itsual Capital Structure
Overview
Capital structure is how a business finances itself. The mix of debt and equity affects risk, control, cost of capital, and flexibility.
When to Use
- Fundraising and financing decisions
- Debt capacity and refinancing analysis
- Evaluating leverage targets
- Dilution vs debt trade-offs in growth plans
Core Concepts
- Cost of debt vs cost of equity
- Leverage, coverage, and covenant headroom
- Dilution and ownership impact of equity raises
- Flexibility and refinancing risk
- Optimal structure depends on cash flow stability and growth stage
Principles
- Cheap capital that creates distress risk is not cheap
- Stage and cash flow predictability constrain leverage
- Covenants and terms matter as much as headline rate
- Align financing with use of proceeds and timeline
Verification
- Debt capacity linked to cash flow and covenants
- Equity dilution scenarios are explicit
- Financing plan matches strategic horizon