The following are highlights from an article in "The McKinsey Quarterly," a publication of McKinsey & Co., an InstitutionalInvestor.com content provider:

Take Away:

Whether investing in new projects or deciding what to do with cash reserves, companies must inevitably determine the right balance of equity and debt in their capital structure.  Attracted by the tax savings from debt financing—or the perceived boost to earnings per share from buybacks—many companies are tempted to change their capital structure without contemplating how those changes might support or constrain their business strategies. A company should use its capital structure to support its strategy—with a clear understanding of future cash flows and investment requirements. A systematic approach—which includes estimating the financing deficit or surplus, setting a target credit rating and debt level over the business cycle, and moving to the target structure—can better align capital structure with strategy.

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