost minimization: it is helps to minimise the cost of finance or cost of capital of the
firm. It is helps to determine the mix sources of fund which is helps to keep the overall
firm cost of capital at the lowest. By minimise the Cost of capital, Lucky general can
invest the finance with confident. It is determine the cost of capital.
In the opinion to McGilvray (2021), capital structure is the term of funds which is the
combination of equity and debt. Capital structure is used by the company to finance their
operation and growth. It is the term of capital which is collected from the shareholder and
stakeholders. There are some importance of capital structure which is helps to reduce the risk of
business. It is helps to provide the fund for the organization. It is helps to minimise the cost of
capital and many others. In context to Lucky general, capital structure helps to collect the funds
for the firm. It is helps to maximise the market value. It is helps to improve the productivity and
growth of the organization. There are some more importance for Lucky general which are given
below-
 Value maximization: Capital structure helps in maximization of firms market value. In a
firm values claims from its shareholders interests. It is helps to increase the share prices
with the helps of value maximization of the firm. In relation to Lucky general, it is helps
to increase the share market value by maximization of firm value.
 Increasing share price: Capital structure helps to increase the share prices by maximize
the market prices of the company. It is helps in earning of share which is increasing as
per share of shareholders. It is also helps to increase the dividend of the shareholders of
the firm. In relation to Lucky general, it is helps to maximize the market share by
increase the share price of the shareholders.
 Capital structure patterns: capital structure patterns helps to collect the sufficient
funds. There are two types of patterns of capital structure patterns which is used by the

firms which includes equity and debt. It is helps in creditworthiness with in the market
which helps to consequently depend on the equity shares.
According to the view of Sim, and et.al (2019), there are many importance and
advantages of capital structure. Capital structure is define as the combination of equity and debt
which is helps the company to finance its growth, productivity and operation. Capital structure
helps in funding which is collected from the company's stakeholders and shareholders. It is that
type of structure which is used to fulfilled the finance of the company and helps in its operation
and productivity. In relation to Lucky general, capital structure helps the firm in funding. Capital
structure is the collection of funds which is generally collected from the lucky general
shareholders. It is helps to analysis the risk and reduce it of the firm. It is helps to understating
the operation and growth needs within the firm. It is helps to minimise the cost of capital and so
on. There are some vital importance which are as follow-
 Provide flexibility: it is helps to provide flexibility in the firm which helps to improve
the performance and profitability of the firm. Capital structure helps in flexibility in the
firm which helps the shareholder and stakeholders to easily invest the capital with
flexibility. In context to Lucky general, it is helps in investment in flexibility.
 Reduce the risk of business related: Capital structure helps to reduces the business
related risk from the firm which is the advantages for the firm to collect the firm from the
sources easily without any fear. In relation to Lucky general, it is helps the firm to invest
the capital without any risk.
 Maximise the firm's value: it is helps to maximise the firm value which is helps to
improve the growth and performance of the firm. Capital structure is the term which is
helps to minimise the cost of capital and maximise the value of the firm.
The challenges faced by Lucky generals in implementing the effective capital structure for their
organisation
As per the point of view of Paul D. Ouweneel, there are various challenges which are faced
by the companies in order to maintain the effective capital structure that is sometimes too many
stakeholders are involved which make it further difficult in order to implement a new working
capital strategy as each stakeholder will have their perspectives and priorities. Also, it can be
seen that big companies have a formal kind of structure which lead to bring the level of poor
accountability while implementing the plans )(Xu, 2022). Also another reason of challenge is

inefficiency in the working capital on the both level that is strategic and operational level. As
the company make use of debt in small proportion then the burden of the interest will not create
major impact on the business. As the control of the company is in few hands that is why the low
proportion of the capital must be increased by issue of equity share and also through debt.
Moreover, under the capital structure during making a proper choice in it the cash position must
be good as a major amount of cash will be needed with the aim of making payment of interest
and refund of capital.
According to Murray and Vidhan, there are various elements which have the power to
impact the capital structure that is at the initial stage the plan is made properly so that the best
decisions will be taken as per the situation. That is why the company is required to make changes
in its funds and the mixture of activities )(Žabkar and Redek, 2020). Also, it can be seen that the
small businesses are to face major issues while rising the long term finance. As they are to accept
the high interest rates too and also the various restrictive conditions will lead to make the capital
structure inflexible. The term capital structure is defined as the proper mix of the debt and equity
which is used for the segment of the finance in the company for its assets. That is why it is must
to maintain the capital structure of the company so that the financial decisions of the company
will be properly guided. And the capital structure must be flexible in order to keep the amount of
the capital can be managed easily increased or decreased as per the need. In which the reduced
amount of capital in business is likely only in case of debt capital or preference share capital.
And if the funds are raised through issuing the equity shares then the number of company’s
investors will rise. That is why it will directly affect the control of current shareholders and it can
be said that number of stockholders controlling the company increases )(Kešeljević, Redek and
Žabkar, 2020).
As stated by Bilgin, capital structure is defined as arranging various capital with the aim
of fulfilling the requirement of the long term needs of the business. That contains various sources
of funds that is preference share capital, debentures, long-term loans ,retained earnings, and
many others. As the capital structure is affected by many others factors that is if the company
with low debt in the mix would be better off in bad times. As it can be seen that one of the
utmost mutual errors that companies do is raising capital with the help of debt without analyzing
their ability to repay those (Aboobaker, 2019)(Carlsson, and Walden, 2021). Due to which they
fail to service the debt in bad times, therefore dropping the self-assurance of the depositors. As

