Name the Financial Decision which determines the capital structure of the company.

Financing Decision

The correct answer is option 2- Financing Decision.

Financing Decision is the financial Decision that determines the capital structure of the company.

Financing Decision is about the quantum of finance to be raised from various long-term sources. It involves identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds. The shareholders’ funds refer to the equity capital and the retained earnings. Borrowed funds refer to the finance raised through debentures or other forms of debt. A firm has to decide the proportion of funds to be raised from either sources, based on their basic characteristics.

Capital structure refers to the mix between owners and borrowed funds.

Thus, capital structure is determined by financing decision.