The line between debt and equity is hard to draw. What does this means?
The line between debt and equity is hard to draw. What does this means?
Debt and equity are the two sources from where the company raises finance according to the need. Both are the most familiar way used by companies.
Debt-
In the urge of finance company may borrow money from financial institutions in the form of loan or issue bonds. Whenever a company borrows money a fixed amount of interest has to be paid periodically irrespective of the profit earned by the business. And here no ownership or rights to participate in the decision is given.
Equity-
Equity is an ordinary way to receive finance. But it is not treated in the same way as a debt. Instead of interest, investors are given dividends depending on the profit earned by the company. Also, ownership or rights to participate in the decision is given.
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