Equity financing is a little different from debt

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using the capital of the funds raised. Equity financing is a little different from debt financing. Debt financing an organization borrow from others to meet liquidity requirement and to sustain the business. It is ideally for an organization to raise fund through both equity financing and debt financing to meet the liquidity needs or any operation plan (“Definition of ‘Equity Finance’”, n.d.).
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Equity Financing bring advantages to an organization. One of the advantages is permanent source of finance. It could be a lasting way to gain financial support of the organization. For example, a firm would like to produce products with high-quality or provide high-quality service to their customers. With the financial support, the firm could have the leverage to focus on fulfilling this type of objectives and not only concern about the financial management. It is a solution for organization that always looking for getting funds. Other than permanent source of finance, equity financing provides advantage of retained earnings. Organization’s internal financial sources could be created by equity financing. The organization could generate earnings in the way of using capital, and the earnings could be retained to finance the enlarged working capital and other fund requirements. It eliminates the other limitation of raising funds through other sources. The shareholders’ wealth is maximized as an objective of an organization while the fund are being used in the project of the organization generate higher returns as compared to the existing payback for equity shareholders. Another advantage of the equity financing is obligatory dividend payments. It is a major advantage of the new company. New started company are mostly with the limitation of uncertainty cash flows. Equity financing provides this kind of firm no fixed responsibility to pay dividends, company could choose to pay zero dividends or a small amount of dividends. The
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  • Summer '17
  • ms lau
  • Finance, Equity Financing

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