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Back to blog June 01, 2009 No Comments Author: Andy Jones

Capital Structure – Equity & Debt

A company’s capital structure is the relative proportion of equity and debt used to finance assets and operations. A company’s capital structure determines both the nature of its stakeholders and its expected cost of capital.

Equity is an investment instrument that represent ownership while debt represents a financial obligation.

Equity instruments include:

  • Common stock
  • Preferred stock
  • Retained earnings

Debt instruments may be categorized in several ways:

  • Junior or senior
  • Secured or unsecured
  • Public or private
  • Short-term or long-term

Short-term debt is referred to as a current liability, maturing within one year or the operating cycle, whichever is longer. Short-term debt includes marketable securities, short-term loans and notes payable, and revolving lines of credit. Long-term debt refers to an obligation that will not be satisfied within one year or within the operating cycle, whichever is longer. Long-term debt instruments include bonds and long-term notes payable and bank loans with more than one year terms.