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??. 6/2013, ?????? XVI
CAPITAL STRUCTURE OPTIMIZATION METHODS
Ass. Prof. Lyubomir Todorov, PhD Financial Analyst and Teacher of the University of National and World Economy Key words: Optimal capital structure Summary:
The article discusses the factors determining the optimal ratio of debt to equity in an entity’s balance sheet. A description is given of the advantages and disadvantages of Financial leverage the relevant sources to finance the business. Optimal capital structure is defined. Two separate methods to determine the Business profitability optimal ratio are outlined. The first one is based on the Beta-ratio financial leverage effect and, particularly, on the relationship between return on equity, return on net Cost of equity operating assets, net cost of debt and the debt-to-equity Cost of debt ratio. The other method represents a study of the changes in the business profitability and cost of capital ratios with the Weighted average cost of changes in the debt to equity ratio. The article proposes capital criteria for determining the optimal capital structure from the viewpoint of the value creation concept. The optimization methodology outlined is illustrated by a practical example.
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