In the context of ECM, what does "capital structure" refer to?

In the context of Equity Capital Markets (ECM), "capital structure" specifically refers to the mix of a company's debt and equity that it uses to finance its operations and growth. This concept is crucial in understanding how companies raise capital and the implications of different financing decisions on their overall financial health.

A well-balanced capital structure can affect a company's risk profile, cost of capital, and overall valuation. Debt, such as bonds or loans, often provides tax advantages but can also increase financial risk due to required interest payments. On the other hand, equity represents ownership in the company and does not have to be repaid, but it dilutes ownership control.

Understanding a company's capital structure is fundamental for investors and analysts, as it can impact returns and the strategy for raising future capital. This insight is particularly relevant in ECM, where companies engage with capital markets to raise funds through equity offerings and manage their financial frameworks.