What are the factors that influence a co | Class 12 Business Studies Chapter Financial Management, Financial Management NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Business Studies - Chapter Financial Management. This page offers a step-by-step solution to the specific question from Exercise 4: Extra Questions, Question 7:

What are the factors that influence a company’s capital structure? Discuss in detail.

. With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 7:

What are the factors that influence a company’s capital structure? Discuss in detail.

Answer:

Several factors influence a company’s decision on capital structure:

  • Cost of debt vs. cost of equity: Debt is usually cheaper because of tax benefits, but it increases financial risk. Equity is costlier but involves less risk.
  • Company’s cash flow: A company with strong cash flow can afford to take on more debt.
  • Debt service coverage ratio (DSCR): A high DSCR indicates that the company can comfortably meet its debt obligations, encouraging the use of debt.
  • Market conditions: Favorable stock market conditions may prompt a company to issue more equity, while poor conditions may lead to more debt financing.
  • Interest coverage ratio: This measures the company's ability to pay interest on its debt. A higher ratio reduces the risk of using debt.
  • Floatation costs: The costs of issuing new securities, especially equity, can discourage the company from raising funds through equity.
  • Control considerations: Issuing more equity can dilute the control of existing shareholders, while debt financing allows the current owners to retain control.


Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

  • Read the question carefully and focus on the core concept being asked.
  • Reference examples and data from the chapter when answering questions about Financial Management.
  • Review previous year question papers to get an idea of how such questions may be framed in exams.
  • Practice answering questions within the time limit to improve your speed and accuracy.
  • Discuss your answers with your teachers or peers to get feedback and improve your understanding.

Latest Blog Posts

Stay updated with our latest educational content and study tips

How to Return to Work After a Career Break: Skills, Jobs and Preparation in 2026

It’s not about starting over if you took a break to care for children, take care of yourself, be healthy or for any other reason. This is a realistic strategy for the recovery of skills, selection of the right job, and overcoming the resume problem. One year, three years or 10 years of a career … Read more

Read More

Best Career Options After Class 12 for Average Students in 2026

There’s no need to score 95% or achieve a JEE/NEET rank. You don’t need to score 95% or rank in JEE/NEET to build a solid career. A candid and pragmatic guide to the routes that actually work for students who have an average mark and what to do when faced with the options. ​ If … Read more

Read More

Coaching vs Self-Study: Which is Best in 2026 for Competitive Exams?

AI tools, online platforms that are much cheaper than coaching centres and the changing idea of what “structure” even means have upended this argument more in the past two years than in the decade preceding it. Here’s what is really the case for 2026 – and what has actually stayed the same. If you look … Read more

Read More

Career Change After 30: How to Transition from Non-Tech to IT or Data Science

Starting to make a new career after 30 isn’t a start from scratch. Marketing, teaching, financial, retail, healthcare, sales and other professionals can pursue careers in technology by applying the existing knowledge and skills they have acquired to new technology skills. There are various ways to enter the technology industry, such as in IT support, … Read more

Read More

Related Student Tools

Add Comment

Welcome to the NCERT Solutions for Class 12 Business Studies - Chapter . This page offers a step-by-step solution to the specific question from Extra Questions, Question 7: What are the factors that influence a company’s capital structure? Discuss in detail.....

Ask a Question
Keep learning

Discover More on SaralStudy

Explore all articles