Financial Management II Sem VTU 22MBA22-2024

MODULE 4

CAPITAL STRUCTURE DECISIONS

Financing Decision: Financing is concerned with the procurement of required long-term

funds at the proper time. It is concerned with the identification of the sources form which
funds can be raised, and the determination of the amount of funds that can be raised from
each source, which make up the capital structure of an enterprise.

CAPITAL STRUCTURE

Meaning and definition of capital structure

According to C.W Gerstenberg “capital structure refers to the make-up, form or composition
of a firm’s capitalization, i.e., the types of securities to be issued and the relative proportion
of each type of securities in the total capitalization”.

In the words of Weston and Brigham, “capital structure is the permanent financing of the
firm represented by long term debt, preferred stock, and net worth”.
From the above definitions of, it is clear that the term capital structure means the make-up,
form, composition or mix of the capitalization of the business.

Differences between capital structure and financial structure:

In the words of Nemmers and Greenewald, “Financial structure refers to all the financial
resources marshalled by the firm, short term as well as long term and all forms of debt as well
as equity”. From this definition, it is clear that financial structure refers to the composition of
long-term funds as well as short-term funds in the capitalization of a concern.

The term capital structure is different from the term financial structure. Capital structure
refers to the composition or mix of only the long-term funds in the capitalization of a
company. On the other hand financial structure refers to the composition of long-term funds
as well as short-term funds in the capitalization of a company.

CAPITAL STRUCTURE PLANNING

Meaning of capital structure planning:

It means estimating the total amount of long-term capital required by a company for
financing its business and determining the composition and the proportion of the securities to
be issued to raise the required capital.

Need for capital structure planning:

Capital structure planning is quite essential for the successful promotion and smooth
functioning of any business undertaking. In fact, many technically sound and economically
viable projects have failed simply because of poor capital structure planning. Capital
structure is must not only in the case of big enterprises, but also in the case of small
enterprises.
The need for capital structure planning arises from the following reasons.
 Good capital structure planning would ensure liquidity of funds throughout the year
 Proper capital structure planning would bring to light the surplus funds available
funds available for expansion

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 Financial Management II Sem VTU 22MBA22-2024

 Capital structure planning would ensure availability of sufficient funds for meeting
permanent working capital and emergencies.
 Capital structure planning would contribute to rational utilization of the available
resources to get the maximum benefit out of such resources
 Good capital structure planning, through proper policies and procedures, would
contribute to the elimination of wastes resulting from complexity of operations and
lack of co-ordination of the various functions of the enterprise.
 Good capital structure planning, by laying down the financial objectives, financial
policies and financial programs, would make things easy for the management term to
function smoothly.
 Good capital structure planning is quite necessary for determining the total capital
requirements of undertaking and for fixing the relative proportion of owned capital
and borrowed capital.

Steps involved in Capital Structure Planning:

Capital structure planning involves following steps
 Estimating the total amount of long term capital funds needed by a company for
financing its business.
 Determining the form and the proportion of the securities to be issued for raising the
funds
 Setting the company’s financial objectives
 Formulation of financial policies

Principles of capital structure planning

The various considerations or principles that should be kept in mind by a concern, while
formulating its capital structure plan are
(1) Simplicity: The capital structure plan should be simple. That is capital structure plan
should contain a simple capital structure that can be implemented and managed easily.
(2) Long-term view: The capital structure plan should be formulated, keeping in view the
long term requirements, and not just the immediate or short term requirements of the concern
(3) Flexibility: The capital structure plan should have flexibility. That is, capital structure
should be such that it can be revised or changed according to the changing needs of the
business with minimum possible delay.
(4) Foresight: As stated earlier, the capital structure plan should be framed, keeping in view
the present as well as the future requirements of funds for the business.
(5) Optimum use: The capital structure plan should provide for the optimum use of funds.
(6) Contingencies: The capital structure plan should make adequate provision for funds to
meet the contingencies likely to arise in the future.
(7) Liquidity: There should be adequate liquidity in the capital structure plan.
(8) Economy: The capital structure plan should ensure economy

Determinants of Capital Structure or Factors influencing Capital Structure:

There are number of factors determining the capital structure of a company. So, while
determining the capital structure of a company, the management must keep in mind the
various factors that influence the capital structure.

