How To Evaluate Your Company’s Capital Raise Structure


A company’s capital raise structure refers to their financial picture. This includes their overall operations, and it has to also take into account how this business intends to grow. It will entail several streams of income, and it will also include debt. Equity will also need to be accounted for.

The very first component you’ll need to evaluate is your balance sheet. You’ll need to demonstrate its strength, and this can be done in by examining several categories of information. The key is to make sure that you’re presenting your firm as a good investment for those looking to purchase stock. Below, we’ll talk about the ingredients that comprise a healthy outlook.

Working Capital

Working Capital is the difference between the assets that you have in cash, unpaid bills, finished products, raw materials, and the liabilities that you owe, such as accounts payable. This figure will provide a means of showing a startup’s health in a big picture format. Several other ratios can be calculated to determine whether a company’s debt can be covered.

Divide your current assets by your current liabilities to figure out your working capital ratio. A good figure will fall between 1.2 and 2.0. You don’t want to be too low, as you’ll have liquidity problems, and if you’re too high, it may mean you’re not using your excess to create the highest possible revenue.

When assets are less than current liabilities, this points to a company’s inability to pay its creditors, foreshadowing bankruptcy. You also do not want a working capital ratio that is steadily declining, as this will prove to be a red flag.

Asset Performance

Your asset performance is vital, as this describes how well you are able to take your resources and produce financial returns. This also relates to management of these raw materials, and there are ratios to provide a metric for how well these items are transferred into income. You will want to determine your efficiency with doing so, and this will provide you with a tool to see how you stand against your competition.

You’ll need to look at your cash conversion cycle, the fixed asset turnover ratio, and your return on assets ratio. Strong asset performance means you can earn a greater return with the assets you currently possess or that you can run leaner by producing the same amount of gain with fewer assets.

Debt and Equity

You can incur debt in several forms, long-term notes payable or bond issues, and equity is found in the form of common stock, short-term debt, preferred stock, and retained earnings. Your debt to equity ratio is going to be crucial for determining how risky an investor will consider you to be.

If your company is heavily financed, this will prove to be a risker venture, though this may primarily be the best source of growth at this stage. Your long term and short-term debt will also factor in significantly.

Debt is a way to curry favor at tax time, and so it is a preferred strategy, and your interest and payments will be tax deductible. You can also retain ownership, as this is not the case with equity. Debt is usually accessible in abundance during times of low interest rates, and it is therefore easy to procure. Equity will be more expensive than debt and even more so when rates are low, however, it will not need to be paid back. Furthermore, it represents income to come.

AI Capital Advisors can provide you with valuable oversight when evaluating your company’s capital raise structure. We use our expertise in venture capital to help you create superior presentations and to obtain the best possible valuation. Please reach out to any questions you may have, and we look forward to working with you.