Notes for Level I CFA® Program

R55 Fundamentals of Credit Analysis

3.1. Capital StructureWatch Video Play


Capital structure refers to the way a firm finances its assets across operating units.  In short, it refers to the composition of equity (common share, preferred share) and debt (bank debt, bonds of all seniority rankings) across its operating units.

Assume a company has a total capital of $100 million of which bank debt is $5 million, bonds are $35 million, preferred shares are worth $10 million, and common equity accounts for $50 million. This is a simple capital structure. You may also have complicated capital structures with a holding company, multiple subsidiaries underneath it across geographies issuing their own debt with different seniority ranking.