Question

Discuss why a sports business’ capital structure is so important. What would happen if the sport business had too much in bonds or stocks as part of its capital structure?

Answer 1

Solution:

"Capital Structure", the word defines all the ups and owns of the business. The investors of the market are always first go for the capital structure of the investing company. Two types of capitals are there in capital structure i.e. Equity capital and debt Capital.

The company can raise its capital by itself or from outsiders. Equity capital shows the fund of Shareholders which is sum of equity share capital, Preference share capital and Retain earnings. Debt capital shows the outsider's fund in the company which is Debentures, term Loans, Public deposits etc. The rank of companies are given by evaluating by the capital structure by define their risk factors.

So as every business needs their capital structure powerful to run business with higher graph, Sport business also needs to maintain capital structure.

If Sport business had too much in bonds and stocks as part of capital structure which leads negative Debt Equity ratio. and less than 1 Debt-Equity ratio shows that the company is running by the fund of outsiders. It decline the market rate of that company.