Certified Financial Management Specialist Practice Exam

What is capital structure primarily concerned with?

1. Funding a company's operations and growth

2. Maximizing shareholder dividends

3. Reducing operational costs

4. Increasing market share

The correct answer is: Funding a company's operations and growth

Capital structure is primarily concerned with how a company finances its overall operations and growth using different sources of funds, such as debt, equity, and hybrid securities. It involves the decision-making process about the mix of these financial instruments to ensure that the company can meet its operational requirements while also strategizing for future growth opportunities. When a company evaluates its capital structure, it assesses various factors including the costs and benefits of using debt versus equity, the risk profile of financing options, and the impact on the company's financial stability and control. An ideal capital structure strikes a balance that enables the organization to capitalize on its growth potential, maintain flexibility in financial management, and optimize its weighted average cost of capital (WACC). The other options, while related to a company's financial considerations, do not encapsulate the essence of capital structure. Maximizing shareholder dividends pertains more to profit distribution rather than financing, reducing operational costs focuses on expense management rather than funding decisions, and increasing market share relates to competitive strategy rather than the composition of a company's funding sources.