COMMERCE 3FC3 Lecture Notes - Lecture 5: Capital Structure, European Cooperation In Science And Technology, Insider Trading

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3FC3
• Professor: Joy Zhang

Document Summary

Capital structure is the amount of debt and equity that a company uses. More specifically we are looking at the allocation between debt, equity and preferred shares. (a) change in capital structure vs (b) restructuring (a) For change in capital structure, the total assets of company changes and the debt to equity ratio also changes. For a change in capital structure we either: Or subtract debt or subtract debt (b) In the case of restructuring, the debt to equity ratio changes but total assets do not change. There could be good or bad reasons for restructuring a company"s d/e ratio. E. g. in the news it is usually a precursor to bankruptcy so it"s often negative. If you can"t make your interest payments then you"re in financial trouble. Let"s say your assets can cover your debt. Then whoever has loaned you the debt will force u into bankruptcy in order to retrieve their investment.