Capital Structure Considerations

How do businesses benefit from using capital structure, optimal capital structure, debt and equity, and return on investment? Businesses have the opportunity to earn more return from their investments and their blend of debt and equity capital structure. This section gives examples of how these concepts are used.

Window of Opportunity

In corporate finance, a "window of opportunity" is the time when an asset or product which is unattainable will become available.


LEARNING OBJECTIVE

  • Identify a window of opportunity

KEY POINTS

    • Windows of opportunity must be taken into consideration by a corporation in order to purchase capital to achieve maximum return.
    • From the seller's perspective, the unique time a party will be able to sell a certain product at its highest price point in order to get a maximum return on capital purchased and used.
    • The people in charge of a firm must take windows of opportunity into account in order to keep costs low and returns high, in order to make the firm look like the best investment possible for creditors of all types.

TERM

  • Window of opportunity

    The idea of a time when an asset or product. which is unattainable, will become available. It can be extended to a time when a certain product will be attainable at a certain price, or from an opposite perspective, the unique time a party will be able to sell a certain product at its highest price point in order to get a maximum return on investment.

In corporate finance, a "window of opportunity" basically is the idea of a time when anasset or product that is unattainable will become available. It can be extended to a time when a certain product will be attainable at a certain price or from an opposite perspective, the unique time a party will be able to sell a certain product at its highest price point in order to get a maximum return on investment.

Windows of opportunity come into play when budgeting for capital because they can provide opportunities for firms to maximize returns on investment.

For example, when a firm issues an IPO, which allows a company to tap into a wide pool of potential investors to provide itself with capital for future growth, repayment of debt, or working capital. A company selling common shares is never required to repay the capital to its public investors. Those investors must endure the unpredictable nature of the open market to price and trade their shares. However, for a company with massive growth potential, the IPO may be the lowest price that the stock is available for public purchase. Therefore, the IPO presents a window of opportunity to the potential investor to get in on the new equity while it is still affordable and a greater return on investment is attainable. From the firm side, the opportunity to purchase a new plant or real estate at a cheap cost or lower lending rates also presents an opportunity to attain a greater investment on assets used in production. Management of a firm must take this into account in order to keep costs low and returns high, in order to make the firm look like the best possible investment for creditors of all types.