How does the type of assets used affect a firm's capital structure?

Question

its about financial mangament

Answer 1

assets are in direct relationship with the capital structure of the company.

if a company is aggressive, meaning has more volatile assets (cash,a/r, liquid investments and easily converted inventories) or quick assets, the company also has to have quick source of capital like short term borrowings to sustain the aggressive nature of turning these assets into income.

however, if the company is conservative, that is having more fixed assets or is investing its source of funds in a more stable and slow moving assets like equipments, other fix properties like machinery, factory, then the company should be having a capital structure that would sustain the long term of its production e.g long term bonds, issuance of capital stock to lure long term investors who are willing to lend the company its needed funds for a long span of time. ofcourse, the return or income generated from this type of assets may be slower than the aggressive company, you can be assured by the adage..." slow but surely". companies of this type are mining, oil drilling, and other manufacturing companies.


goodluck on your exams!

Answer 2

Dramatically