20 understand how to measure and evaluated leverage, Especially when making
capital structure decisions. Brigham and Gapenski states capital structure or capital structure is the
proportion or ratio in determining the fulfillment of corporate spending, whether by cars using debt, equity, or by issuing shares. Meanwhile, according to Keown,
et al, the capital structure is a guide or a combination of long-term sources of funds used by the company Rodoni Ali, 2014: 129.
Based on expert opinions above, it can be concluded that the capital structure is the proportion in determining the fulfillment of corporate spending,
where funds were obtained using a combination or manual source derived from long-term funds consists of two main sources, namely the originating and the and
outside the company. Who became the problem of the capital structure of the company is how to quickly integrate the composition of the permanent funds are
used to looking for a blend of funds that can minimize the cost of capital and to maximize the stock price. This is the final destination of the capital structure, the
composition of the most optimal source of financing.
b. Theories of Capital Structure
In the balance sheet of the company consisting of assets that describes the structure of the liabilities side as wealth and financial structure. The capital
structure is part of a financial structure that can be defined as fixed expenditures that illustrates a comparison between long-term debt with its own capital.
According to Brigham 2014: 12 capital structure capital structure Is a
21 combination of debt and equity in the companys long-term financial structure. In
an empirical study leverage is defined as a measure which indicates the extent of the use of debt to finance the companys assets. Meeting the needs of the fund can
be obtained through the companys internal and externally. Form of funding internally internal financing Is retained earnings and depreciation. Fulfillment is
done externally can be divided into debt financing debt financing And equity financing equity financing. Debt financing can be obtained through loans,
whereas equity capital by issuing new shares. Capital structure theory to explain whether there is influence changes in capital structure to the companys value, if
investment decisions and dividend policy are held constant. If only partially replace equity firms with debt or debt to replace a companys own capital, then if
the stock price will change, if the company does not change other financial decisions.
Each company in carrying out its activities have always tried to maintain a financial balance. Capital structure associated with profitability. The companys
capital structure is composed of debt to equity. The funds raised from debt have capital costs in the form of interest charges. The funds raised from the equity cost
of capital has the form of dividends. The company will choose the source of the lowest cost of funds among the various alternative sources of funds available.
22 Composition is not optimal debt and equity will reduce the profitability of
the company and vice versa. Determination of capital structure are the measures taken by the management in order to obtain funding sources that can be used for
operational activities of the company. The decision taken by Brigham 2014: 66 by the management in the search for the source of these funds is strongly
influenced by the owners shareholders. In accordance with the companys main goal is to increase the prosperity of our shareholders, so any policy to be taken by
the management are always influenced by the wishes of the shareholders. After the capital structure is determined, then the next company will use the funds
raised for the companys operations. Operational activities of the company is said to be beneficial if return obtained from the results of these operations is greater
than the cost of capital Cost of Capital; where the cost of capital is a weighted average of the cost of funding cost of funds Which consists of the cost interest
loans and the cost of equity capital. The capital cost itself consists of dividends paid to holders of ordinary
shares and dividend to preferred shareholders. While borrowing costs are net of interest expense net of tax rates. The amount of the composition of debt and
equity capital as well as costs incurred that are to be considered by management; whether to increase the debt ratio, or reduce the debt ratio. An increase in the debt
ratio, if the cost of debt is relatively smaller than the cost of equity capital, and vice versa.
23 According Riyanto 2001: 297 suggests there are several factors to
consider in the capital structure. These factors include: 1. Interest Rate
The interest rate will affect the selection of what kind of capital to be withdrawn, whether the company will issue shares or bonds.
2. Stability of Earnings Stability and magnitude of earnings obtained by a company will determine
whether the company is justified to attract capital with fixed load or not. A company that has earnings stable will always be able to meet its financial
obligations as a result of the use of foreign capital. Instead the company that has the earnings unstable and unpredictable will bear the risk of not being able to
pay interest expenses or can not pay the debt installments in the years or bad circumstances.
3. Composition of Assets Most companies in the industry where most of the capital embedded in fixed
assets fixed assets, will give priority to meeting the needs of capital permanent capital, ie equity, while foreign capital is complementary in nature. It can be
connected with the rule that horizontal conservative financial structure which states that the amount of own capital should at least be able to cover the amount of
fixed assets plus other assets that are permanent. 4. Levels of Risk Assets
The level or levels of risk of each asset in the company is not the same. The longer the period of use of an asset in the company, the greater the degree of
24 risk. Principle aspects of the risk of stating that if there is a risk sensitive
assets, then the company should be more finance with its own capital, which is resistant risk capital, and where possible reduce the expenditure by foreign
capital or capital are afraid of risk. 5. The amount of Total Capital Required
If the amount of capital required is very large, it is necessary for the company to issue some classes of securities together, while for the company, which needs
capital that is not so big enough to just pull out one class of securities only. 6. The State of Capital Markets
Capital market conditions often change due to the conjuncture waves. In general, if the rising wave of investors more interested to invest in stocks.
7. Nature of Management The nature of management will have a direct influence in decisions about how
to meet the needs of funds. 8. Company size
A large company where the shares are so widespread, every expansion of the share capital will only have little effect on the possibility of the loss or
displacement control of the dominant party of the company concerned. Instead a small company in which shares are distributed only in a small neighborhood,
increasing the number of shares will have a considerable influence on the possible loss of the dominant party control of the company concerned.
25 9. Stability Sales
A company whose sales are relatively stable can safely take on more debt and the burden remains higher than companies with sales unstable.
10. Risk Business Business risks or risks inherent to the operation of a risk if the company does
not use debt. The higher the companys business risk, the lower the optimal debt ratio.
11. Operating Leverage If other things being equal, companies with fewer operating laverage have
better skills and apply financial leverage because the company would have a smaller business risk.
12. Growth Rate If other things being equal, a company that grew rapidly to be more reliant on
external capital.
13. Profitability We often observe that companies that have a rate of return on investment is
very high use relatively little debt. 14. Tax
Flowers are a burden which can be a tax deduction and a tax deduction is very valuable for companies with high tax rates. The higher the tax rate of a company,
the greater the benefits derived from debt.
26 15. Control
The impact of debt on the stock versus the position of management control may affect the capital structure. If the current management has control over the
voting but are in a position where they cannot buy stocks again, management might opt for a debt-financing of new funding. On the other hand, management
may decide to use the equity if the companys financial situation is so weak that the use of debt may pose a risk of default.
c. The Modigliani-Miller Model