all the sources of the capital has its own cost like interest payments and share capital holders are
paid dividends which lead to affect the overall cost of capital will aid in determining the capital
structure of the company.
In accordance with Koralun-Bereźnicka, companies which have stable cash flows will be
more expected to go for debt, while those companies with uneven cash flows will struggle debt
in its capital structure. That is why the nature of the company and the segment plays an essential
role in the regulating the capital structure. Also, separately from these various factors, there are
numerous other essentials that affect the capital structure choices of a group. In which the
management considers various ratios that is debt service coverage ratio, interest coverage ratio,
and many others. Also, cost of debt and return on investments are a few additional influences
that a company reflects while making capital structure results. As the main target of the financial
management of the company is to enhance the wealth of the shareholder. That is why the
management must choose a capital structure that will increase the EPS. Furthermore, if operating
profits are higher, debt capital can be utilised in larger amount, as chances of default on interest
on debt are small. It can be seen that the rate of tax affects the cost of debt as the tax rate is high
then the cost of debt will decrease. The main reason behind is the deduction of interest in the
debt capital. Also, if the debt capital is used more, it will rise the cost of the equity capital. The
simple aim for this is that the more use of debt capital rises the risk of the equity shareholders in
the company. That is why, the use of debt capital is made up to the limited level and if it is used
after that then cost of equity capital starts increasing fast.

RESEARCH METHODOLOGY
Research methodology can be defined as a process of collecting and analysing
information about the selected research topic by using relevant research methods in order to
complete the research in an effective and scientific manner. It is mainly regarded as a technique
which helps researcher in attaining the aims and objectives of the research in a successful
manner. This section is considered to be the most important part of the whole research as this
helps in determining, selecting and interpreting the information on the selected research study or
topic (Clarke and Visser, 2019). This enables the researcher in maintaining the reliability and
validity of the collected information so that present research can be conducted in an effective and
efficient way. Research methodology is considered as a blueprint of the whole research process
which mainly helps the researcher in gathering and analysing the data in an appropriate and
purposeful manner. There are different types of research methods that the researcher uses for
achieving the predefined objectives of the research. It is important for the researcher to focus on
implementing high scale derivatives so that researcher objectives can be gained and achieved in a
more proficient and deliberative manner. Managing the research in an effective manner helps in
deriving the data in an easy way so that it can be completed in the given time period. These
research methods mainly include philosophies, approaches and choices as well as quantitative
and survey method for carrying out the whole research in a proper way (Daniel, 2018). In the
present research, the researcher has selected Saunders Onion Framework research model so that
more authentic and detailed information can be gathered in an effective manner. For the present
research topic i.e to identify the importance of capital structure in order to increase profitability
and performance of small and medium scale enterprises, various determinants of capital structure
and challenges while implementing the capital structure in an organisation. The following
research methods are defined as under:
Research philosophy
Research philosophy is considered as the most important method of research
methodology as it helps in gathering information about the selected topic in a more proper way.
It is mainly defined as a set of belief and certain principles which helps the researcher in deriving
the reality of the research and in collecting more reliable information about the topic
(Papachristos, 2018). It is primarily the definition of the knowledge and nature which is collected
in the research and could be helpful for the researcher in attaining the desired goals and

objectives in an appropriate manner. Research philosophy are of three types and are mainly
defined as positivism, interpretivism and realism which helps in gathering information about the
selected research topic in an effective way. Positivism philosophy has been selected by the
researcher in the present conducted study as it is the best method to analyse quantitative data in
an appropriate manner. The reason for selecting positivism philosophy is that it helps in
providing with more detailed and authentic information related with the chosen topic and in
gathering and analysing quantitative data in an efficient manner.
Research approach
Research approach is also considered as a most essential part of research methodology
which guide and assist the investigator in evaluating collected information in a desired manner. It
is mainly defined as an approach plan and procedures that helps in collecting, analysing and
determining data methods in an appropriate manner and in achieving he research aims and
objectives set by the researcher (Ratnam, 2019). Research approaches are of two types and are
primarily defined as deductive and inductive approach. Deductive approach is more helpful in
calculating and analysing existing as well as previous theories and hypothesis effectively and in
the present conducted investigation, deductive approach is selected by the investigator. The main
benefit of selecting deductive approach in the present investigation is that it helps in completing
the whole research in the given time period and is also considered as the most cost effective
method. This also helps in testing the theories and hypothesis in a proper manner so that
quantitative data can be analysed in a better way.
Research strategy
Research strategy is considered to be another significant method related with research
methodology which is mainly associated with assembling of information and data on the topic
in a planned manner. It is mainly defined as a process that helps in doing the investigation on
evaluating performance and controlling the business in the proper and effective way. There are
generally several types of research strategy that are part of this method such as interview,
questionnaire, survey, focus group, ground theory, systematic literature review, experimental
research, case study, and many more that can be used by the investigator (Willmott, 2020).
Survey research strategy is the most useful strategy that the investigator used in carrying out the
present research in an appropriate manner. The reason for survey research strategy in the
following research is that it helps in collecting numerical and primary data in a very short span of

