What does the term 'capital structure' refer to?

The term 'capital structure' specifically refers to the mix of debt and equity that a company uses to finance its operations. This includes the proportion of various forms of financing such as loans, bonds, and equity investments from shareholders. Understanding a company's capital structure is crucial as it influences the risk and return profile of the organization.

A well-formed capital structure can provide a company with financial flexibility, affect its cost of capital, and impact its ability to invest in growth opportunities. Companies often aim to optimize their capital structure to achieve a balance between risk and return, thereby influencing their overall financial health and strategic decisions.

The other options define different financial concepts: total assets reflect a company’s resources, overall valuation pertains to market perceptions, and financial structures of long-term investments cover specific investment decisions rather than the broader financing strategy of the company. Hence, the definition provided aligns accurately with the established understanding of capital structure.