Day 49: Q49| Accounts interview question series | Which is better, equity or debt?
Автор: Dr Ashima Verma
Загружено: 2025-12-15
Просмотров: 111
Описание:
Neither equity nor debt is universally "better"; the optimal choice depends entirely on a company's specific situation, goals, risk tolerance, and life stage.
Equity financing (selling ownership shares) is often suited for early-stage, high-growth businesses with unpredictable cash flows, while debt financing (borrowing money) is usually better for established companies with stable revenue who want to maintain full control
Key Considerations When Deciding
The best choice depends on:
Stage of Business: Startups often rely on equity as they lack the cash flow or assets for debt.
Cash Flow Predictability: Stable, predictable revenue streams favor debt, as you can reliably make payments.
Need for Control: If maintaining full ownership is paramount, debt is the better option.
Risk Tolerance: Equity allows for shared risk, which is beneficial for high-risk ventures.
Many businesses use a combination of debt and equity to balance risk, control, and cost of capital, often aiming for an optimal capital structure to minimize their overall cost of financing
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