Debt Vs. Equity Financing Analysis Essay Example

process of collecting money from sale of stocks and shares. The company sells the Ordinary shares at a certain price, and Preference shares at a certain rate of interest. Therefore, the buyers of these shares become owners of the company as long as they hold the shares. The money, thus raised, is also known as Share Capital. (Investopedia, 2009) Examples: 1. A company can issue Ordinary shares to purchase Machinery. 2. A company may issue preference shares at a certain rate to raise capital to pay off their debts.

Comparison One can choose any of the two procedures for obtaining liquidity. While choosing between the two options, one should consider their business motives, the kind of control they want and the long term goals. If one needs more control over their business, then they should avail the option of debt financing as one retains maximum control over their business and the interest is tax deductible. On the other hand, if one doesn’t want to worry about repayment and payment interest, they should opt for Equity financing as lenders are rewarded in form of dividend. (Woman Owned, 2009)

Conclusion Both the options can be exercised depending on the circumstances a person wants to do business and the amount of risk he is willing to take.