This lesson examines the trade-offs between debt and equity financing .

5.1 Debt Policy
The debt policy of a firm determines its capital structure. Understanding the trade-offs between the costs and benefits of equity versus debt financing is crucial .

5.2 Dividend Policy
Dividend policy involves decisions about how much profit to distribute to shareholders versus reinvesting in the business .

5.3 Capital Structure in the Banking Industry
The capital structure of banks differs significantly from non-financial firms due to regulatory solvency requirements . For financial institutions, the capital structure must account for minimum capital requirements, including Common Equity Tier 1 and Tier 1 capital ratios .