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Complex capital structures diversify a company’s securities approach by offering a range of stocks, bonds, and options. This allows for dilution of certain stocks and creates different levels of investment through the segregation of common stock offerings into different classes. Dual presentation of earnings per share helps investors understand past and potential performance.
Complex capital structures involve the creation of a multifaceted set of securities that provide the financial foundation for a company’s stability. Rather than relying solely on equity and pure debt as the basis for a company’s fiscal welfare, a complex capital structure will diversify the range of stocks, bonds and options offered as part of the overall securities approach. This diversity allows the company the ability to dilute certain stocks if current conditions warrant such action.
When dealing with stocks within a complex capital structure, the key element is to provide a range of preferred and common stock options. In general, a complex capital structure will require the segregation of the company’s common stock offerings into different classes. This creates different levels of investment by offering stocks that carry certain advantages over ownership of other classes of common stock. For example, a company may choose to issue Class A and B common stock, with the Class A shares benefiting from limited voting privileges and the Class B shares used as part of an employee profit sharing scheme.
The multiple capital structure may also include bond issues. As with the security, varying levels of bond issues related to specific projects currently underway may be involved. Each of the bond issues can carry different types of benefits, allowing the company to attract a wider range of investors.
A complex capital structure is sometimes referred to as a classified stock structure when the focus is on the use of various types and classes of stock options. Because the structure of stock options allows for dilution under certain circumstances, the stock’s earnings reporting will be shared with investors in what is known as dual presentation. Essentially, the dual presentation will detail basic earnings per share and diluted earnings per share. This dual view of performance within the complex capital structure can help investors understand the bigger picture in terms of past performance of stock options and future performance potential.
Smart Asset.
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