Introduction The concept of an optimal capital structure for business firms remains a cornerstone of financial economics theory since the seminal works of Modigliani and Miller (1958; 1963) that focused on tax benefits and other costs of debt. According to Vasiliou and Daskalakis (2006), the capital structure of the firm can be a combination of the long-term sources of funds employed by the firm. A firm is said to be less leveraged when it has not included any debts in its capital structure. On the other hand, with a high level of debts the firm is highly leveraged. In a leveraged firm, the value of the firm is equivalent to the value of the firm reduced by the value of the debt (Brealey et al, 2003; Song 2005). Large corporations arrive at a combination of owned and borrowed funds to ensure maximum benefits from the capital structure. This paper analyzes the financing of the capital structure of TUI AG, a German based company operating in the tourism industry. Overview of TUI AG Established in 1997, TUI is the industry leader in the tourism industry of Europe. The Group operates in holiday destinations in more than 180 countries worldwide. The company serves nearly 30 million customers spread in 27 source markets globally. TUI Group is in the business of operating around 240 hotels in different destinations, and most of them are four or five-starred hotels. TUI travel, hotels and resorts, and cruise lines are the three business segments, which the company is operating. TUI travel division undertakes the businesses of tour operating, online sales, high street outlets and air travels. The company owned Hapag Lloyd AG, container shipping division and TUI sold this division in March 2009. After the sale of container shipping division, the business of the company has become completely tourism-oriented. The following sections outline the capital structure and debt financing of TUI AG. Capital Structure of TUI AG TUI is a highly leveraged company with more debt financing. The capital stock of the company as at September 30, 2010 consisted of 251,548,525 ordinary shares having a value of EUR 643,073,592. The company’s external debt consists mainly of convertible bonds. During the financial year 2009-2010, the total financial liabilities of the company increased by EUR 797 million and as at the end of September 30, 2010 the total liabilities stood at EUR 4,512 million. Table 1 in Appendix shows the breakup of the non-current liabilities of TUI AG. The total financial liabilities for 2008-09 was EUR 3,275 million and the increase in the liabilities for the year 2009-10 amounted to 37.8% over the previous year’s liabilities. The total equity of the company as at the end of the financial year 2009-10 was EUR 2,434.20 (for 2008-09 = EUR 2,240.8). Table 2 in the Appendix shows the different components of equity of TUI AG. The total equity for 2009-10 has increased by 8.6% over the previous year. While the subscribed capital has not changed significantly, the reserves have increased by 14.3% over the previous year. The equity as a percentage of total assets stood at 17% for both the years. Non-current capital of the Group decreased by 4% as compared to the previous year and stood at EUR 6,989 million. Table 3 in Appendix sho