Why equity instead of debt for a company?
1 answersQuestion asked ( August 05, 2009 , Shopping / Finance )
I never figured out why organizations in most cases issue equity capital rather than debt. Is it not beneficial to hold stake in the company than dilute it?
Answers to : Why equity instead of debt for a company...
Answer
If organization issue debt they are expected to repay the loan along with the agreed interest rate. However, if the organization issues equity, the dividends paid out can be variable.
If the organization has higher liabilities then the investors profit share or the dividend will be low, contrary to that higher the profits higher would be the dividend.
Organizations have to balance their debt-equity ratio. They should not over-borrow by issuing higher debts wherein major component would go towards interest payment, nor over-dilute their shareholding by issuing higher equity.
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