Describe the importance of international capital structure

The capital structure multinationals use directly impacts profitability, growth, and sustainability. There is an importance of international capital structure because the international capital structure will be related to the allocation of debt capital and equity capital in the international projects and it will be highly important because when there is the risk related to various countries than these International capital structuring is very important in order to manage the risk proactively so that it will help in maximizing the return from International projects.

There is a high amount of risk when working with the cash management as well as credit and inventory management because when we are taking an international project then we will be exposed to international risk like currency fluctuations and we will also be related to exposure of monetary policies of another country and business risks of the other countries as well, So we are also exposed to the geopolitical risks, so we need to factor in all those risks proactively in our capital restructuring process in order to maintain a better capital structure so that we will be able to beat the overall cost of capital and maximize the overall rate of return in order to expand the organizational value and help the shareholder in maximization of their value.

In order to formulate a better capital structure, companies need to allocate the weighted average cost of capital which will be based upon the risk of various other countries in order to maximize the rate of return and which will be helpful in order to identify the risk proactively because identification of the risk in international projects is of optimum importance. When calculating the WACC, here are the points to consider:

-Invested Capital 

-Debt Financing

-Equity Financingg

-Tax Considerations

Reference

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