(1) Trading on Equity: The desire to trade on equity is one of the most important factors
influencing the capital structure of a company. When a company desires to trade on equity,
its capital structure will be made up of equity shares as well as preference shares and or
debentures.

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 Financial Management II Sem VTU 22MBA22-2024

In this context, it is necessary to know something about trading on equity.

Meaning of Trading on Equity: The term equity means equity share capital and term trading
means taking advantage of. So, trading on equity means taking advantage of equity share
capital as base to raise funds through the issue of preference shares and or debentures on
reasonable terms to ensure higher return on equity share capital.
In the words of Guthmann and Dougall, “the use of borrowed funds or preferred stock, for
financing is known as trading on equity”.
According to Hastings, “The degree to which debt is used in acquiring assets is called trading
on equity”.
The above definitions make it clear that, when a company uses the long term funds raised
through the issue of preference shares and/or debentures along with the long term funds
raised through the issue of equity shares in the regular conduct of business with a view to
provide higher rate of return to equity share holders in the form of higher rate of dividend.

(2) Desire to retain control: The capital structure of a company is also influenced by the
desire of the promoters and/or the existing management of the company to retain control over
the affairs of the company. As the preference shareholders and debenture holders do not have
much say in the management of a company, and only the equity shareholders have a say in
the management of the company, if the promoters and or the management wants to raise
funds without diluting their control over the affairs of the company, they have to issue
preference shares and or debentures, and not equity shares. Thus, the desire of the promoters
and or the existing management to retain control over the affairs of the company influences
the capital structure of the company.

(3) Nature of the enterprise: The nature of the enterprise also influences the capital
structure of a company. For instances, companies like public utilities which enjoy monopoly
in the market and have stability in their earnings can easily raise capital through the issue of
preference shares and/or debentures.
On the other hand, companies, such as manufacturing companies, which are subject to trade
cycle and competition and which do not have stable earnings, have necessarily to depend
upon equity shares for raising funds.

(4) Size of the Company: The size of a company influences its capital structure. Generally,
small companies, which do not have better, bargaining power, will find it difficult to raise
funds by the issue of debentures. So, they have to raise funds mainly by the issue of equity
shares. On the other hand, large companies. Which have stronger financial position and
better bargaining power, can raise funds from any source they want.

(5) Purpose of finance: The capital structure of a company is influenced by the purpose of
finance. If a company requires the funds for directly productive purposes such as the
establishment of a new project, construction of a new factory, purchase of additional
machinery, etc., the company can afford to raise the funds by the issue of debentures, as the
interest on debentures can be paid easily out of the earnings from the productive assets. On
the other hand, if the company requires the funds for the non-productive purposes, such as the
provision of welfare facilities to the employees, it would be advisable for the company to
raise the funds by the issue of equity shares.

(6) Purpose of finance: The period of finance also influences the capital structure of a
company. For instance, if funds are required more or less permanently, it would be advisable
for the company to raise the funds by the issue of equity shares, which provide more

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 Financial Management II Sem VTU 22MBA22-2024

permanent capital. On the other hand, if funds are required for a period of 8 to 10 years, then,
it would be better for the company to raise the funds by the issue of debentures or redeemable
preference shares or through term loans from financial institutions.

(7) Desire to have flexibility or elasticity of financial plan: The desire of a company to
keep its financial plan flexible also influences the capital structure of a company. Generally,
a company, which desires to have flexibility in its financial plan, raises its initial capital
through the issue of equity shares and preference shares. It resorts to the issue of debentures
only at a later stage to raise funds for financing the expansion.

(8) Need to make provision for the future: The need to make provision for the future also
influences the capital structure of a company. While planning the capital structure, the
management of the company must make adequate provision for the future. To ensure
adequate provision for the future, it would be advisable for a company not to issue all types
of securities at one time.

(9) Legal requirements: Legal requirements also affect the capital structure of a company.
For instance, under the Banking Regulation Act of 1949, a banking company cannot issue
any security other than equity shares.

(10) Requirements or preferences of investors: The requirements or preferences of

investors also influence the capital structure of a company. As the investors have different
preferences, to cater to the preferences of the different types of investors, different types of
securities have to be issued.

(11) Market situations or market sentiments: The market situations or market sentiments
also influence the capital structure of a company. For instance, during the boom period,
when investors desire to have higher speculative incomes, equity shares may find ready
market. On the other hand, during the period of depression, when investors want to have
absolute safety, debentures may find ready market.

