Choose use Loan or Equity Capital to Achieve Optimal Capital Structure

The ultimate goal of financial decisions is to maximize shareholder value or maximize corporate value. In today's conditions of integration and fierce competition, businesses want to survive and develop, in addition to determining the right business strategy, managing human resources well, looking for solutions to improve the quality of life. To improve production and business efficiency, it is necessary to determine the optimal capital structure. Optimal capital structure is understood as an ideal ratio between long-term debt and total long-term capital at which a business can maximize the value of earnings per share at a low cost of capital. Best. One of the important issues for corporate financial administrators is how to build the capital structure of the business, how much equity, and how much to borrow from banks to maximize value. Enterprise, also known as building an optimal capital structure. This is a very important issue for corporate finance, because capital structure has a direct impact on corporate financial risk, return on equity, average cost of capital, and cost of capital. Enterprise value. Businesses can raise capital from many different sources to finance production and business activities. Researching and establishing the optimal capital structure in accordance with the actual situation and goals of the business based on the choice of using debt or equity is always one of the most important tasks of the company set for each business.

Therefore, the article analyzes the impact of debt and equity use on the optimal capital structure of enterprises.