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What is Capital Structure Policy?
- Capital structure relates to the mix of debt and equity used by a company
- The focus is usually on debt, which is referred to as ‘leverage’ or ‘gearing’
- Theoretically, the best way of measuring the leverage of a company is to divide market value of interest-bearing debt by market value of equity
- However,
- The market value of equity is equivalent to the market capitalisation of issued shares but,
- The market value of debt is not typically observable, because debt securities are not often listed on the exchange
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