Question

Stadford Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's:A. capital structureB. capital budgetC. asset allocationD. working capitalE. risk structure

Answer 1

Answer: Capital structure                            

Explanation: In simple words, capital structure refers to the proportion of different securities that an organisation uses as a combination to fund its operations. In other words, the amount of debt and equity in total capital in hand of the business is termed as capital structure.

Capital structure is of high importance to the investors as it directly impacts the liquidity and profitability of the organisation.

The ability of a company to bear its short term obligation is called liquidity and the ability to generate profit with given amount of resources is called profitability.