Canadian Securities Course (CSC) Level 2 Practice Exam

What is the purpose of Capital Structure in financial analysis?

1. To analyze revenues

2. To determine market share

3. To distribute debt and equity

4. To calculate shareholder dividends

The correct answer is: To distribute debt and equity

The purpose of Capital Structure in financial analysis is to distribute debt and equity. Capital Structure refers to the way a company finances its assets through a combination of debt and equity. By determining the optimal mix of debt and equity, a company can minimize its cost of capital and maximize shareholder value. Analyzing the Capital Structure allows financial analysts to understand how much debt a company is using to finance its operations compared to equity. This knowledge is crucial for assessing the company's financial risk, solvency, and overall financial health. Option A, analyzing revenues, is not the primary purpose of Capital Structure analysis. Option B, determining market share, is unrelated to Capital Structure analysis. Option D, calculating shareholder dividends, may be influenced by Capital Structure decisions, but it is not the main purpose of analyzing Capital Structure.