Capital structure refers to a firm's mix of long-term financing sources like debentures, preference shares, equity shares, and retained earnings. It involves decisions about the forms, amounts, and proportions of financing. The finance manager must carefully choose a capital structure pattern that minimizes costs while maximizing returns for owners by considering the company's operating environment and financing principles.

1. It refers to mix of a firm’s capitalisation and includes long tem sources of funds as debentures, preference share capital, equity share capital and retained earnigs. According to Gerstenberg :”the make-up of a firm’s capitalisation “. The decisions regarding the forms of financing, requirements and their relative proprtions in total capitalisation are knowm as Capital Structure Decisions. In arriving at and accomplishing this goal, the finance manager must take extreme care and prudence keeping in mind factors under which the company has to operate as also certain guiding principles of financing.Accordingly, he should choose a pattern of capital which minimises cost of capital and maximises the owner’s return.