Borrowed capital is contrasted with equity capital. Equity belongs to shareholders and is not subject to repayment, while borrowed capital is attracted for a period at interest and must be repaid regardless of financial results.
Debt attraction creates a financial leverage effect: if profit from using borrowed funds exceeds their servicing cost, return on equity increases. The leverage works in reverse as well — when profit declines, fixed interest payments amplify the decline in results, and in case of losses, accelerate the erosion of equity.
The ratio of borrowed to equity capital is a fundamental characteristic of financial stability. The acceptable level depends on the industry: companies with stable cash flow can sustain higher debt loads than businesses with volatile revenues.
For bondholders, the capital structure of the issuer matters directly: the higher the debt share, the lower the safety margin if conditions worsen. For shareholders, it determines how significantly profit will fluctuate when revenue changes.