Accounting and Financial Management Capital Structure

Question: Write about theAccounting and Financial Managementfor Capital Structure. Answer: Differences Between Financial and Capital Structure Capital structure is deemed mixture of debt sources and long-term capital. There are three major sources of capital structure, which includes equity share, preference share and debenture. Fund from such sources are gathered and employed for acquiring the short and long-term assets. It can be said that total fund for the capital structure will be can be financed from debt and share capital (Elsas and Florysiak 2015). Financial structure is deemed balance sheet structure that includes sources of acquiring both fixed and current assets. The liability side of balance sheet is the financial structure. In financial structure, the long and short-term liabilities will be included. All the fixed and current assets are considered within long and short term liabilities. Funds are basic requirement for a company to address long term as well as requirement of working capital. Companys raises funds from long and short-term fund sources and for such reasons financial and capital structure are used. Capital structure deals with the long-term fund source and on the other hand, financial structure focuses on the manner in which the company can be financed (Baghai, Servaes and Tamayo 2014). This represents the overall liability aspect of the position statement that includes balance sheet that encompass long as well as short term debt as well as current liabilities. Difference can be realised based on capital structure. Financial structure can be understood as the base of capital structure, while, capital structure is an aspect of financial structure (Allen, Carletti and Marquez 2015). On the other hand, basis of financial structure is different as there are lots of financial structure basis. It can also be said that the factor that affects the financial structure. Nature and type of business, investment needs, long term along with working capital requirement, cost of capital, cash flow capability of an organization along with advantage are the vital factors that affect it. Decisions related to financing assets of a company are extremely important in all the businesses and the finance manager remains in the dilemma of the proper proportion of debt and equity (Serfling 2016). Being a general rule there must be a suitable mix of equity and debt capital for financing the assets of a company. For such reasons, capital structure must be designed effectively that can serve the equity shareholders interest. Sound capital structure is deemed important for a company to take effective organizational decisions for this might result in increase of company, use of accessible funds, return maximization cost of capital maximization along with maintaining solvency or liquidity position. A sound capital structure of a company helps in increasing shareholders wealth by means of maximization of total cost of capital (Rampini and Viswanathan 2013). This can also be attained through including long-term debt capital within capital structure for the reason that debt capital i s decreased than cot of equity or preference share capital as debt interest is tax deductible. Management Accounting System Focus on Tight Cost Controls and Minimization Within management accounting system, cost control is also known as cost management that must focus on tight cost control through employing certain cost counting and management techniques with the intention of enhancing business cost-effectiveness through decreasing costs of restricting the growth rate (Kahle and Stulz 2013). Tight cost controls must be ensured for evaluating, monitoring along with improving effectiveness of particular areas like departments, product lines and divisions in the business operations. Cost control and minimization can be understood as the efforts of the effective use of management accounting system to monitor, analyse and decrease expenditure. Such efforts might be aspect of formal, organization-wide program that can be informal and restricted to a particular department or person (Farre-Mensa and Ljungqvist 2015). Cost control and minimization process must be tight that begins with the yearly budget. With the progress of the fiscal year the accounting con trols and budget process, effective use of management accounting system facilitates dealing with decreasing costs of the company that determines particular objectives for designing standards and procedures in order to evaluate the cost minimization approach effectives of a company. Management accounting system facilitates in cost minimization as a variety of techniques that can be used to cut costs for small businesses (Johansson and Siverbo 2014). A technique of cost minimisation can include hiring an external analyst. Certain likely benefits of employing a consultant encompass saving time for owner of the company along with raising awareness regard cost minimization within the organization. One of the major concerns of a company is to maximise the profit that is possible by means of reducing the cost of production. Tight focus of management accounting on cost control will ensure that a technique is maintained that offers vital information to the management regarding whether actual costs are associated with budgeted costs or not (Bedford 2015). Cost minimization can serve as a technique that can be used to decrease a products unit cost devoid of compromising its quality. Cost minimization is considered vital aspect in order to maintain and increase profitability. The management accounting system of an organization to decrease the business expenses and increase profits that initiates with the process of budgeting must consider outsourcing process. For instance, corporate payroll can be outsourced due to the reason that payroll tax laws constantly changes and the employee turnover needs constant changes for payroll records (Auzair and Auzair 2015). Cost control can serve as a process in which the actual results are compared against standard so that cost can be measured and suitable action must be considered for decreasing operational expenses. Cost control can be done through employing several effective management accounting techniques. This can be conducted through a process that centres on controlling costs by means of competitive analysis. It is a practice that is effective in order to maintain actual cost in alignment with the established norms. 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