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.