Target Capital Structure
The debt-to-equity ratio a company has publicly committed to maintain over the forecast period, distinct from the snapshot ratio on the current balance sheet. The target capital structure is the right input for WACC in a forward DCF because the discount rate must reflect the financing mix that will produce the cash flows being discounted, not the historical mix. Common target structures: industrial mid-caps target 20-30% debt; capital-intensive utilities target 40-50%; mature consumer staples target 10-20%.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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