time. Surveys are also good for gathering individual experiences on a particular topic and in
analysing right information.
Research choice
Research choice is another method of research methodology that helps in gathering and
evaluating detailed information about the selected research topic in order to complete the whole
research in a timely manner. It is the main responsibility of the researcher to select the right type
of research choice method so that right and correct information can be collected and interpreted.
Research choice can be classified into two kinds and they are defined as quantitative and
qualitative methods (Ndlovu-Gatsheni, 2019). Quantitative research choice method is easier to
understand and calculate for the researcher and that is why it is selected by the research in
present carried on research. The reason for selecting quantitative method in the present research
is that it helps the researcher in gathering and analysing data in an effective and efficient manner.
This is also a cost effective method and in getting more accurate data as they consist of
numerical information which is simpler to calculate.
Data collection
Data collection is the most necessary part of the research methodology in order to
manage the whole research in an effective manner and along with same quality data so that the
research objectives can be accomplished appropriately. There are two methods that are a part of
collecting data about the research topic and are defined as primary and secondary methods. Both
the primary and secondary data are used by the researcher for carrying out the present research in
a proper manner and for collecting and gathering accurate information about the chosen research
topic (Seehawer, 2018). The researcher has used questionnaire method for deriving information
from the number of participants chosen from the large set of samples. The main advantage of
selecting both the data collection methods is that it helps in managing the data in an effective
manner and in interpreting and gathering fair and right data from the participants as they will
give their individual opinion.
Data analysis
Data analysis is also considered as an important approach that is part of the research
methodology and helps in analysing the collected data on the topic in an appropriate and efficient
way so that research objectives can be attained. It helps in gathering and interpreting right data
and in completing the research in a timely manner and in an effective way so that detailed

information can be attained for the selected research topic. There are several types of techniques
involved in the data analysis part which are primarily known as thematic analysis, frequency
distribution analysis table and many more is used by the researcher (Gear, Eppel and Koziol-
Mclain, 2018). Frequency distribution analysis table is used the researcher in the current
investigation so that clear and authentic data can be interpreted in an appropriate manner. The
reason for using this method is that it helps in collecting accurate information from different
individuals and about their opinion on the topic in the following present investigation in an
effective way.
Time horizon
Time horizon is also an important part of the research methodology which help the
investigators to complete each set of the research dissertation task within the given time period
so that valid information can be gathered. The time horizon can be mainly classified in two types
such as longitudinal and cross-sectional approaches (Hoon and Singh, 2019). Cross-sectional
time horizon approach has been selected by the investigator in the current conducted
investigation so that investigation can be completed in the following time period. The reason for
using cross-sectional approach is that it helps the investigator completing the investigation in the
given time so that right and accurate information can be gathered and attained in an effective and
appropriate way. It is important for the researcher to focus on managing the time while collecting
information from different sources in an effective and clear way and also helps in accomplishing
the goals and objectives of the research.
Sampling
Sampling is considered as a most essential method of research methodology which helps
in gathering data from large number of respondents. It is the most important part of the
investigation to device the number of people so that more authentic information can be collected
by the set of people. When a particular number of respondents must be selected in order to
achieve the specific aim and goals, sampling plays a crucial role in engaging all the activities
together. There are two types of sampling methods which are mainly defined as probability and
non-probability sampling methods. Probability sampling method is the most important element
in calculating the right type of information from the collected data with the help of questionnaire
and the researcher has been used in the current conducted investigation in an appropriate manner
(Eisend and Kuss, 2019). Further, the researcher has used random sampling method sunder this

