Theories and models of hierarchical financing of a commercial company

The hierarchical financing theories agree with establishing a ranking among financing methods, such as prioritizing self-financing, placing debt in a secondary position, and choosing capital increase as a last resort. These theories and models are not focused on the issue of optimal financial structure. We may ask, on the one hand, whether a company, by ranking financing methods for an investment, makes an optimal financial decision, meaning it chooses the best combination of financing means. On the other hand, we can also question whether applying the hierarchy principle would not lead to defining the optimal financial structure differently while still aiming for the same objective (the best debt ratio). We conclude that these theories differ from models based on the "compromise principle".