The mix of long term and short term funds employed by the company in order to procure the assets which are required for day to day business activities, is known as Financial Structure. Trend Analysis and Ratio Analysis are the two tools used to analyze the financial structure of the company.
Financial structure is the amount of debt versus equity funding you use in your business. Greater the proportion of borrowings, higher will be the return on equity. Increasing the level of borrowings has a multiplier effect on your returns. Financial structure comprises of short-term and long-term sources of funds for various activities of the business. The short-term sources are required for the day-to-day operation in the business. Whereas long-term sources are required for setting up of a firm, expansion, diversification, modernization and other similar capital expenditures.
The long-terms sources are generally issue of securities, term loans, and internal accruals, and equipment financing. In addition to these, you will also have the option of funding projects by way of deferred credit, unsecured loans and deposits and venture capital financing.