method so that accurate information can be attained. The reason for selecting this sampling
method is that it helps the researcher in collecting fair and right data from the large data of
respondents selected by the investigator. The investigator has selected
Ethical consideration
For conducting the research in a reliable and systematic manner, it is important for the
researcher to follow the ethics because they are basic elements that they must take into
conisation for gaining right type of information in the right way. Ethics play an important role in
a person life and in doing the work in an appropriate way so that more detailed information can
be gathered (VanKooten, 2019). The researcher has properly cited and credited any secondary
and primary data required. They had also helps in establishing proper access to the acquired data
through the appropriate and suitable channels. It is the main responsibility of investigator to
adhere that while conducting the research no people is hurt, injured and violently hurt and they
have completed the whole research in an effective and relevant manner.
Reliability and Validity
It is the most important part of the research methodology and it is important for the
researcher to focus on maintaining the reliability of the research in an appropriate manner
(Arantes do Amaral and Lino dos Santos, 2018). The reliability of the research is based on the
questionnaire because this is one of the most important instrument which helps in collecting
statistical data in an appropriate and efficient manner. Validity of the research is also important
in collecting and interpreting data in a more statistical way (Knottnerus and Tugwell, 2018). The
respondents in the current research are helpful in taking out valid and reliable statements within
the research can be completed with higher validity of quality data and information.
Limitations of the research
While carrying out the current research, the researcher has faced number of constraints and
faces many problems that make the research more time consuming and costly also. The
researcher has encountered many problems in the present research, like they have not used the
methods no effectively and appropriately and makes the timing and data collection of the
research a time consuming process which is not good (Thomas, 2021). The biggest limitation is
that it is based on the quantitative approach and not on qualitative data as this helps in gathering
in depth data about the chosen topic or study.

DATA ANALYSIS AND FINDING
Frequency distribution tables
Q1) Dou you have a basic understanding about the concept of capital
structure?
FREQUENCY
a) Yes 8
b) No 2
Q2) According to your view, what is the main feature of a sound capital
structure?
FREQUENCY
a) Maximum return 4
b) Less risky 2
c) Safety 1
d) Flexibility 2
e) Economy 1
Q3) Do you think that, having an effective capital structure is very
important for the small and medium enterprise?
FREQUENCY
a) Yes 7
b) No 2
c) Maybe 1
Q4) As per your perspective, companies which have strong capital
structure have increased their profitability and perform in better way?
FREQUENCY
a) Yes 8
b) No 1
c) Maybe 1
Q5) As per your knowledge, capital structure of the company has a direct
impact on the financial performance of the organisation?
FREQUENCY
a) Yes 7
b) No 1
c) Maybe 2
Q6) As per your perspective, what is the main determinates used by the
Lucky generals in order to develop a sound capital structure for their
FREQUENCY

small and medium enterprise?
a) Cost of capital 3
b) Nature of the firm 2
c) Size of the firm 1
d) Growth of sale 1
e) Financial leverage 2
f) Business risk 1
Q7) As per your opinion does these determinant helps the Lucky general
to design an effective capital structure for their company and then raise
funds keeping in mind the capital structure determinant?
FREQUENCY
a) Strongly effective 4
b) Effective 3
c) Neutral 2
d) Ineffective 1
e) Strongly ineffective 0
Q8) As per your experience, what is the main importance to have an
effective capital structure for Lucky generals in order to improve their
financial performance?
FREQUENCY
a) Helps in protecting from over and under capitalisation 3
b) Helps in sound financial performance 3
c) Helps in increasing market share 2
d) Helps in using funds in effective manner 1
e) Helps in deciding the source for raising fund 1
Q9) According to your view, what are the challenges which were faced
by Lucky generals in adopting the effective capital structure for their
small and medium enterprise?
FREQUENCY
a) Cash flow position 2
b) Tax rate 3
c) Cost of debt to be pay 1
d) Choosing the right investor 2
e) Deciding the Period of financing 1

f) Choosing the right source of fund 1
Q10) As per your experience, what are the benefit gained by Lucky
generals while having the effective capital structure for their company in
order to improve their overall performance?
FREQUENCY
a) Minimising the cost of capital 5
b) Increasing the company’s market value 1
c) Increase in profitability margin 1
d) Improving the day to day operation 2
e) Provide flexibility in raising fund 1
Data presentation and interpretation
Table 1: Basic understanding about the concept of capital structure
Q1) Dou you have a basic understanding about the concept of capital
structure?
FREQUENCY
a) Yes 8
b) No 2
Figure 1: Basic understanding about the concept of capital structure

Interpretation: From the above gathered data it is being analysed that out of 10 employee of
lucky generals 8 employee has the basic understanding of the capital structure as well as also
know the need of strong and effective capital structure for the company. Remaining 2 employee
does not know about what exactly capital structure is and why it is needed in the company.
Table 2: Main feature of a sound capital structure
Q2) According to your view, what is the main feature of a sound capital
structure?
FREQUENCY
a) Maximum return 4
b) Less risky 2
c) Safety 1
d) Flexibility 2
e) Economy 1
Figure 2: Main feature of a sound capital structure
Interpretation: With the accumulated piece of data it is analysed that out of the total respondent
majority of 4 participants is of the view that the major feature of capital structure is maximum
return. With this company can increase their return on investment or return on capital by using
the fund in sound manner. Some of the participants says that capital structure helps in reducing

