Capital Structure Analysis: Finance Report - Course Name, Semester

This report delves into the intricacies of capital structure, a critical element in business finance. It examines the significance of debt-to-equity ratios, exploring how these ratios reflect a company's risk profile and financial health. The report addresses the influence of firm size on capital structure decisions, highlighting how larger corporations often possess greater flexibility in accessing diverse funding sources, while smaller businesses may face challenges in securing long-term financing. It also explores how firm size can serve as a proxy for the likelihood of default and asset volatility. The report analyzes the relationship between firm size and information asymmetry, and its impact on the ability to acquire external funds. Furthermore, the report provides insights into the implications of capital structure on overall financial performance and strategic decision-making within a business context. The analysis draws upon research by Robb & Robinson (2014) and Zeitun & Tian (2014) to support its arguments.

Running head: MA W7 POST
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Authors’ Note

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Capital structure can be considered to be very crucial for all business concerns as it is
the way firm funds and overall operations along with growth by means of different sources of
finances (Robb & Robinson, 2014). There are necessarily different classes as well as types of
capital that comprise of long term as well as short term debt, common equity together with
preferred equity. In essence, debt to equity ratio of a business concern is what financiers
indicate towards when viewing at structure of the capital. In itself, this delivers insight
regarding the extent of riskiness of the company. Essence, the business concern comes in the
shape of bond issues or else notes payable during the long term, while equity can be
categorised as common stock, preferred stock else wise retained earnings. Zeitun & Tian
(2014) assert that there are different theories regarding structure of the capital, mentioning
practical implication along with strengths along with weaknesses of these themes. However,
in the present case, I disagree with the given statement.
Essentially, it can be said that overall size of the corporation might perhaps influence
overall capital structure together with availability of finances from diverse sources. Zeitun &
Tian (2014) say that a small sized business concerns finds it difficult in acquiring long term
objectives. Also, a large sized business concerns has comparatively greater flexibility in
formulating structure of the capital. Therefore, it can acquire credits or loans on simple terms
and market different ordinary shares, different preferences shares along with debentures to
the public. Thus, it can be hereby mentioned that size of the business concern necessarily
exerts an influence on overall amount along with costs of the funds, but does not ascertain
overall pattern of funding. Instinctively, the point of disagreement that says firm size matters
for different reasons can be justified. Particularly, when considered in terms of fixed costs of
acquiring external finances, large sized corporations have cheaper admittance to outer funds
for every dollar that is borrowed. Also, larger sized business concerns are more probable to
diversify funding sources of the firm. On the other hand, size might be considered as a proxy

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for possibility of default, as it is every so often considered that larger sized business concerns
are less likely to fail and shut down, or else the business concern discovers itself in problem,
for rate of recovery (Robb & Robinson, 2014). Also, size of the firm might also be
considered to be a proxy for overall volatility of assets of the business, as small sized
business concerns are more prone to be developing business concerns in speedily developing
as well as inherently volatile sectors. However another illustration is the degree and extent of
hold in the asymmetry of information between mainly insiders and that of capital markets that
might be low for larger sized corporations as for instance they might encounter further
scrutiny by ever-apprehensive financiers.

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References
Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), 153-179.
Zeitun, R., & Tian, G. (2014). Capital structure and corporate performance: evidence from
Jordan.