Debt to Capital - Equity Capital

Debt to capital

debt to capital is the most common type of loan available. This involved bonds, any sort of credit card debt and personal loans. A company may use debt to capital to raise additional funds. It involved borrowing money from an external source such as a bank. However, it is the expectation that they funds will need to be reimbursed with interest added.

Equity capital:

This generated by the selling stocks. This is used if a company cannot raise additional capital, they will then share their additional stocks through common shares or preferred shares.

• Preferred shares are a form of payment with a specified dividend is surefire before any amount of payments are made on common shares. In exchange, preferred shareholders have limited ownership rights.

• The main benefit of equity capital is that, the company is not required to repay shareholder investment. Because so, the cost of equity capital refers to the amount of return on investment they are giving away. Shareholders expect a certain amount of return based on the performance of the market. returns come from the payments of dividends.

• However, the main disadvantage of to equity capital is of course, the fact that each shareholder owns a small piece of the company, owners are binding to their shareholders wants. Therefore, the business then has to report to shareholders and the shareholders have a say in the business as a whole. Therefore, limiting the power of the business future by the owner, they are relinquishing some power to shareholders as the shareholders have a say in the future direction of the company.