What is the difference between debt financing and equity financing?

Whatisthedifferencebetweendebtfinancingandequityfinancing?

(1) The management and control rights of the company are different.

In debt financing, creditors have no right to participate in the company's management and profit distribution, so as not to dilute the control rights of common shareholders. Debt financing only increases the company's debt and does not affect the original shareholders' control of the company loan computer(貸款計算機).

Equity financing can dilute the equity of the original shareholders. If the original shareholders fail to purchase new shares in proportion, the issuance of new shares will weaken the original shareholders' control over the company, have a significant impact on the company's operational stability and strategy, or even lose control over the company.

(2) The payment methods of interest dividends are different.

Regardless of the company's operating status, profit or loss, the company's debt financing needs to pay interest in accordance with the provisions of the loan contract, and repay the principal when it is due, which the company must undertake.

Equity financing and dividend income usually depend on the profitability and development needs of the company. Since there is no fixed interest payment pressure and common stock has no fixed maturity date, there is no financing risk of repayment of principal and interest. Dividends are not paid for losses, profits can be distributed, or no dividends or partial dividends can be selected according to the development stage of the enterprise, and the enterprise can adjust dynamically Cards returned(還卡數).

(3) Financing costs are different.

Theoretically, the cost of equity financing is higher than the cost of debt financing: on the one hand, from the investor's point of view, common stock investment has high risk and high investment return; The effect of tax credits, dividends paid on after-tax profits do not have the effect of tax credits.

The tax saving effect makes debt financing more attractive, but it only really works if the business is profitable. If the enterprise loses money, it cannot obtain the tax saving benefit of pre-tax interest, and the financing cost of debt is the pre-tax cost.

(4) The capital structure is different.

Equity financing increases the owner's equity, reduces the asset-liability ratio, and optimizes the capital structure. Equity financing indirectly enhances the company's reputation and creditor confidence, prompting more debt financing.

Debt financing will continue to increase the company's gearing ratio. Creditors worry about the debtor's credit risk, increase the cost of capital, and even stop debt financing after a certain limit is reached.

(5) Different decision-making procedures.

The control of the equity financing relationship is more important, and it is usually decided and reviewed by the company's general meeting of shareholders whatsminer m30s++ for sale. Debt financing is a company's daily operating decision, which is divided into different levels and daily matters (selection of financing bank, financing term, etc.). Mainly rely on the decision-making of capital managers.

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