Resolved: difference between the investors and issuers
Advantages and disadvantages of equity from investors and issuers perspective.
1 answers ( 1 marked as helpful)
Hello Mrunali,
Thanks for reachng out!
That's a great question. Let me elaborate on that by listing a few points:
Advantages:
-No Required Repayment: Unlike debt, equity doesn't have to be repaid, providing more cash flow flexibility.
-No Interest Payments: Issuing stock avoids the costs associated with debt interest, which can improve profitability.
-Better Debt Ratios: Equity financing can strengthen the company's balance sheet, making it more attractive to future lenders.
- Long-Term Capital: Equity provides long-term funds that support growth without immediate repayment pressure.
Disadvantages:
-Ownership Dilution: Issuing new shares dilutes current shareholders' ownership and can reduce control.
-Higher Cost of Capital: Equity typically costs more than debt, as investors expect higher returns for taking on more risk.
-Dividend Pressure: Shareholders may expect regular dividends, limiting funds available for reinvestment in the business.
-Greater Public Scrutiny: Issuing stock to the public means regulatory requirements and greater transparency, which can limit strategic flexibility.
Hope this helps!
Best,
The 365 Team
Thanks for reachng out!
That's a great question. Let me elaborate on that by listing a few points:
Advantages:
-No Required Repayment: Unlike debt, equity doesn't have to be repaid, providing more cash flow flexibility.
-No Interest Payments: Issuing stock avoids the costs associated with debt interest, which can improve profitability.
-Better Debt Ratios: Equity financing can strengthen the company's balance sheet, making it more attractive to future lenders.
- Long-Term Capital: Equity provides long-term funds that support growth without immediate repayment pressure.
Disadvantages:
-Ownership Dilution: Issuing new shares dilutes current shareholders' ownership and can reduce control.
-Higher Cost of Capital: Equity typically costs more than debt, as investors expect higher returns for taking on more risk.
-Dividend Pressure: Shareholders may expect regular dividends, limiting funds available for reinvestment in the business.
-Greater Public Scrutiny: Issuing stock to the public means regulatory requirements and greater transparency, which can limit strategic flexibility.
Hope this helps!
Best,
The 365 Team