(12) Government policies: The government policies also influence the capital structure of a
company. For instance, the provisions of the capital issues control Act of 1947, which are
dependent upon the policies of the government, influences the capital structure of a company
considerably. Similarly, the lending policies of the financial institutions, which are
dependent upon the policies of the government, also influence the capital structure of a
company.

OPTIMUM CAPITAL STRUCTURE:

Optimum capital structure refers to that capital structure at which there is an ideal
relationship between debt and equity securities, resulting in maximizing the value of the
company’s equity shares in the stock exchange and minimizing the average cost of capital.
Objectives of Appropriate or Balanced Capital Structure:
The main objectives of balanced capital structure are as follows:
 Maximization of return or profit
 Minimization of cost
 Minimization of risk preservation of control
 Maintaining of proper liquidity
 Full utilization of resources
 Flexibility

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 Financial Management II Sem VTU 22MBA22-2024

Essential features of Sound, Efficient, Balanced or Appropriate Capital Structure:

An appropriate, sound or efficient capital structure should have certain essential
features. The essential features of a sound capital structure are as follows.
 Clear-cut objectives
 Profitability
 Solvency
 Flexibility
 Conservation
 Preservation of control
 Simplicity
 Attraction to potential investors
 Balanced leverage

LEVERAGES
Meaning of Leverage: In the general sense, leverage means force, power of influence. In
other words, it means force applied at a particular point of time to have a desired effect at
another point.
In financial management, the term leverage means the influence of one financial
variable over some other related financial variable. To be more specific, the term is used to
describe, the ability of a company to use fixed charges sources of funds to magnify the
returns to shareholders.
TYPES OF LEVERAGE
There are three measures of leverage commonly used in financial analysis. They are
 Operating Leverage
 Financial Leverage
 Combined or Composite Leverage
(1) Operating Leverage: Operating leverage may be defined as the ability of a concern to
use fixed operating costs to magnify the effect of change in sales on its operating profits.
In other words, it is the tendency of the operating profits to change disproportionately with
sales, when a firm employs more fixed costs in the production process in relation to total
operating costs.
It is important to know how the operating leverage is measured, but equally essential is to
understand its nature in financial analysis.
Operating leverage reflects the impact of change in sales on the level of operating profits of
the firm.

Measurement or Computation of Operating Leverage:

o Contribution
o Operating profit/EBIT
Degree of Operating Leverage: Degree of operating leverage refers to the percentage of
change in operating profit, resulting from a percentage of change in sales. It can be
calculated as follows.
 Percentage of change in operating profit
 Percentage of change in sales

The significance of DOL may be interpreted as follows:

 Other things remaining constant, higher the DOL, higher will be the change in EBIT for same
change in number of units sold in, if firm A has higher DOL than form B, profits of firm A
increase at faster rate than that of firm B for same increase in demand.

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 Financial Management II Sem VTU 22MBA22-2024

This however works both ways and so losses of firm A increase at faster rate than that of firm
B for same fall in demand. This means higher the DOL, more is the risk.

 DOL is high where contribution is high.

 There is a unique DOL for each level of output.

Financial Leverage: Financial leverage may be defined as the use of fixed changes bearing
securities along with equity share capital in the capital structure of a company with view to
produce more gains for the equity shareholders.

The Financial leverage may be defined as a % increase in EPS in associated with a given
percentage increase in the level of EBIT. Financial leverage emerges as a result of fixed
financial charge against the operating profits of the firm. The fixed financial charge appears
in case the funds requirement of the firm is partly financed by the debt financing. By using
this relatively cheaper source of finance, in the debt financing, the firm is able to magnify the
effect of change in EBIT on the level of EPS.

Degree of Financial Leverage: Degree of financial leverage refers to the percentage of

change in taxable profits as a result of percentage of change in operating profit.
Percentage of change in taxable profits
Percentage of change in operating profits

The significance of DFL may be interpreted as follows:

 Other things remaining constant, higher the DFL, higher will be the change in EPS for
same change in EBIT. In other words, if firm K has higher DFL than firm L, EPS of
firm K increase at faster rate than that of firm L for same increase in EBIT. However,
EPS of firm K falls at a faster rate than that of firm K for same fall in EBIT. This
means, higher the DFL more is the risk.
 Higher the interest burden higher the DFL, which means more a firm borrows more is
its risk.
 Since DFL depends on interest burden, it indicates risk inherent in a particular capital
mix, and hence the name financial leverage.