the risk, provide safety, improve flexibility as well as economy as through capital structure
company can operate their business in effective manner.
Table 3: Effective capital structure is very important for the small and medium enterprise
Q3) Do you think that, having an effective capital structure is very
important for the small and medium enterprise?
FREQUENCY
a) Yes 7
b) No 2
c) Maybe 1
Figure 3: Effective capital structure is very important for the small and medium enterprise
Interpretation: From the gathered data from primary source it is being analysed that out of 10
employees, 7 is of the view that for small and medium enterprise capital structure paly a very
important role assist helps them to operate their business operation in sound manner. With
capital structure they can get to know about the source which is most suitable for them to raise
capital. With this they also get the fund for their day to day operation. 2 answer that capital
structure is not important for small and medium enterprise they do not need to waste their time in
designing the effective capital structure for their organisation. Remaining says maybe it is vital
they do not because they do not have the basic understanding about the need and importance of
capital structure.

Table 4: Companies which have strong capital structure have increased their profitability and
perform
Q4) As per your perspective, companies which have strong capital
structure have increased their profitability and perform in better way?
FREQUENCY
a) Yes 8
b) No 1
c) Maybe 1

Figure 4: Companies which have strong capital structure have increased their profitability and
perform
Interpretation: From the accumulated piece of information it is interpreted that 8 respondents is
of the view that those organisations which has strong and effective capital structure has improved
their organisational productivity and performance in right manner. This on the other hand helps
in increasing the profitability of the company. Capital structure has helped the company to
reduce the risk as well as also helped in over and under capitalisation situation in right way. 1
person voted for no that the profit margin and performance of the company does not affected by
the strong and better capital structure. It depends upon who company is using their resources as
well as on who they are delivering good in market. Rest 1 says that it may be important for the
company to have strong capital structure or may not they do not know about it is exact manner.
Table 5: Capital structure of the company has a direct impact on the financial performance
Q5) As per your knowledge, capital structure of the company has a direct
impact on the financial performance of the organisation?
FREQUENCY
a) Yes 7
b) No 1
c) Maybe 2

Figure 5: Capital structure of the company has a direct impact on the financial performance
Interpretation: According to the collected data from the questionnaire it is interpreted that
having the sound capital structure is very important for the organisation. Out of the 10 employee
of lucky generals 7 is of the view that capital structure of the company directly impacts the
financial performance of the firm. They say that it is very important for the organisation to use
their assets in effective way so that they can generate revenue and for generating the revenue it is
vital to have the adequate fund which can be acquired by the capital structure of the firm.
Remaining is of the view that it maybe impacts the performance and some says that it not at all
impact the financial performance and productivity of the organisation.
Table 6: Main determinates used by the Lucky generals in order to develop a sound capital
structure
Q6) As per your perspective, what is the main determinates used by the
Lucky generals in order to develop a sound capital structure for their
small and medium enterprise?
FREQUENCY
a) Cost of capital 3
b) Nature of the firm 2
c) Size of the firm 1
d) Growth of sale 1
e) Financial leverage 2

f) Business risk 1
Figure 6: Main determinates used by the Lucky generals in order to develop a sound capital
structure
Interpretation: From the above table and graph it is summarised that the majority of participants
has voted for cost of capital as the main determinates of the capital structure. They are of the
view that cost of capital that company will get determine the capital structure which will be
followed and develop for the organisation. As per the rest various determinate are also there
which decide capital structure of the Lucky generals which are nature of the firm, size of the
firm, growth of sale, financial leverage and many more.
Table 7: Determinant helps the Lucky general to design an effective capital structure
Q7) As per your opinion does these determinant helps the Lucky general
to design an effective capital structure for their company and then raise
funds keeping in mind the capital structure determinant?
FREQUENCY
a) Strongly effective 4
b) Effective 3
c) Neutral 2
d) Ineffective 1
e) Strongly ineffective 0

Figure 7: Determinant helps the Lucky general to design an effective capital structure
Interpretation: With the assemble piece of information it is analysed that out of the 10 employee
of Lucky generals 4 is of the view that the determinates which is used by the organisation is
strongly effective for them to design and build a strong capital structure fort their company. This
factor helps the raise fund as well use this fund in effective way so that under or over utilisation
cannot be happened. 3 answer that it is effective, 2 is neutral in their view. Rest 1 says that the
above mentioned factor is not at all effective for lucky generals.
Table 8: Main importance to have an effective capital structure for Lucky generals
Q8) As per your experience, what is the main importance to have an
effective capital structure for Lucky generals in order to improve their
financial performance?
FREQUENCY
a) Helps in protecting from over and under capitalisation 3
b) Helps in sound financial performance 3
c) Helps in increasing market share 2
d) Helps in using funds in effective manner 1
e) Helps in deciding the source for raising fund 1

