Read the following passage and answer the question.

Background:

Green Innovations Ltd. is an emerging company specializing in renewable energy solutions, such as solar panels and wind turbines. The company has seen steady growth in its first few years, and management is now focusing on long-term financial strategies to fuel further expansion. 

Green Innovations plans to invest $15 million in new manufacturing facilities and R&D for product innovation in the upcoming fiscal year. The company's CFO is working on a financial plan to ensure the funds are allocated efficiently while maintaining a healthy cash flow. The company has also forecasted a 20% increase in sales due to growing demand for sustainable energy solutions.

Currently, Green Innovations is reinvesting its profits into growth and diversification projects. It is allocating fim's capital to different projects with long term implications for the business.

The company's current composition of capital consists of 60% equity and 40% debt. The management is considering adjusting the mix to increase debt in order to take advantage of low-interest rates.

Green Innovations is focused on minimizing its cost of capital to ensure that future investments yield strong returns while keeping debt levels manageable.

"The company's current composition of capital consists of 60% equity and 40% debt".

Identify the concept that is being highlighted in the aforesaid statement.

Capital Structure

The correct answer is option 4- Capital Structure.

Capital Structure is the concept that is being highlighted in the aforesaid statement.

The statement "The company's current composition of capital consists of 60% equity and 40% debt" is directly describing the mix of debt and equity used to finance the company's operations. 

Capital structure refers to the mix between owners and borrowed funds. These shall be referred as equity and debt in the subsequent text. It can be calculated as debt-equity ratio i.e., Debt/Equity  or as the proportion of debt out of the total capital i.e., Debt/(Debt + Equity). Debt and equity differ significantly in their cost and riskiness for the firm. The cost of debt is lower than the cost of equity for a firm because the lender’s risk is lower than the equity shareholder’s risk, since the lender earns an assured return and repayment of capital and, therefore, they should require a lower rate of return. Additionally, interest paid on debt is a deductible expense for computation of tax liability whereas dividends are paid out of after-tax profit. Increased use of debt, therefore is likely to lower the over-all cost of capital of the firm provided that the cost of equity remains unaffected.