Debt Versus Equity Financing
University of Phoenix
Organizations finance operations with both debit and equity financing. Organizations need financing to continue to function. Debt financing and equity financing are different financial strategies that financial managers make a decision about.
Debit financing is a means of raising funds to generate working capital used to pay for projects or endeavors that the issuer of the debt wishes to undertake (“WiseGeek,” 2013). Debt financing is a form of borrowing money to keep a business operating. Debit financing is the act of selling bonds, notes, or mortgages held by the organization. These items are sold and the cash generated can be used purchase larger asset such as buildings. Debit financing usually does not include options of ownership of the organization.
Equity financing is another vehicle to raising funds for an organization. Using the equity option raising money from the investor gives the investor a stake in the organization; they become part owner. This exchange normally is in stock. An advantage of equity financing is there is no repayment. A disadvantage of this option is giving up control of the organization to investors.
Alternative capital structure
Debt financing and equity financing share a...