Capital structure can be defined as the mix between the owners' funds and borrowed funds.
\(\text { Capital structure }=\frac{\text { Debt }}{\text { Equity }}\)

(i) To regulate stock exchange and securities industry to promote their orderly functioning.
(ii) To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
(iii) To prevent trading malpractices and achieve balance between self-regulation by the securities industry and its statutory regulation.

Benefits of a depository system are as follows:
(i) The risk of loss or tearing up of share certificate is eliminated.
(ii) Risk of bad deliveries is totally eliminated.
(iii) Investment in shares become more liquid.
(iv) There is immediate transfer of ownership of securities.

Money market instruments are more liquid, as, whenever an investor wants to encash the securities of money market, the discount and Finance House of India provides a ready market.

Whereas, the capital market enjoys lesser liquidity and the securities may be less traded in the securities market.Thus, money market instruments are more liquid and may be encashed any time.

This is the offer of new shares by an existing company to the existing shareholders.Each shareholder has the right to subscribe to the new shares in the proportion of shares, he already holds.Right issue is a convenient and inexpensive method of raising additional capital.

Secondary market means market for purchase and sale of previously issued securities. Once a company has sold its shares and debentures to the public, these securities are traded on the stock exchange where they are listed.

Management of fixed capital means the management of fixed assets for the business and financing long-term projects.Fixed capital represents long-term investment.
It is required for purchasing fixed assets such as land and buildings, plant and machinery, motor vehicles, furniture, etc. These assets enhance the future earning capacity and improve the growth prospects of the business.
Factors affecting fixed capital
(i) Nature of Business
The type of business has a bearing upon the fixed capital requirements e.g. a trading concern needs lower investment in fixed assets compared with a manufacturing organisation since it does not require to purchase plant and machinery,etc
(ii) Scale of operations
A larger organisation operating at a larger scale needs higher investment in fixed assets as compared to a small organisation.
(iii) Choice of Technique
Some organisations are capital intensive, whereas, others are labour intensive. A capital-intensive organisation requires higher investment in plant and machinery as it relies less on manual labour.The requirement of fixed capital for such organisations on the other hand require less investment in fixed assets.

Capital structure refers to the composition of debt and equity.A capital structure is said to be optimum when the proportion of debt and equity is such that, it results in increase in the wealth of shareholders. If the capital structure results in increasing or maximising the wealth of shareholders, then it is considered best for a firm.  

Financial planning means estimating the requirements of a business and determining the sources of funds ,Financial planning includes both short-term and long-term planning.
Objectives of financial planning are:
(i)To ensure availability of funds whenever required
if adequate funds are not available, the business unit will not be able to honour its commitments and plans.
(ii)To see that the firm does not raise funds unnecessarily  
If access of funds are available with the business unit,it will unnecessarily add to the cost and may encourage wasteful expenditure and misuse of funds

Long-term investment decision is referred to as the capital budgeting decision. It relates to the investment in fixed assets e.g. buying a new machine. Before taking the final decision the finance manager makes a comparative study of various alternatives available in the market on the basis of their cost and profitability.
These decisions are very important as they affect the earnings of the business in the long-run.
Factors affecting long-term investment decision are::
(i) Cash flow of the project Cash flow of the project during the life if an investment affects the long-term investment decision.
Series of cash receipts and payments over the life of an investment has to be carefully analysed before taking a capital budgeting decision.
(ii) Rate of return of the project The most important criterion is the rate of return of the project. Investment yields return in future. Thus, calculation of returns is necessary to analyse the best project.
(iii) Risk involved With every investment proposal, there is some degree of risk involved. The company must try to calculate the risk involved in every proposal and select a proposal and select a proposal with moderate degree of risk only.

The stock exchange is an institution, which provides a platform for buying and selling of existing securities.
Functions of Stock Exchange
(i) Provides liquidity and marketability to existing securities
The primary function of a stock exchange is to provide a ready and continuous market where existing securities can be bought and sold.
This provides both liquidity and cash marketability to already existing securities in the market.
(ii) Pricing of securities
Share prices on a stock exchange are determined by the forces of demand and supply.Stock market indices like SENSEX, NSE, etc reflect market direction and indicate day-to-day fluctuations in share prices.
Thus, both buyers and sellers can get constant information about price movements of shares in the market.
(iii) Safety of transactions
The membership of a stock exchange is well defined according to the existing legal framework. This ensures that the investment of public is safe and they will get a fair deal in the market.
(iv) Contributes to economic growth
In stock exchange. the process of disinvestment and reinvestment channelise the savings into productive investment avenues. This leads to capital formation and economic growth
(v) Spreading Equity Cult
It is an organised market, which takes various steps to guide and educate investors, publish information about companies listed on the exchange and ensures better and safe trading practices. These practices have played a vital role in increasing the number of people investing in equity, thus leading to wider ownership of equity.
(vi) Provides Scope for Speculation
It is generally accepted that a certain degree of speculation is necessary to ensure liquidity and price continuity in the stock market. Thus, it provides sufficient scope for speculation in a restricted and controlled manner within the provisions of law.

