Capital structure is the recipe of how a company finances itself — the mix of debt (borrowed money) and equity (owners' money). A company with 60% equity and 40% debt has a different risk profile than one with 20% equity and 80% debt. Getting this mix right is one of the most important financial decisions a company makes.
The Modigliani-Miller theorem (1958 Nobel Prize) says in a perfect market, capital structure doesn't matter. But in reality, it matters a lot — debt provides tax shields (interest is tax-deductible), but too much debt increases bankruptcy risk. The optimal capital structure balances the tax benefit of debt against the cost of financial distress.
Tech companies like Apple historically used more equity than debt (low leverage). Utilities and real estate companies use heavy debt (high leverage) because they have stable cash flows. Apple shifted strategy in 2013 and now carries over $100 billion in debt — not because it needs to borrow, but because debt is cheaper than equity after tax benefits.