Capital structure refers to the composition of debt and equity in a company. Debt and equity are forms of capital that finance every company and the make-up these sources of capital is important to understand because it affects the company’s future cash flow, risk profile, and valuation. In particular, we need to understand the terms surrounding each tranche of capital because these terms determine the value different investors in the company will receive.
- Capital structure seniority and risk
- Characteristics of different debt tranches
- Leverage and coverage multiples