Define "capital structure".

Capital structure refers to the way a firm finances its operations and growth by using various sources of funds, primarily debt and equity. This concept is crucial for understanding how a company is leveraging its finances to enhance its value and manage risk.

The correct choice emphasizes the mix of debt and equity financing which constitutes a company's overall capital structure. This balance influences a firm's overall financial health, cost of capital, and risk profile. Companies may choose different combinations of debt (loans, bonds) and equity (stocks, retained earnings) based on their strategy, market conditions, risk tolerance, and operational needs.

In contrast, the other options do not fully encapsulate what capital structure is about. While cash flow and equity financing pertains to aspects of finance, the first choice does not recognize the role of debt. The allocation of funds toward assets focuses more on how funds are utilized rather than their sources, and the ratio of investments to liabilities doesn't accurately describe how a company structures its capital or what sources of funds are employed. Therefore, the defining characteristic of capital structure is indeed the mix of debt and equity financing used for funding operations.