Determine an Ideal Capital Structure

Determine an Ideal Capital Structure

Optimizing a company’s capital structure is critical to its ability to achieve near and long-term growth objectives. The optimal capital structure should ensure companies retain sufficient capital levels during both good times and bad.

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This article outlines the following factors and steps that should be taken into account when determining an ideal capital structure:

 

  • Financial Analysis – Creating an in depth financial analysis to better understand your current position, which should include financial leverage, short & long-term capital needs, and fixed assets
  • Preparation for Unforeseen Events – Organizations especially those acquiring need to consider how macroeconomic factors such as natural disasters, large drops in demand, or a global credit crunch can have a profound effect on their overall position.
  • Anticipating Interest Rate Change – Interest rate risk is a key factor in determining an ideal capital structure. The key question is what interest rates will the organization or acquirer be taking on, fixed, floating, or interest rate floors.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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