I don’t normally venture in to discussions of financial topics but I have recently taken a course on Corporate Finance and whilst it isn’t my normal cup of tea it was quite interesting and I learned a lot! In today’s article, I therefore want to summarise some concepts around capital structure and discuss the various theories I learned which go some way to explain observed differences in leverage ratios of companies (although, there is no universal theory of debt, there are instead theories which may apply in different circumstances).

To start, the capital structure of a company refers to how it finances its operations and growth. [...]