Why the importance?
The Capital structure is an overview of the types and amounts of claims the various instrument holders have against the business. The structure of long-term debt, share capital and shareholder cash is a determining factor of how a firm’s profits are divided. It’s also a component of the risk structure upon which the operation is built. Debt holders have a claim on sums of cash and interest commensurate with the use of that cash. Equity holders have a claim on future profits earned by the business. A higher percentage of debt means more fixed payment obligations. Accordingly, more fixed obligations mean a higher risk profile assignment to the business and higher rates of interest. What is important is aligning the capital structure with the risk tolerance of ownership together with the timing and stage of the current business cycle.