Capital Structure, Cost of Capital and Financial Flexibility

This article provides a discussion on capital structure, cost of capital and financial flexibility considerations focused on large software companies such as SAP as part of their strategic task to establish and maintain an effective financing framework.

The discussed topics are relevant for treasurers mainly from two perspectives: they form an important part of the treasurer’s curriculum as part of recurring strategic funding discussions with senior management; and the discussion broadens the scope of capital structure considerations with regard to the growth and increased importance of intangible businesses (e.g., knowledge based industries) in the global economy during the last two decades versus the role of traditional, i.e., tangible, business models.

Key Points

  • The importance of capital structure
  • Cost of Capital and Optimal Leverage
  • Impact of capital structure on cost of capital
  • Framework for capital structure decisions
  • Enterprise Value and Rating Categories
  • Specific software sector characteristics
  • Target rating considerations for software companies


Written by

Steffen Diel
Head of Treasury Finance, SAP AG

Cash & Liquidity Management Series (44 articles)


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