Capital structure and leverage decisions come in the ambit of

Capital Structure or Leverage Ratio

• Capital structure refers to the degree of long-term financing of a business concern as in the form of debentures, preference share capital, and equity share capital including reserves and surplus.
• There should be a proper mix between debt capital and equity capital. Capital structure is otherwise called leverage.

Formulae to Calculate Capital Structure or Leverage Ratios

Capital structure ratios are calculated to test the long term financial position of the business concern. The followings ratios are calculated to analyze the capital structure of the business concern.

1. Capital Gearing Ratio

1. Financial Leverage

2. Operating Leverage

3. Combined Leverage.

2. Debt Equity Ratio.

3. Total Investment to Long Term Liabilities

4. Ratio of Fixed Assets to Funded Debt.

5. Ratio of Current Liabilities to Proprietors’ Funds.

6. Ratio of Reserves to Equity Capital.

Therefore, Capital structure and leverage decisions come in the ambit of financing decisions.