What best describes a company's capital structure?

A company's capital structure refers specifically to the way it finances its overall operations and growth through a combination of different sources of funding. The correct answer highlights that capital structure is primarily composed of equity (which includes common and preferred stock) and liabilities (which include loans and other forms of debt). This combination is crucial as it affects the company's risk profile, cost of capital, and overall valuation.

Understanding capital structure is important because it impacts financial decisions, forecasted returns, and the company's financial health. For instance, a company with a higher proportion of debt may have a higher risk due to fixed payment obligations, whereas a company with more equity might be seen as more stable but could face dilution of ownership.

The other choices do not accurately capture the definition of capital structure. For instance, while a mix of fixed and variable costs relates to operating expenses rather than financing, the mention of physical and intangible assets pertains more to a company's resource base and not its funding sources. Lastly, focusing solely on preferred and common stock excludes the significant role that liabilities play in the overall capital structure, making that answer incomplete.