Dr. Zulfiqar Hasan
Corporation can raise capital by either following Debt Financing, or Equity Financing.
Debt Financing means borrowing money that is to be repaid over a period of time, usually with interest. Debt financing can be either short-term (full repayment due in less than one year) or long-term (repayment due over more than one year.
A type of Financing through the selling of a debt instrument is called Debt Financing.
Equity Financing describes an exchange of money for a share of business ownership. This form of financing allows you to obtain funds without incurring debt; in other words, without having to repay a specific amount of money at any particular time.
The major disadvantage to equity financing is the dilution of your ownership interests and the possible loss of control that may accompany a sharing of ownership with additional investors.
Raising money for company activities by selling common or preferred stock to individual or institutional investors.
Reasons for Issuing Shares
- To Raise Capital
- To Keep Profits and earnings to the owners of the company
- To extend the market share
- To create the good will
- To avoid the borrowings
- To avoid the repayments
- To make familiar about the company and the products/services
- To get the tax benefits
The costs incurred by a publicly traded company when it issues new securities. Flotation costs are paid by the company that issues the new securities.
Legal fees and
A subject that comes up quite a bit in discussions involving the selling of securities is dilution. Dilution refers to a loss in existing shareholders’ value. There are several kinds:
- Dilution of percentage of ownership.
- Dilution of market value.
- Dilution of book value and earnings per share.