JAIIB | AFM | CASE STUDY ON THEORIES OF CAPITAL STRUCTURING

The Junior Associate of Indian Institute of Bankers (JAIIB) exam originated to empower bankers with a thorough understanding of critical financial concepts. One of the principal areas covered in the JAIIB’s Accounting and Financial Management (AFM) module is the “Theories of Capital Structuring.” This is an important topic for bankers as it explores how companies can balance debt and equity to maximize value. This article by Learning Sessions presents these theories, enhanced with a case study approach to expand understanding.

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Capital structure refers to the mix of a company’s debt and equity used to finance its operations and growth. A sound capital structure is crucial for companies to remain financially stable, optimize returns, and reduce risks. For banks, understanding capital structuring is essential in assessing a company’s financial health, determining lending terms, and advising on financial strategies. Through the JAIIB AFM module, banking professionals gain insights into key capital structuring theories and their application in practical financial decisions.

For the extensive preparation of candidates, get details through our YouTube videos for JAIIB AFM Module wise Syllabus with explanations and tips to help candidates in their preparation journey.

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The AFM module introduces several foundational theories that guide companies in choosing their optimal capital structure. Each theory presents unique perspectives on the relationship between debt, equity, and firm value. Here are the core theories explored:

•  Modigliani-Miller Theorem (M&M Theory)
• Trade-Off Theory
•  Pecking Order Theory
• Agency Cost Theory
• Signaling Theory

To summarize, The theories of capital structuring in JAIIB’s AFM module offers banking professionals with the analytical tools to assess and advise on financial decisions regarding debt and equity. Each theory offers unique insights into the complexities of capital structure, from understanding tax benefits and financial risks to analyzing market perceptions and stakeholder dynamics. The JAIIB aspirants can develop a well-rounded approach to evaluating the financial strategies of companies. Mastery of capital structuring theories equips bankers to play a central role in guiding businesses toward sustainable financial success. Learning Sessions provides additional information about JAIIB AFM ACCOUNTING STANDARDS by giving examples of real life scenarios.

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