Question

Cfo: Before our next meeting with the bankers, let's take a second and make sure that we have a common understanding about the company's capital structure. Theiss Telecom can potentially have three different capital structures: its current, actual capital structure, a target capital structure, and an optimal capital structure. If we wanted to talk about the observed capital structure at which Theiss Telecom actually exhibits today or any other specific point in time, we'd be talking about which capital structure, Akiko?

1) Current capital structure
2) Target capital structure
3) Optimal capital structure

Answer 1

Theiss Telecom's observed capital structure at any given time is referred to as their current capital structure, which is distinct from the target or optimal capital structure.

Step-by-step explanation:

When discussing the capital structure of Theiss Telecom at any specific point in time, we are referring to their current capital structure. This current capital structure represents the mixture of debt, equity, and other financial instruments that the company is using right now. In contrast, a target capital structure is what the company aspires to achieve in the future based on strategic financial planning, and an optimal capital structure is the theoretical mix of debt and equity that minimizes the company's cost of capital and maximizes its value.

Understanding the company's current capital structure is crucial before meetings with bankers as it includes tangible information about the company's financing methods and risk level at present, which is essential in financial decision-making and in discussions with potential or existing investors and lenders.