Capital Structure Optimization: Theoretical Problems and Empirical Solutions

Abstract

The aim of this research is to introduce a methodology for the optimisation of capital structure of companies, on the basis of fundamental company indicators and stock exchange rates. A similar methodology provides the answer to a series of questions and solves significant problems faced by business practice, related to the realisation of the main purpose of financial managers of public companies – maximising stock wealth. The achievement of this aim is based on the effect of financial leverage on the profit of one share and its stock exchange capitalisation. Therefore within the range of the research, we identify four separate group of problems in the field of applied capital optimisation which require precise financial and investment circumstances and appropriate solutions. The research includes five parts: First. Technology for modification of the balance sheet positions of the company; Second. Methodology for construction of the risk adopted corporate interest rate curve; Third. Technology for maximization of EPS and technology for evaluation of the company’s risk; Fourth. Maximization of Value per Share; Fifth. Empirical findings for the blue chip companies on the Bulgarian capital market.