There is a unique DFL for each amount of EBIT.

While operating leverage measures the change in the EBIT of a company to a particular
change is the output, the financial leverage measures the effect of the change in EBIT on the
EPS of the company.

The concept of financial leverage is of great significance in the capital structure of a company.
It serves the following purposes.
 Financial leverage indicates the change that takes place in the taxable profit of a
concern as a result of change in the operating profit. That is helpful to know how the
taxable profit of a concern would respond to a given change in the operating profit.
 Financial leverage is a better tool than operating leverage to know the earnings per
share and marker price per share.
 It measures the financial risk (i.e., the variability of earnings per share) taking place
due to the employment of long-term borrowings.
 The technique of financial leverage is helpful to the finance manager in his task of
choosing the most suitable combination of different securities for meeting the
financial requirements of the concern in the light of earnings per share.

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 Financial Management II Sem VTU 22MBA22-2024

Differences between Operating leverage and Financial Leverage: There are certain
differences between operating and financial leverage. They are
Operating Leverage Financial Leverage
It is related to the investment activities of a It is related to the financing activities of a
firm firm
It affects the firm’s operating profit It affects the firm’s taxable profit (i.e.,
PBT)
It refers to a situation where a change in It is situation where a change in operating
sales brings about more than proportionate profit would produce more than
change in operating profits proportionate change in taxable profit.

It explains the degree of operating risk It explains the degree of financial risk

Combined Leverage:
The operating leverage explains the business risk of the firm whereas the financial leverage
deals with the financial risk of the firm. But a firm has to look into the overall risk or total of
the firm, which is business risk plus the financial risk.

One can draw the following general conclusion about DCL.

 Other things remaining constant, higher the DCL higher will be the change in EPS for
same change in Q (Demand).
 Higher the DCL more is the overall risk, and higher the fixed cost and interest burden
in lower the earning after interest, higher is the DCL.
 There is a unique DCL, for each level of Q.

A combination of the operating and financial leverages is the total or combination leverage.

The operating leverage causes a magnified effect of the change in sales level on the EBIT
level and if the financial leverage combined simultaneously, then the change in EBIT will, in
turn, have a magnified effect on the EPS. A firm will have wide fluctuations in the EPS for
even a small change in the sales level. Thus effect of change in sales level on the EPS is
known as combined leverage.

Significance of Combined Leverage: Combined leverage has certain uses. They are
 It indicates the relationship between a change in sales and the corresponding change
in taxable profit
 It is helpful to know the change in earnings per share taking place as a result of
changes in sales.
 It measures the total risk (i.e., the variability of earnings per share).
 This leverage is useful to forecast the future sales level and the resultant increase or
decrease in taxable profits.

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 Financial Management II Sem VTU 22MBA22-2024

DIVIDEND POLICY
Meaning of Dividend: Dividend refers to the divisible profits of a company distributed or
divided among its shareholders in proportion to shareholdings, as specified in the
memorandum of association.
In other words dividend is the share of profits of a company distributed as dividend among
its shareholders.
Forms of Dividend:
There are many forms of dividend. They are
 Cash dividend
 Stock dividend
 Scrip dividend
 Bond dividend
 Property dividend

(1) Cash Dividend: Cash dividend is the most important form of dividend. Most of the
companies pay the dividend in cash. Again, generally, the shareholders also have preference
for cash dividend.
Types of Cash Dividends: Cash dividend is of two types. Viz., (a) interim dividend and (b)
final dividend
Interim Dividend: Clause 86, Table A of the companies Act of 1056 permits the board of
directors of a company to pay to the share holders interim dividend which appears to be
justified by the profits of the company. Interim dividend is the dividend declared by a
company between two annual general meetings.
Final Dividend: Final dividend is the dividend declared by a company at the end of financial
year.
Difference between Interim dividend and Final dividend:
Interim Dividend Final Dividend
01 It is declared between two annual It is declared at the end of the financial
general meetings year
02 It is declared by the board of directors It is recommended by the board of
at their meeting without the approval directors at board meeting and is approved
of shareholders and declared by the shareholders at the
annual general meeting
03 Once it is declared, it does not Final dividend, as soon as it is declared,
become a liability for the company becomes a liability.
04 Once it is declared, it can be cancelled Once it is declared, it cannot be cancelled
by the directors by passing a
resolutions at their meeting
05 The declaration and payment interim As it is paid at the end of the year, there is
dividend becomes illegal, if the no question of final dividend becomes
company incurs net loss at the end of illegal
the year
06 The directors of the company would Since final dividend is paid only out of
be held personally liable to refund the divisible profits, neither the directors nor
amount of interim dividend in case the the shareholders will be personally liable
company incurs loss at the end of the to refund the final dividend.
year.
07 It can be declared only if the articles No such authorization of articles of
of association authorize the directors. association is required to declare final
dividend.