Figure 8: Main importance to have an effective capital structure for Lucky generals
Interpretation: From the tabular and graphical representation of the data it is interpreted that
main importance of capital structure for Lucky generals in helps in protecting from the situation
of under and over capitalisation and to maintain sound financial performance. These two are the
major importance of capital structure for the chosen organisation. Some other importance is
increasing their market share so that more goodwill can be created, using the fund in productivity
manner and many other.
Table 9: Challenges which were faced by Lucky generals in adopting the effective capital
structure
Q9) According to your view, what are the challenges which were faced
by Lucky generals in adopting the effective capital structure for their
small and medium enterprise?
FREQUENCY
a) Cash flow position 2
b) Tax rate 3
c) Cost of debt to be pay 1
d) Choosing the right investor 2
e) Deciding the Period of financing 1
f) Choosing the right source of fund 1

Figure 9: Challenges which were faced by Lucky generals in adopting the effective capital
structure
Interpretation: From the collected data it is analysed that the major challenge which were faced
by Lucky generals while implementing the strong capital structure for their enterprise is tax rate.
The company need to acquire that source of fund in which the tax rate is low so that they can
manage their capital and use that in business operation.
Table 10: Benefit gained by Lucky generals while having the effective capital structure
Q10) As per your experience, what are the benefit gained by Lucky
generals while having the effective capital structure for their company in
order to improve their overall performance?
FREQUENCY
a) Minimising the cost of capital 5
b) Increasing the company’s market value 1
c) Increase in profitability margin 1
d) Improving the day to day operation 2
e) Provide flexibility in raising fund 1

Figure 10: Benefit gained by Lucky generals while having the effective capital structure
Interpretation: With the accumulated data form primary source it is analysed the major benefit
which is gained by the lucky generals after having effective capital structure is minimising the
cost of capital so that they can conduct their business operation in effective and efficient manner.

DISCUSSION
Theme 1: To understand the concept of capital structure and small and medium enterprise in
the context of organisation.
As per the above gathered information from the literature review it has been discussed
that capital structure is considered as a combination of equity and debt used by an organisation to
finance the overall growth and operations. It is generally defined as a particular mix of certain
mix of equity and debt to assess the company operations and assets of the business so that more
growth can be attained in an appropriate and effective manner (Du, Wu and Zhao, 2018). Equity
is considered as the more expensive permanent source related to capital which has greater
flexibility of the finance and is very beneficial for the business organisation. On the other hand
debt is considered as a cheaper fund which is finite to maturity source of capital that legally
obligates the cost of the fixed assets in an appropriate manner. It is very important for the
company to maintain the capital structure of the business so that finance can be assessed in an
effective manner so that more authenticity can be maintained. The capital structure in the small
and medium enterprises needs to be maintained because it helps in managing the finances if the
company in a more precise and reliable manner. For starting any type of business the company
require to have enough capital so that the business operations can be started and gain benefit in
future for achieving high growth and success in the highly competitive business environment.
Capital structure plays a very crucial role in the business as it helps in determining the stability
level of the company in the overall market (Paccoud, Nazroo and Leist, 2020). An organisation
that has sound capital structure within their business tends to be more profitable and successful
in achieving the goals and objectives of the company in the business market effectively. It also
has the chance to increase their prices of the share and securities that they possess in the market
for reaching the right type of investors and in achieving high variability and growth in the
competitive market. With the good and effective structure of the capital in the small and medium
enterprises ensures that the available funds are used in a right manner and also helps in
protecting over or under capitalisation.
Theme 2: To identify various determinants of capital structure used by Lucky generals in
increasing the profitability and performance
As per the above gathered data from the literature review it is discussed that there are
various different type of variants of capital structure that Lucky generals use for increasing the

performance and profitability of the business organisation. Financial leverage is the first type of
determinant that helps the company in managing the finances of the company in an appropriate
manner so that more growth and success can be attained and gathered in the business market
(Ramli, Latan and Solovida, 2019). This has major effect on the shareholders of the company
because they are more interested n knowing about the rate of profitability that they are earning so
that earn high rate of return on the investments and in getting high satisfaction from the rate of
interest that they get back. If the assets financed by the company with the help debt will yield a
greater return that the original cost of the debt, the earnings per shares also gets increased with
increasing the investment of the owner. Stability and growth of sales is considered as another
determinant that is related with the capital structure of Lucky generals and this directly impacts
the overall performance of the company. If the sales of the company are increasing in a fair
manner than the rate of debt also gets increased. It is important for the company to maintain the
rate of stability of sales in order to ensure that the business organisation will not face any
difficulty regarding the finance in the future. Cost of capital is also an essential determinant of
capital structure that Lucky general consider in enhancing the performance and productivity of
the company asset and reducing the rate of liabilities within the given period of time (Khémiri
and Noubbigh, 2018). Cost of capital can be defined as the minimum rate of return to be
expected by the supplier of the business organisation because the expected rate of return is
mainly depended on the degree of risk involved and assumed by the company investors. There
are generally two types of risk that are part of the capital structure and mainly occur at the time
of planning the capital structure of the company and are defined as financial risk and business
risk.
Theme 3: To analyses the importance of effective capital structure in enhancing the profit and
improving the performance of Lucky generals
As per the above gathered information from the following literature review it has been
discussed that capital structure is the main element of the whole research and helps in
determining the growth and productivity of the company in an effective and authentic manner.
Without capital no organisation can continue its business operations smoothly and cannot
contribute to take part and deliver services in the market effectively (Zeitun and Goaied, 2021).
An organisation that have large amount of capital invested likely to be more beneficial in
achieving the predetermined goals and objectives of the company in the competitive market.

