How capital structure affects business valuation
Abstract: A company’s capital structure — essentially, its blend of equity and debt financing — is a significant factor in valuing the business. But a question that often arises is whether the valuator should use the company’s actual capital structure or its anticipated future capital structure — or a prospective buyer’s capital structure or the company’s optimal capital structure. Which method is best depends on several factors. This article shows how valuators determine the right capital structure for valuation purposes.