Section outline

  • This section starts with a general overview of the internal and external sources of financing that are available to firms. We then focus on the two most important sources of capital: debt and equity. The two instruments have strikingly different characteristics, in particular with respect to their property rights and their cash flow rights. These differences can have far-reaching implications for many important dimensions, including the firm's tax bill, the willingness to take risks, and the way we measure performance.  The section concludes with an overview of the most important finanacial ratios to assess the capital structure of a company.