Practical Model for Firm’s Capital Structure

Abstract

Since they offer an opportunity to create value for shareholders, a company's capital structure decision is crucial for its existence and performance and, therefore, has been addressed by several studies in the finance area. However, there is no unanimous answer determining the most efficient capital structure for a given organization and there is a lack of evidence regarding the use of optimal structure models in the daily lives of companies. The methodology in this work is composed of four phases to propose a practical method for decision-making on a company’s structure. First, it is defined the problem that will be simulated. Then, using the FCD and SMC techniques, the company's value is calculated and the insolvency risk is quantified. And finally, in the fourth phase, discussions are developed regarding the ideal capital structure for the company. The results simulated through the selection of an object study show the increase in the company's value from indebtedness, presenting opportunities to create value for its managers.The model has as a limitation the case study of only one segment, and can be expanded to other sectors in future works.Still, the proposal must be understood as beneficial for all stakeholders involved, since more competitive companies can provide products and/or services with superior quality and lower prices, being, therefore, a direct social contribution of the present proposal.