Capital Structure

The speaker talks through the flawed capital structure of many companies which ultimately led to the banking crisis on Wall Street.  He discusses the concept of "positive leverage" which basically means that cost of debt is significantly lower than the return on equity.  This led to gigantic amounts of leverage and the smallest change in the spread between the cost of debt and ROE would significantly impact the companies bottom line. 

The speaker discusses the basics of inputting, calculating, and analyzing a companies capital structure by analyzing the various forms of leverage that was taken by the company.

The capital structure of a company essentially describes the financing of a company.  This can be viewed through the right side of the balance sheet which displays liabilities and shareholders equity.  Many different forms of analysis, through many different financial ratios, can be performed to gauge near term and long term financial health of the company.