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 Financial Management II Sem VTU 22MBA22-2024

(2) Stock Dividend or Bonus Shares: Stock dividend is the dividend given to the
shareholders in the form of shares in lieu of or in addition to the cash dividend.

(3) Scrip Dividend: In this form of dividends, the equity shareholders are issued transferable
promissory notes for a shorter maturity period that may or may not carry interest. It is a
simple payment of dividend in the form of promissory notes. Payment of dividend in this
form takes only when the firm is suffering from cash or weal liquidity position. Payment of
dividend in the form of scrips is justifiable only when the company has earned profits and it
will take some time to convert its current assets into cash.

(4) Bond Dividend: Bond dividend is a dividend, which is given in the form of a bond,
which promises to pay the dividend declared to the shareholders at a future special date(both
scrip dividend and bond dividend are the same, but they differ in terms of maturity. That
means the bonds carries longer maturity where as the scrips carries shorter maturity.)

(5) Property Dividend: It is a dividend, which is given in the form of any property or asset
other than cash.

DIVIDEND POLICY
It is the policy of the management of a company concerning the portion of the earnings or
profits to be distributed to the shareholders as dividend, and the portion of profits to be
retained in the company as retained earnings.
Dividend policy determines the distribution of net cash flows generated from the successful
trading between dividend payments and corporate dividends. Dividend policy determines the
division of earnings between payment to shareholders and reinvestment in the firm. Retained
earnings are one of the most significant sources of funds for financing corporate growth, but
the dividend constitutes the cash flows that accrue to shareholders

DIVIDEND POLICIES:
The important dividend policies generally followed by corporate firms are discussed bellow.

Constant/Stable Dividend Payout policy:

This method is also known as continuous payout ratio method. This concept of stability of
dividend means always paying a fixed percentage of the net earnings every year. Under this
method, if earnings vary, the amount of dividend also varies from year to year. The dividend
policy is entirely based on company’s ability to pay under this policy.

Constant dividend rate policy/Constant dividend per share:

According to this form of stable dividend policy, a company follows a policy of paying a
certain fixed amount per share as dividend. For instance, on a share of face value of Rs.100,
affirm pays a fixed amount of, say Rs.15 as dividend. This amount would be paid year after
year irrespective of the level of earnings. In other words, fluctuations in earnings would not
affect the dividend payments. This policy is possible only through the maintenance of what
is called dividend equalization reserve.
Stable rupee dividend plus extra dividend:
Under this policy, a firm usually pays a fixed dividend to the shareholders and in years of
marked prosperity, additional or extra dividend is paid over and above the regular dividend.
As soon as normal conditions return, the firm cuts the extra dividend and pays the normal
dividend per share.

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 Financial Management II Sem VTU 22MBA22-2024

Significance of stability of dividend:

 Confidence among the shareholders
 Investors’ desire for current income
 Institutional investors’ requirements
 Stability of market price of shares
 Raising of additional finance
 Spreading of ownership of outstanding shares
 Reduces the chances of loss of control
 Market for debentures and preference shares

Determinants of Dividend Policy or Variables or Factors influencing Dividend policy:

A number of factors or variables influence the dividend policy of a company. The various
factors that influence the dividend policy of a company may be classified into two groups.
They are
(1) External factors
(2) Internal factors

(1) External Factors: The various external factors, which influence the dividend policy of a
company, are:
(a) General state of the economy: The dividend policy or decision of the management of a
company is influenced by the general state of the economy a great extent. The general state
of the economy is taken into account by the management of a company to decide whether the
whole or a great portion of the profits of the company should be retained in the company or
distributed among the shareholders as dividends.
Generally, in the following cases, the management of a company may prefer to retain the
whole or a greater portion of the profits as retained earnings.
 When there are uncertain economic and business conditions.
 During the period of depression
 During the period of inflation
 During the period of prosperity when there are more profitable investment
opportunities.

