Capital Structure Management In Practice Introduction - Financial Management

This chapter focuses on various tools of analysis that can assist managers in making capital structure decisions that will lead to a maximization of shareholder wealth. The following section develops techniques, derived from accounting data, for measuring operating and financial leverage. As discussed in the previous chapter, operating leverage and financial leverage are important components of a firm’s business risk and financial risk.

Other techniques, namely, EBIT -EPS analysis and cash insolvency analysis, can aid management in assessing the risk versus return trade-offs associated with the use of debt in a firm’s capital structure. The appendix to this chapter discusses breakeven analysis—an analytical tool that can provide insights into the business risk facing a firm.

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Financial Management Topics