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Capital structure |

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| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
A company's capital structure refers to the relative proportions of equity (raising money by selling shares) and debt (raising money by borrowing) which the company uses to finance its activities.
A company's capital structure can have an enormous impact on its earnings per share, taxes, and interest payments, even though it is relatively easy for companies to change capital structures - I.E., to pay off debt by selling new shares, or to borrow money and buy back shares. As a result, valuation metrics which are not "capital structure neutral" -- ie, which are impacted by capital structure -- make it difficult to compare one company to another.
Earnings, for example, are not capital structure neutral because of the impact of taxes and interest. As a result, investors use metrics such as EBIT and EBITDA instead - profitability metrics which exclude the components of a company's earnings impacted by its capital structure - to compare companies and understand the fundamental earnings potential of the business.



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