(b) State of capital market: State of capital market also influences the dividend policy to a
greater extent. Generally, if the capital market is comfortable and funds can be raised from
the capital market easily, a company may adopt a liberal dividend policy. On the other hand,
if the capital market is tight and funds cannot be raised from the capital market easily, a
company is forced to follow a conservative dividend policy.

(c) Legal restrictions: The dividend policy of a company has to be formulated within the
legal framework and restrictions. The means, legal restrictions influence the dividend policy
of a company.

(d) Contractual restrictions: Contractual restrictions also influence the dividend policy of a
company. For instance, there may an agreement between the company and the lenders that
the company should not give more than 10% dividend until the loan is repaid. Such
contractual restrictions will affect the dividend policy of the company.

(e) Tax policy of the Government and tax position of the shareholders: The tax policy of
the govt and tax position of the shareholders of the company also affect the dividend policy if
the principal shareholders of the company are in higher tax brackets, the company may

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 Financial Management II Sem VTU 22MBA22-2024

follow the policy of low dividend. On the other hand, if the rate of tax is not high, and if the
principal shareholders are in lower tax brackets, the company may follow the dividend policy
of high dividend.

(f) Inflation: Inflation (i.e., rising prices) also may influence the dividend policy of a
company. If there is inflation, and if the assets of the company are required to be replaced in
the near future, the company has to arrange its financial resources through retained earnings.
Thus, inflation also may affect the dividend policy of a company.

(g) Costs differential between external and retained earnings: Generally, the cost of
external equity is higher than the cost of retained earnings. This cost differential between
external equity and retained earnings influences the dividend policy of a company.

(2) Internal Factors: The various internal factors, which influence the dividend policy of a
company, are:

(a) Dividend payout ratio: It is the percentage of profits to be distributed as dividend among
the shareholders. The most important factor, which influences the dividend payout ratio of a
company, is its requirements for funds in the foreseeable future for expansion.

(b) Access to capital market: Access to capital market influences the dividend policy of a
company. If the company has easy access to the capital market, it can adopt a liberal
dividend policy. On the other hand, if the company does not have any access to the capital
market, the company has to follow a conservative dividend policy.

(c) Stability of dividends: The profits of a company may fluctuate from year to year. But
the shareholders of the company prefer stable dividends to fluctuating dividends. The
preference of the shareholders for stability of dividends influences the dividend policy of the
company.

(d) Dilution of control: External financing involves dilution of control, as the existing
shareholders have to share control with the new shareholders. On the other hand, internal
financing does not involve dilution of control. So, if the management and the shareholders of
the company are averse to dilution of control, the company has to depend more on retained
earnings. That means the company has to follow a policy of low dividend pay out ratio.
Other wise the company can follow the liberal dividend policy.

(e) Rate of return on the alternative investment of the shareholders: The rate of return on
the alternative investment of the shareholders also affects the dividend policy of the company.
If the rate to return on the alternative investment of its shareholders is high, then, a company
has to follow the policy of high dividend. On the other hand, if the rate of return on
alternative investment of its shareholders is low, then, a company can follow the policy of
low rate of dividend.

(f) Liquidity position of the company: Dividends involve cash payments. As such, the
liquidity position of the company also has a bearing on its dividends policy or decision. If a
company has enough earnings and has sufficient liquidity, it can afford to have a liberal
dividend policy. On the other hand, if a company does not enjoy liquidity, it cannot afford to
have a liberal dividend policy, even its earnings are large.

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 Financial Management II Sem VTU 22MBA22-2024

(g) Shareholders’ preference: The shareholders’ preference also has a bearing on the
dividend policy or decision of a company. If the shareholders have greater preference for
current dividend than for capital gains, then, the company may be inclined to follow a liberal
dividend policy. On the other hand, if the shareholders have preference for capital gains that
for current dividends, then, a company can follow a conservative dividend policy.

(h) Other factors: Other factors like the nature of the business, the age and growth rate of
the company, the pattern of ownership of the company, the objectives of the company etc.

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