Relation of the capital structure and profitability based on literature

Abstract

The corporates are regularly forced to use different inner and external capital elements in their life. Of Course, the companies will use that kind of sources, which they are able to achieve a value-creation progress with, thereby contribute to the increment of the trade industry sector. According to many literatures, the income-generating’s ability of the enterprises can be affected by the major financial’s decisions, following the inner and external financing opportunities, strategics, forms and principles, and the capital structure of all these. Of course, we can make differences among the lifecycles of the corporate’s life. The small and medium sized enterprises need to have capital for the fluently running, but it is, that from where and how it is available. The capital structure theories helps us to understand this wide range of consequences. There are also two differencies between the creator’s outlook of the traditional and the new capital structure theories. Modigliani-Miller theorems are classified into the new capital structure theories, where there are no taxes originally, but the effects of the taxes are already taken into count by the modified theories.