The financial capital structure is formed under the influence of various factors, which reflect,both company’s features and the influence of environment on it. Therefore, there is no single optimum relationship between proprietary and borrowed capital for all companies. With that, under the practical implementation of monetary conception of financial structure optimization it is possible to develop suck a model, which would provide a correlation of all forms of proprietary and borrowed capital, at which the maximization of the substantiated market value of the company is achieved, taking into account the required balance “profitability — risk — liquidity”.


The algorithm of realization of this model suggests several stages (Figure 1.) 

Figure 1 — Optimization algorithm of financial capital structure in the system of the company’s cost management[1]


The objective criterion for the optimization of the financial capital structure, as it has been shown, is the maximization of the company value. As a strategic indicator of market value, we make use of MVA index, which is the registered valuation of predicted value for the economic value added (EVA).

The capital is achieved at the maximum market value added in the perspective plan of the optimal financial structure. The specified connection may be established with the help of matrix, which vertical axis record changes in the financial structure of the company capital, and horizontal axis records the market value added.

We will introduce the index percentage ratio of equity (proprietary) and debt (borrowed) capital (E-D)/E with respect to reflection of changes in the financial capital structure. The economic substance of this index is as follows. Unless the company uses borrowed capital, the outlined percentage ratio makes 100%. In case of leverage the percentage ratio (Е-D)/E has a positive value, if the amount of proprietary capital exceeds the amount of the borrowed capital, and a negative value, if the amount of debt exceeds the amount of proprietary capital.

The development of market value added can be reflected with the help of correlation of market value added (МVA) and the Book Value of company capital (Vb). This provision rests upon the conception of K. Walsh, who considers the added value as gain of proprietary capital to the balance sheet valuation[2]. The K. Walsh model combines a traditional position to the financial analysis of company business, which is based upon the financial ratios, and recent trends of analysis, based on the estimation of its value. Within this model a change of a limited number of main financial ratios is considered, which serve with respect to business objectives, its stereotypes and the company value. It is possible to achieve the increase of company capitalization by management of basic indices, taking into account balance needs.

The obtained matrix consists of four quadrants, each of which is characterized by different signs of basic variables, reflecting the outlook of МVA creation at various allowed entries of financial structure of the company capital (Figure 2).

Figure 2 — Matrix of the company’s financial development: strategic presentation[3].


Quadrant 1 represents the combination of the most effective company characteristics of proprietary and debt capital in relation to the rise in value. The achievement of this correlation is possible to be referred as a goal of financial capital structure within a monetary approach to the corporate governance.

The type of financial development, corresponding to quadrant 2 characteristics, seems to be less valuable. It supposes a high growth rate of market value at the debt growth. This type allows to achieve the improvement of financial performance as short-term prospects only, as far as the further growth opportunities are limited in virtue of the reinforcement of financial imbalance.

The company status in quadrant 3 gives evidence of high financial imbalance and negative market value added. Quadrant 4 belongs to companies, which are characterized by low debt proportion, but they do not increase their market value at the same time.

The matrix of financial development of corporation allows to implement the strategic insight and financial capital structure management by means of accounting of its interrelation with the growth of reasonable market value. The threshold of correlations (MVA-)/Vb and (Е-D)/E is 100%. Overseeing the dynamics of the outlined characteristics allows to correct the objective financial capital structure and to adopt certain managerial decisions. Thereby, the proposed matrix serves as an efficient instrument of optimization of financial capital structure in the projected period.

The growth of reasonable market value is a strategic target code of company development. The rate of economic value-added (EVA), securing the succession of long-term and short-term objectives on the formation of the financial capital structure under the system of total cost management in the company, may be used as operational cost parameter.

The next implementation phase for the optimization model of financial capital structure is connected with the identification of key financial factors for the creation of value, evaluation of their interrelation and influence on the build-up of value

We should specify that value factoring is the basis for a number of management models of corporation value (A. Damodaran, balanced index system etc.). Thus, the model of A. Damodaran puts emphasis on the factors of value creation, which make the size of money flow, affect the growth ratio of prospective money flows and its duration, and determine the discount rate.

A balanced system model of indices allows to form a transparent system of ratio control performance of the company, which is focused on the cost increase both at the level company as a whole and at the level of subdivision and particular employees. The company strategy is considered within four balanced blocks: financial, client, domestic business processes, education and development of employees. This secures the grouping of highlight operations of the company — financial and non-financial. There will be a separation of specific strategic objectives for every block. A complete set of such objectives should reflect the company strategy taking into account their integration.

For the purpose of the research hereof let us separate the key financial factors, which secure the growth of economic value added (EVA). EVA, in contrast to other indices, allows to reflect the effectiveness of capital usage in the integrated form, as long as it generalizes the outcome of three substantive activities: operational, investment and financial. 

In such a case, the identification problem of key financial factors for the creation of value is limited to the determination of those financial factors, which have a direct effect on EVA index.  The structure of these factors may be defined as follows (Figure 3).

Figure 3 — Key financial factors of value creation[4].


Financial value factors can be distributed on several levels. First level factors include indices of operating profit, return on the invested capital, the volume of invest capital, and its weighted average cost. The index of financial capital structure refers to the factors of level two. It renders its indirect influence on the company value via the index of the weighted average cost of capital.