Good and sound capital structure helps in delivering better customer experience and also helps in
increasing the value of the shares and this result in creating more value for the investors of
Lucky generals. Proper management of the capital structure helps the company in increasing its
rate of profitability in a positive manner and this also results in achieving more number of
customers and share in the market. This boosts the confidence of the shareholders as they get
higher returns on their investments if the company earn high rate of profits in the business
market and this helps in gaining high growth and success in the market. A well defined and
proper maintenance of the structure of the capital helps in increasing the capital of the
shareholders while reducing the other overall cost of the capital. It is the responsibility of the
owner to manage and sustain the capital in appropriate manner so that all the finances are
managed and interpreted by the company in a suitable way (Koralun-Bereźnicka, 2018). A good
and effective capital structure helps in providing the company with the greater chance of
flexibility of decreasing or increasing the rate of debt capital as per the condition or situation. It
also helps in reducing the cost of capital or cost of finance of the company and results in
identifying different sources of funds in order to keep the value of the capital at the minimised
level. It is necessary for the company to deliver accurate and précised results to the shareholders
of the company as they are main part of the business and have a high stake on the profits earned.
Theme 4: To discern challenges faced by Lucky generals in implementing the effective capital
structure for their organisation.
As per the above collected information from the literature review it has been discussed that
for managing the capital structure properly, it is important for company managers to use the
funds in a relevant way so that all the business activities can be managed in an effective way.
There are several challenges that Lucky generals face at the time of implementing an effective
structure of the capital with the company and this reduces the working efficiency of the business
in the overall market. Choosing the right source of the fund is the major challenge that the
company face and it is the most important element because this only help the business in gaining
the right type of stakeholders for investment purpose (Bilgin, 2020). It is very important for the
company to choose the correct type of fund so that the business earns huge amount of profits and
in satisfying the customers so that they achieve high variability and reliability in the business
market. Limited visibility is another type of challenge that the company face while implementing
the capital structure as it difficult for the company to manage the proportion of the finances in

the right manner and this helps in reducing the variability of the overall gains and profits n the
business market. No formal structure is also a very significant challenge faced by Lucky generals
as this hinders the scope of the clear information about the funds used and how much funds are
left where to invest the money, are the selected investors are right or wrong. It is important for
the company to follow a structured capital formation so that all the funds are managed in a
proper manner and in analysing the business operations in a smooth and successful way (Eggers,
2020). Too many stakeholders are involved is also a challenge for Lucky generals as the working
capital of the company involves the management of cash, accounts, inventory, account payables
and receivables and many more.

CONCLUSION
From the above mentioned report, it has been concluded that capital structure of an
organisation is an effective mixture of their debt and equity capital which helps them in order to
maximise their company's value in the market. This will also helps in minimising their cost of
capital. Small and medium sized enterprises are the business whose of capital investment,
number of labours as well as assets are lower then any large firm of the company. Due to this
their capital structure is also different in comparison to large firm. It has been analysed that from
the above research that the capital structure of the company is also important in order to
determine their overall stability of their business. Higher sound capital structure of the company
helps them in order to increase the market price of their shares and securities. The good capital
structure of the company helps them to used their funds in effective manner. This will helps
company in order to get prevented from the over and under capitalisation. The capital structures
of the company helps them in order to maximise their shareholder's capitals while minimising
their overall capital cost in proper manner. It also helps company in order to increase their profits
in order to provide higher returns to their stakeholders. It provides flexibility to the company in
order to increase or decrease their debt capital according to the situations. The sound capital
structure of the company provides maximum return, safety and flexibility as well as consist low
risk in order to help company to operate their business in better manner. The above research
analysed that their many determinants of capital structure that help company in order to improve
and increase their company's profitability and performance in better manner. It involves trading
on Equity or financial leverage, growth and stability of sales, cost of capital, risk, cash flow as
well as control. There are many importance of effective capital structure which helps company in
order to improve their financial performance which includes protection from over and under
capitalisation, sound financial performance, increase in market share, proper utilisation of funds
as well as deciding the source of raising fund. The challenges that the company faced while
implementing the effective capital structure of their business which includes positioning cash
flow, tax rate, cost of debt to be pay, choosing the right investor, deciding the period of financing
as well as choosing the right source of fund. The effective capital structure of the company
provides various benefits to them in order to operate their business such as minimising their cost
of capital, increasing their market value, increase in profitability margin, improvement in day to
day operations as well as provides flexibility in order to raise fund.

