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Principles of cost structure management - Cost Principle ,Risk Principle,Control Principle
a.) Cost Principle
Cost Principle: this principle deals with the ideal capital structure which should minimize cost of financing and maximize the earnings per share. The cheaper form of capital structure is debt capital.
b.) Risk Principle
Risk Principle: this principle deals with the capital structure which should not accept high risk. If company issue large amount of preference shares out of the earnings of the company then less amount will be left out for equity shareholders as dividend is paid after the preference shares.
c.) Control Principle
Control Principle: this principle deals with the capital structure which is keeping the controlling position of owners. Preference shareholders possesses no voting rights and don't disturb positions.
d.) Flexibility Principle
Flexibility Principle: this principle deals with capital structure which can have additional requirements of funds in future.
e.) Timing Principle
Timing Principle: this principle deals with capital structure which should be able to have market opportunities and which should be able to minimize cost of raising funds and obtain the savings.
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