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Definition

This is the way in which a company has raised the capital needed to establish and expand its business activities or, more specifically, the number of shares and long-term loans in each class that have been authorised and issued. You can see the capital structure of all the listed companies in your stock exchange handbook. Usually, only the company's ordinary shares will actually be "quoted" in the newspaper on the price page. But companies often have a number of different types of shares and debentures which have different risk/return characteristics. It is worth looking at the capital structure of companies which interest you to understand how their capital was raised and what obligations they might have in respect of different securities. For example, they may have convertible debenture or preference shares which will increase the number of issued shares resulting in a dilution at some point. Redeemable preference shares and debentures will require the company to buy them back or pay them out at a future specified date resulting in an outflow of cash.

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