CAPITAL

STRUCTURE
Advance Finance Management

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 CAPITAL STRUCTURE
the capital structure is the financial
proportion between debt short-term,
long-term debt and own capital
used for fulfillment of company
shopping needs.
 Capital
Structure
Components

Foreign Capital
is the capital used by company
for operational activities
originating from outside the
company.

Own Capital
Own capital or equity is a long-
term capital obtained from
company owners or
shareholders
 Foreign Capital
Foreign capital or debt itself is divided into three groups, including:

10% 45%
1. Short-term Debt
2. Medium-term Debt
(Intermediate-term Debt)
• Term Loan
• Leasing
3. Long-term Debt
• Bond Loan
• Mortgage Loan

10%
Own Capital
Own capital in a company in the form of a PT
consists of:

1. Capital Stock
• Common Stock
• Preferred Stock
• Cumulative Preferred Stock
2. Reserve
• Reserve expansion
• Reserves of working capital
• Reserve foreign exchange differences
• Reserves to accommodate things or unexp
ected events (general reserves)
3. Retained Earning
 Capital Structure Theory
According to Hanafi (2012: 297) the theory of capital structure consists of:

Miller’s Model with

01 Traditional Approach 04 Corporate and
Personal Taxes

Approach to
02 Modigliani and Miller 05 Pecking Order Theory
(MM)

Asymmetry Theory:
03 Teory of Trade-off 06 Information and
Signaling
 Factors Affecting Capital Structure Decisions
According to Brigham and Houston (2011: 188) which are translated by Ali Akbar Yulianto, the factors
that can influence the capital structure decisions consist of:

Stability of Sales (01) (04) Growth Rate

Asset Structure (02) (05) Profitability

Operating Leverage (03) (06) Tax

 Cont. Factors Affecting Capital Structure Decisions
Control (07) (10) Market Conditions
Management Attitude (08) (11) Internal Conditions of the Company
Attitude of Loan Providers & Rating Agency (09) (12) Financial Flexibility
 According to Sjahrial and Purba
(2013: 37) the capital structure ratio
consists of:
1. Total Debt Ratio to Total Assets
2. Ratio of Total Debt to Equity
3. Long Term Debt Ratio to Capital

Capital
Structure
Ratio
 Total Debt Ratio to Total Assets
(Total Debt to Total Assets Ratio / DAR)

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝐷𝐴𝑅 𝑅𝑎𝑡𝑖𝑜 = × 100%
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
This ratio is used to measure how
much the company's assets are
financed by debt. The higher this
ratio means the greater the
amount of loan capital used for
investment in assets to generate
profits for the company.
 This ratio is used to measure the
balance between the obligations
Ratio of Total Debt held by the company and its own
to Equity capital. This ratio can also mean
the company's ability to fulfill its
(Total Debt to debt repayment obligations with its
Equity Ratio / own capital guarantee.
DER) 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
𝐷𝐸𝑅 𝑅𝑎𝑡𝑖𝑜 = × 100%
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
 Long Term Debt Ratio to Capital
(Long Term Debt to Equity Ratio / LDER)

This ratio is used to show the

relationship between the number of
long-term loans given by creditors with
the amount of their own capital
provided by the owner of the company.
This ratio is also used to measure how
much the comparison between long-
term debt with own capital or how
much long-term debt is guaranteed by
own capital.

𝐿𝐷𝐸𝑅 𝑅𝑎𝑡𝑖𝑜
𝑇𝑜𝑡𝑎𝑙 𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐷𝑒𝑏𝑡
= × 100%
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
Thank you
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