RECOMMENDATION
From the above discussion, it has been recommended to the Lucky generals to find
effective ways that helps in making their capital structure effective. This will help company to
maximise their business value and market price of their shares and securities. There are certain
recommendations for the Lucky generals in order to keep their capital structure effective which
helps in operating their business smoothly in today's volatile and uncertain economic
environment. These are described below:
Realistically assess their cash flow prospects- The capital structure of the company
need to support their organisational strategy. The strategy of the company is based on the
assessment of their business's opportunities with analysing how much revenue will they generate
and how fast. This will makes Lucky general to conduct optimistic projections that helps in
designing the capital structure in order to generate the capital in too aggressive manner. This will
also helps company in order to fulfil the requirement of their business rapidly and operate their
business in smooth manner.
Ensure the capital structure of the company should supports the business on the
basis of their life cycle position- The proper capital structure of the newly launched
organisation is too different from the structure of the company that is in its growth or maturity
stages. Lucky Generals which is small company may start their business by taking funds from
their family and friends. But at the time of its maturity and growth period they need to generate
cash by finding opportunities to generate effectively through venture capitals, angel investors as
well as private placement investors.
Understand the trade offs in between the debt and equity- There is a tradeoff in every
decision related to capital structure. Whenever an organisation choose in between the debt and
equity capital they need to understand the trade offs that lie in between them. In balance sheetm
debt imposes financial discipline, while equity tends allows the greater flexibility but consist
higher cost. This will makes Lucky general in order to understand the trade off in between the
debt and equity to generate the capital for operating their business in smooth manner.
Partner with the right capital providers- An organisation moves in different stages of
developments and they face many capital providers as they knocking time to time. This makes
company in order to choose right providers that help company to operate their business in better
manner. The Lucky general will demonstrate the history of their stable relationships with the

firms over long periods of time. Then they offer consultative value on the basis of knowledge of
their company's products and segments. This will help them in order to make partnership with
the right capital providers to generate funds for the smooth operations of their business.
As the company is mature, focus on cost of capital- The capital structure of the
company should evolve their business matures as well as meet steady revenue growth. This
makes Lucky generals to focus more on minimising their blended cost of capital. The maturity
stage of their business life cycle, the owner of the company will employs the variety of tax
strategies which is associated with the debts in order to brings the cost down.

REFERENCES
Books and journals
Abbadi, A.A., 2021. Determinants of Capital Structure in Industrial Companies: Conservative
Policy—Applied Study on Jordanian Industrial for the Period (2014-2016). International
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APPENDIX
Questionnaire
Q1) Dou you have a basic understanding about the concept of capital structure?
a) Yes
b) No
Q2) According to your view, what is the main feature of a sound capital structure?
a) Maximum return
b) Less risky
c) Safety
d) Flexibility
e) Economy
Q3) Do you think that, having an effective capital structure is very important for the small and
medium enterprise?
a) Yes
b) No
c) Maybe
Q4) As per your perspective, companies which have strong capital structure have increased their
profitability and perform in better way?
a) Yes
b) No
c) Maybe
Q5) As per your knowledge, capital structure of the company has a direct impact on the financial
performance of the organisation?
a) Yes
b) No
c) Maybe
Q6) As per your perspective, what is the main determinates used by the Lucky generals in order
to develop a sound capital structure for their small and medium enterprise?
a) Cost of capital
b) Nature of the firm

c) Size of the firm
d) Growth of sale
e) Financial leverage
f) Business risk
Q7) As per your opinion does these determinant helps the Lucky general to design an effective
capital structure for their company and then raise funds keeping in mind the capital structure
determinant?
a) Strongly effective
b) Effective
c) Neutral
d) Ineffective
e) Strongly ineffective
Q8) As per your experience, what is the main importance to have an effective capital structure
for Lucky generals in order to improve their financial performance?
a) Helps in protecting from over and under capitalisation
b) Helps in sound financial performance
c) Helps in increasing market share
d) Helps in using funds in effective manner
e) Helps in deciding the source for raising fund
Q9) According to your view, what are the challenges which were faced by Lucky generals in
adopting the effective capital structure for their small and medium enterprise?
a) Cash flow position
b) Tax rate
c) Cost of debt to be pay
d) Choosing the right investor
e) Deciding the Period of financing
f) Choosing the right source of fund
Q10) As per your experience, what are the benefit gained by Lucky generals while having the
effective capital structure for their company in order to improve their overall performance?
a) Minimising the cost of capital
b) Increasing the company’s market value

c) Increase in profitability margin
d) Improving the day to day operation
e) Provide flexibility in raising fund
240.