Capital structure

In this lesson

1. 0:00 Lesson 12: Capital structure overview
2. 0:24 Financial markets and security trading
3. 1:08 Money market versus capital market
4. 2:02 Capital structure theories recap
5. 3:35 Traditional view on optimal gearing
6. 6:01 Modigliani and Miller no-tax theory
7. 6:38 Modigliani and Miller with-tax theory
8. 7:57 Static trade-off theory explained
9. 9:54 Pecking order theory for financing
10. 11:12 Agency effects and stakeholder conflicts
11. 12:47 Real-world considerations and signalling

About this lesson

We'll explore the key theories that explain capital structure decisions—from the traditional view and Modigliani-Miller theories through to real-world considerations like the static trade-off theory, pecking order theory, and agency effects. You'll also discover how financial markets work, the different sources of finance available, and practical factors like gearing drift and investor signalling that influence how companies actually make financing choices. This is essential knowledge for FM, AFM, and SBL papers, where understanding the optimal balance between debt and equity directly impacts company valuation and strategic decision-making. The lesson breaks down why debt appears cheaper than equity on the surface, but why taking on too much debt increases financial risk and can eventually raise the weighted average cost of capital. By the end, you'll be able to analyse real financing decisions, explain why companies follow a pecking order when raising funds, and understand how gearing ratios evolve over time as companies grow and become more profitable.

Duration: 15m