Capital Structure
2.8.1 Definition of Capital Structure
According to Sartono (2012), "Capital structure is the balance of the amount of permanent short-
term debt, long-term debt, preferred stock and common stock". Meanwhile, according to Riyanto
(2011), "Capital structure is the balance or ratio between long-term debt and equity".
Based on the above definition, the capital structure is a description of the balance between the use
of debt and equity.
2.8.2 Factors Affecting Capital Structure
According to Sartono (2010), the factors that affect the company's capital structure are:
1. Sales level
A company with relatively stable sales means that it has a relatively stable cash flow as
well, so it can use more debt than a company with unstable sales.
2. Asset structure
Companies that have large amounts of fixed assets can use large amounts of debt. This is
because from the scale of large companies it will be easier to get access to sources of funds
compared to small companies. Then, the amount of fixed assets can be used as collateral for the
company's debt.
3. Company growth rate
The faster the company grows, the greater the need for funds to finance expansion. The
greater the need for future financing, the greater the company's desire to retain profits.
4. Profitability
With large retained earnings, companies will prefer to use retained earnings before using
debt.
5. Variable profit and tax protection
This variable is closely related to sales stability. If the company's profit variability or
volatility is small, then the company has a greater ability to bear the fixed burden of debt.
6. Scale of the company
Large companies that are well-established will find it easier to obtain capital in the capital
market than small companies. Because of the ease of access, it means that large companies have
greater flexibility.
2.8.1 Definition of Capital Structure
According to Sartono (2012), "Capital structure is the balance of the amount of permanent short-
term debt, long-term debt, preferred stock and common stock". Meanwhile, according to Riyanto
(2011), "Capital structure is the balance or ratio between long-term debt and equity".
Based on the above definition, the capital structure is a description of the balance between the use
of debt and equity.
2.8.2 Factors Affecting Capital Structure
According to Sartono (2010), the factors that affect the company's capital structure are:
1. Sales level
A company with relatively stable sales means that it has a relatively stable cash flow as
well, so it can use more debt than a company with unstable sales.
2. Asset structure
Companies that have large amounts of fixed assets can use large amounts of debt. This is
because from the scale of large companies it will be easier to get access to sources of funds
compared to small companies. Then, the amount of fixed assets can be used as collateral for the
company's debt.
3. Company growth rate
The faster the company grows, the greater the need for funds to finance expansion. The
greater the need for future financing, the greater the company's desire to retain profits.
4. Profitability
With large retained earnings, companies will prefer to use retained earnings before using
debt.
5. Variable profit and tax protection
This variable is closely related to sales stability. If the company's profit variability or
volatility is small, then the company has a greater ability to bear the fixed burden of debt.
6. Scale of the company
Large companies that are well-established will find it easier to obtain capital in the capital
market than small companies. Because of the ease of access, it means that large companies have
greater flexibility.
