Explain the concept of capital structure as it applies to a company with international operations.

 The capital structure of a company is the mix of equity, debt, and internally generated funds that it uses to finance its activities. Firms try to strike the right balance among financing methods to minimize risk and the cost of capital.
Debt requires periodic interest payments to creditors such as banks and bondholders. If the company defaults on interest payments, creditors can take the company to court to force it to payeven forcing it into bankruptcy. On the other hand, in the case of equity, only holders of certain types of preferred stock (which companies issue sparingly) can force bankruptcy because of default. As a rule, then, companies do not want to carry too much debt in relation to equity that can increase their risk of insolvency. Debt still appeals to companies in many countries, however, because interest payments can be deducted from taxable earningsthus lowering the amount of taxes the firm must pay.
The basic principles of capital structure do not vary from domestic to international companies. But research indicates that multinational firms have lower ratios of debt to equity than domestic firms. Some observers cite increased political risk, exchange-rate risk, and the number of opportunities available to multinationals as possible explanations for the difference. Others suggest that the debt-versus-equity option depends on a company's national culture. But this suggestion has come under fire because companies from all cultures want to reduce their cost of capital. Moreover, many large international companies generate revenue from a large number of countries.
National restrictions can influence the choice of capital structure. These restrictions include limits on the international flows of capital, the cost of local financing versus the cost of international financing, access to international financial markets, and controls imposed on the exchange of currencies. The choice of capital structure for each of a company's international subsidiariesand, therefore, its own capital structureis a highly complex decision.

Makes more sense now, have a good weekend!