Optimizing of corporate capital structure by cost of capital, level of financial risk and return on capital based on financial leverage.

Abstract

During world crisis researches of financial problems faced by multinational corporations are based on reconsideration of basic concepts determining priority directions of effective financial management. Company's activities in conditions of global market economy directly depends on the volume of financial capital and its structure. Capital structure determines the level of the most significant financial performance indicators. The select capital structure affects the cost of capital and the level of financial risk. An efficient change in capital structure is a factor that contributes to increasing the return on equity which expressed in return on equity exceeding return on total assets. Therefore the problem of capital structure optimization is one of major tasks solved within financial risk and corporation capital management, improving methods of forming optimal capital structure is yet a timely matter. Actuality of achieving optimal financial capital structure is acknowledge by its being treated as one of the major and most difficult phases in financial analysis, besides requiring individual approach to every corporation. While forming corporation’s capital, it is necessary to maintain its most effective allocation by improving turnover and increasing profitability of equity capital. It is possible to attain the rational capital structure by using optimization methods based on capital structure valuations such as financial leverage and weighted average cost of capital.