[Verse 1] Every company needs capital to grow Mix of debt and equity, which way to go Shareholders want returns on what they own Lenders want their interest, principal on loan The balance that you strike will make or break Your cost of capital and the risks you take [Chorus] Capital structure, find the optimal mix D over E ratio, that's the metric to fix Leverage brings benefits but raises the stakes Financial risk increases with every choice you make WACC goes down then up, there's a sweet spot to find Capital structure, it's all by design [Verse 2] When you borrow money, interest is deductible Tax shield benefits make debt more acceptable But too much leverage and the costs start to rise Financial distress puts your future at compromise Trade-off theory says there's a target to meet Where tax benefits and distress costs compete [Chorus] Capital structure, find the optimal mix D over E ratio, that's the metric to fix Leverage brings benefits but raises the stakes Financial risk increases with every choice you make WACC goes down then up, there's a sweet spot to find Capital structure, it's all by design [Bridge] Pecking order theory says companies prefer Internal funds first, then debt, equity after Industry matters, business risk plays a part Stable cash flows can handle debt from the start Growth opportunities need flexibility Equity financing keeps options running free [Verse 3] Agency costs arise when interests don't align Bondholders and shareholders cross the line Signaling effects when you announce your plan Market interprets what you think you can Personal taxes, corporate rates combine Miller and Modigliani drew the line [Chorus] Capital structure, find the optimal mix D over E ratio, that's the metric to fix Leverage brings benefits but raises the stakes Financial risk increases with every choice you make WACC goes down then up, there's a sweet spot to find Capital structure, it's all by design [Outro] From conservative to aggressive, find your place In the capital structure decision space Balance risk and return for shareholder wealth Capital structure is your company's financial health
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