when analysts refer to capital structure they are most likely referring to a firm s debt to equity d e ratio which provides insight into how risky a company s borrowing practices are usually a company that is heavily financed by debt has a more aggressive capital structure and therefore poses a greater risk to investors this risk however may be the primary source of the firm s growth 
debt is one of the two main ways a company can raise money in the capital markets companies benefit from debt because of its tax advantages interest payments made as a result of borrowing funds may be tax deductible debt also allows a company or business to retain ownership unlike equity additionally in times of low interest rates debt is abundant and easy to access equity allows outside investors to take partial ownership of the company equity is more expensive than debt especially when interest rates are low however unlike debt equity does not need to be paid back this is a benefit to the company in the case of declining earnings on the other hand equity represents a claim by the owner on the future earnings of the company optimal capital structurecompanies that use more debt than equity to finance their assets and fund operating activities have a high leverage ratio and an aggressive capital structure a company that pays for assets with more equity than debt has a low leverage ratio and a conservative capital structure that said a high leverage ratio and an aggressive capital structure can also lead to higher growth rates whereas a conservative capital structure can lead to lower growth rates analysts use the d e ratio to compare capital structure it is calculated by dividing total liabilities by total equity savvy companies have learned to incorporate both debt and equity into their corporate strategies at times however companies may rely too heavily on external funding and debt in particular investors can monitor a firm s capital structure by tracking the d e ratio and comparing it against the company s industry peers it is the goal of company management to find the ideal mix of debt and equity also referred to as the optimal capital structure to finance operations 