Capital Structure and Leverage Capital structure is the mixture of debt and equity maintained by a firm; the proportion of debt financing to equity financing. A firm can choose any capital structure it wants as long as it can demonstrate that it can safely repay its borowing. Financial leverage refers to the extent to which a firm relies on debt to finance the assets. The more debt financing a firm uses in its capital structure, the more financial leverage it employs. Increasing financial leverage has both positive and negative effects on the performance of the firm. The positive effect involves potential improvements in Return on Equity, due to the smaller proportion of equity in total assets. The negative effect involves increased financial risk, due to the increase in interest expense which is a fixed expense. These effects on performance tend to be off-setting, and thus the value of the firm is not affected by a "safe" change in the capital structure. NET WORTH 35% Capital Structure of the Company for the current year (Financial composition of Total Assets) Net Worth Capital Structure average for the Industry 28% Total Liabilities 72% TOTAL LIABILITIES 65%