Raising capital is an essential part of any firms’ operations and there are two main ways through which businesses raise capital, that is either from debt or equity financing. The capital structure of a firm is the term used to describe the proportions of debt and equity financing that a company currently holds. A key model within the capital structure concept is ‘Pie Theory’, which states that the total value of a firm is equal to the sum of its market value of debt and its market value of equity. These two sources of finance combine to form the total value of a firm, or the total ‘Pie’. Therefore, if an organisations aim is to make their business as valuable as possible, then they must choose a debt-equity ratio that results in the ‘Pie’ being as big as possible. There are two categories of capital structure that a business can be labelled as. It is either an ‘unlevered firm’, which means that the firm is financed by equity only, or it is a ‘levered firm’, which is a firm financed by debt only, or by both debt and equity.