Establishing a Capital Structure for a Firm Is Not Simple

question 54

Essay

Establishing a capital structure for a firm is not simple. Although financial theory guides the process,there is no simple formula. List and explain four main items that one should consider in determining the capital structure.

---

Definitions:

EPS

Earnings Per Share (EPS) is a financial ratio calculated by dividing the company's net profit by the number of its outstanding shares, indicating how much money a company makes for each share of its stock.

Myron Gordon

An economist best known for his work on dividend policy and stock valuation, including the Gordon Growth Model which relates a company's dividend policy to its stock valuation.

John Lintner

A prominent economist known for his work on dividend policies and the capital asset pricing model (CAPM).

Dividend Payout Ratio

The proportion of earnings paid out as dividends to shareholders, expressed as a percentage of the company’s total earnings.