EVA increase is reached at:

— increase of income from the basic activity (EBIT — TAX);

— the growth of return on the invested capital (ROIС);

— decrease in the weighted average cost of capital (WACC);

Therefore, the formation of optimal financial capital structure should be focused on the achievement of such level of weighted average cost of invest capital, which, on one hand, secures the required yield of investors, and, on the other hand, will be lower than its profitability at the efficient capital functioning. The value of yield spread permits to judge on the possibility of EVA creation. When the return on invested capital is above the level of weighted average cost at its positive value, which is to say, there is a creation of EVA, and when the return on invested capital is below the level of weighted average cost is at its negative value, it is a loss. The interrelation of these key factors of value creation is shown in Figure 4.

Figure 4 – Interrelation of ROIС and WACC as key factors of value creation[5].

The interrelation analysis of yield spread and financial capital structure supposes matrix building securing their cooperative management and establishment of the sphere of optimal financial capital structure. The vertical axis of matrix reflects changes of financial company capital structure, measured by the index of percentage ratio (Е-D)/E discussed above. The yield spread ROI – WACC is reflected in percentage points on horizontal axis. Thus, the matrix consists of four quadrants with different signs of basic variables, reflecting the outlook of EVA creation at various allowed entries of financial structure of the company capital (Figure 5).

Figure 5 — Matrix of the company’s financial development: operational presentation[6].


This matrix allows to carry out both the retrospective analysis and the choice of preferential correlation of proprietary and dept capitals of development in perspective of creation of added economic company value.

Quadrant 1 includes companies, where, on the first hand, return on invested capital exceeds the expenditures connected with its attraction, and, therefore, the added economic value has a positive value, and, on the other hand, the correlation (Е-D)/E has a positive value, which represents the financial stability of the capital structure. Quadrant 2 includes companies, where the return on invested capital exceeds the expenditures connected with its attraction, but the percentage correlation (Е-D)/E is below zero. Such company demonstrates good current profitability, but is financially unstable. Quadrant 3 includes «unfavorable» companies, where the cost of capital exceeds its profitability, but the percentage correlation (Е-D)/E is below zero. Quadrant 4 includes companies, where the return on capital exceeds the expenditures connected with its attraction, but the percentage correlation (Е-D)/E is positive, which produce economic profit, but are financially stable.


The succeeding implementation of phase of optimization model of financial capital structure after the identification of key financial factors of value creation, the analysis of their interrelation and the impact on the creation of value supposes the specification of general demands of the company in capital at the existing and predicted rates of its development, needs of th merchandise market, company competitiveness etc.

The determination of requirements in the capital can rest upon the controlled amount of non-circulating and circulating assets, as it is supposed in I.A. Blank technique[7]. The amount of these assets represents a general demand in the capital. Finding the difference between general demand in capital and its value in the accounting period allows to detect the capital increase for the formation of ratio attraction of proprietary and borrowed assets.

The following stage is associated with the choice of optimal financial structure of a company capital taking into account the exposure of external and internal factors. The outlined choice must be focused on the maximization of economic added value under required correlation of “profitability — risk — liquidity”.

The choice algorithm of the optimal financial structure of the company capital is presented in Figure 6

Figure 1.3.6 – Choice algorithm of optimal financial structure of the company capital[1].


Taking into account the analytical result of internal and external factors, different options of objective financial capital structure are formed with determination of scenery value of a proprietary and borrowed capital. Subsequently, on the grounds of data entry on the value invest capital, its profitability and weighted average cost calculations on the economic added value are carried out.

Positive EVA value means the achievement of the required objective criterion. In order to reveal the correspondence of the reviewed variant to the correlation «profitability — risk — liquidity» the accounting result control on the adherence to the set limits ∆EVA>∆ CА>∆Е is carried out. In case of negative EVA value and unfavorable examination results on the mentioned limitation, the variant is diverged. At the achievement of the required balance «earning power risk — liquidity» the variant is taken for the correlation with other expected variants with a view to revelation of maximum EVA value. Correlation of values of proprietary and debt capital, corresponding to such value, is taken for the optimal financial capital structure.

On the next stage, in accordance with the selected structure, the choice of financial sources takes place, and the conscription model of proprietary and dept capital is developed.

It should be emphasized that the change of external and internal factors, affecting the financial capital structure, optimal parameters of correlation of proprietary, and debt capital can vary. All this conditions the necessity of development of corresponding managerial impact mechanisms. For these purposes the proposed matrix of financial development may be used in its operational variant.

The threshold of correlations (Е-D)/E is 100%, the spread of financial profitability is 0. Such data monitor allows to produce timely correcting of financial capital structure.

Separation of key financial factors of value, including financial capital structure, and allows to perform their further detalization to the level, when functional and operational manager can be guided by them. This requires, on the one hand, mending of efficient information and management systems, development of flow model of funds for every enterprise, collection of input data for the prognosis. On the other hand, due to such work, the company will possess a map of well-balanced indices, which will allow allocating the responsibility on the optimization of financial capital structure between the managers of all levels within a system of value corporate governance and implementing the multifactor model of financial decisions adoption.


[1] Is made by the author according to the research materials.


[2] K. Walsh Key Management Factors. How to Analyze, Compare, and Control the Data on the Company Value / Уолш К. Ключевые показатели менеджмента. Как анализировать, сравнивать и контролировать данные, определяющие стоимость компании. – М.: Дело, 2000.
[3] Composed by the author.
[4] Composed by the author.  

[5] Composed by the author.

[6] I.A. Blank Management of Capital Formation / Бланк И.А. Управление формированием капитала. — К.: «Ника-Центр», 2000. – С.204.  
[7] Composed by the author.  
[8] Is made by the author according to the research materials.