The stock exchange is an institution, which provides a platform for buying and selling of existing securities.
Functions of Stock Exchange
(i) Provides liquidity and marketability to existing securities
The primary function of a stock exchange is to provide a ready and continuous market where existing securities can be bought and sold.
This provides both liquidity and cash marketability to already existing securities in the market.
(ii) Pricing of securities
Share prices on a stock exchange are determined by the forces of demand and supply.Stock market indices like SENSEX, NSE, etc reflect market direction and indicate day-to-day fluctuations in share prices.
Thus, both buyers and sellers can get constant information about price movements of shares in the market.
(iii) Safety of transactions
The membership of a stock exchange is well defined according to the existing legal framework. This ensures that the investment of public is safe and they will get a fair deal in the market.
(iv) Contributes to economic growth
In stock exchange. the process of disinvestment and reinvestment channelise the savings into productive investment avenues. This leads to capital formation and economic growth
(v) Spreading Equity Cult
It is an organised market, which takes various steps to guide and educate investors, publish information about companies listed on the exchange and ensures better and safe trading practices. These practices have played a vital role in increasing the number of people investing in equity, thus leading to wider ownership of equity.
(vi) Provides Scope for Speculation
It is generally accepted that a certain degree of speculation is necessary to ensure liquidity and price continuity in the stock market. Thus, it provides sufficient scope for speculation in a restricted and controlled manner within the provisions of law.

Trading on equity refers to the increase in profit earned by the equity shareholders due to presence of fixed financial charges. When the rate of earning or Return on Investment (ROI) of a company is higher than the rate of interest on borrowed funds only then a company should opt for trading on equity. Let us consider the following example

\(\therefore \) Earning  Per Share (EPS) \(=\frac { Profit \ After \ Tax \ }{ Number \ of \ Equity \ Shares } \)
\(\frac { 150000 }{ 10000 } = Rs.\ 15\)  \(\frac { 105000 }{ 4000 } = Rs.\ 26.25\)​​​​​​
It should be clear from the above example, that shareholders of the company ‘X’ have a higher rate of return than company ‘Y’ due to loan component in the total capital of the company.
Case Problem
‘S’ Limited is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require about? 5,000 crores to set up and about t 500 crores of working capital to start the new plant.

Dividend decision relates to distribution of profit to the shareholders and its retention in the business for meeting the future investment requirements. How much of the profits earned by a company will be distributed as profit and how much will be retained in the business is affected by many factors. Some of the important factors are discussed as follows
(i) Earnings Dividends are paid out of current and past year earnings. Therefore, earnings is a major determinant of the decision about dividend.
(ii) Stability of Earnings Other things remaining the same, a company having stable earning is in a position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend.
(iii) Growth Opportunities Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend in growth companies, is therefore, smaller than that in non-growth companies.
(iv) Cash Flow Position Dividends involve an outflow of cash. A company may be profitable but short on cash. Availability of enough cash in the company is necessary for declaration of dividend by it.
(v) Shareholder Preference If the shareholder in general, desire that at least a certain amount should be paid as dividend, the companies are likely to declare the same.
(vi) Taxation Policy If tax on dividend is higher it would be better to pay less by way of dividends. As compared to this, higher dividends may be declared if tax rates are relatively lower.
(vii)Stock Market Reaction For investors, an increase in dividend is a good news and stock prices react positively to it. Similarly, a decrease in dividend may have a negative impact on the share prices in the stock market.
(viii) Access to Capital Market Large and reputed companies generally have easy access to the capital market and therefore, depend less on retained earnings to finance their growth. These companies tend to pay higher dividends than the smaller companies which have relatively low access to the market.
(ix) Legal constraints Certain provisions of the Company’s Act place restriction on payouts as dividend. Such provisions have to be adhered, while declaring dividends.
(x) Contractual Constraints While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. The companies are required to ensure that the dividends does not violate the terms and conditions of the loan agreement in this regard.