Capital Structure and Leverage

Leverage and capital structure are two items that link to a company’s operations, with financial figures related to the items on the company’s balance sheet. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Leverage represents monies paid for fixed assets, which are items that cost a great deal of money but are necessary to produce goods and services. Optimal capital structure is the one that strikes a balance between risk and return to achieve ultimate goal of maximizing the price of the stock.