Compare debt and equity financing.If you were a manager in a company, explain which funding method(s) you would choose with the reasons.
There are various sources that are used by the company in order to raise finance for conducting its business operations.
Some important sources of financing are as follows:
1) Debt financing:
When the company raises the funds to conduct its business activity and paid the principal amount along with interest after a specific period of time is known as debt financing.
Generally, the company uses this source in order to maintain the ownership percentage or lowering tax liability.
Some of the common sources of debt financing for the company are bank loans, mortgages, overdrafts, etc.
2) Equity financing:
When the company raising finance by selling the stock of the company is known as equity financing,
One of the important benefits of equity financing over debt financing is that it is not supposed to repay.
Since they are not supposed to repay by the company therefore equity financing having a higher risk as compared to debt financing.
And the cost is also higher in equity financing as compared to debt financing.
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