What Is the Difference Between Debt and Equity Financing

question 290

Short Answer

What is the difference between debt and equity financing?
Debt financing is more expensive than equity financing.
Equity financing is cheaper than debt financing because no money has to be paid back to the people who bought the company's stock.
Debt financing is riskier than equity financing because with debt financing debts are incurred which must be paid back.
Debt financing is more short-term oriented than equity financing.
Equity financing can be done successfully only when stock markets are rising, whereas debt financing can be done any time.

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Definitions:

Pro Forma Statements

Financial statements prepared using hypothetical scenarios or assumptions to project future financial performance.

Future Operations

Planning and actions taken regarding a company's or organization's activities, strategies, and resources intended for the foreseeable future.

Cash Flow

The total amount of money being transferred into and out of a business, especially affecting liquidity and overall financial health.

Bid Prices

The highest price that a buyer is willing to pay for a security or commodity.