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In finance, "capital structure" specifically refers to the mix of debt and equity financing that a company employs to fund its operations and growth. This combination is crucial because it influences the company's risk profile, financial flexibility, and overall cost of capital.

Debt financing typically involves borrowing funds which can lead to interest obligations, while equity financing entails raising money by selling shares of the company, which means sharing ownership with investors. The optimal capital structure balances these two types of financing to minimize the cost of capital while maximizing value and reducing financial risk.

Understanding capital structure is essential for evaluating a company's financial health and stability, as it affects returns on equity and the risk borne by shareholders. Companies need to carefully manage their capital structure to ensure they can sustain operations and pursue growth strategies effectively. This makes option B the correct choice, as it directly addresses the core definition of capital structure.