Definition: A complex capital structure refers to corporation that has outstanding dilutive securitiesincluding rights or options to purchase stock and convertible preferred stock or bonds.
What is a simple capital structure?
Definition: A simple capital structure refers to a corporation that does not issue dilutive securities to finance its organization. In other words, the capital structure is made up of only common stock and non-convertible preferred stock.
What is a complex security?
Complex securities are typically rich in economic features and closely linked to an equity, debt or hybrid instrument. Many include features that alter cash flows over the life of the security, such as options, return multiples or thresholds, and/or specific IRR and price-performance targets.
What is included in capital structure?
The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings.
What is meant by a dilutive security?
Dilutive securities are financial instruments like stock options, warrants, convertible bonds, etc. which increases the number of common stock, if exercised. It reduces the basic EPS (earnings per share). Only if the diluted EPS is less than the basic EPS then it is called dilutive securities.