What does capital structure refer to?

Capital structure refers to the way a company finances its overall operations and growth by using different sources of funds. Specifically, it is the mixture of debt and equity financing that a firm uses to fund its activities. This can include bonds (debt) that need to be repaid with interest, as well as equity, which represents ownership stakes in the company.

The mix of debt and equity is significant because it impacts a company’s financial risk, cost of capital, and ultimately its overall valuation and ability to generate returns for shareholders. A balanced capital structure can minimize the overall cost of capital and maximize the value of the firm, whereas an improper mix can lead to increased risks or higher costs of financing.

Other options describe different financial concepts. The percentage of stockholders pertains to ownership distribution rather than financing strategy. Cash flow management relates to how a business manages its incoming and outgoing cash rather than the sources of capital. The overall investment in market securities refers to the assets held by the company, but not how those assets were funded or financed.