Business Financing and the Capital Structure essay
Business Financing and the Capital Structure essay Business Financing and the Capital Structure. Deciding the correct balance between equity and debt financing, means weighing the benefits and estimating costs of each, verifying that managers do not stick the company with debt it cannot bear to reimburse and to minimize the actual cost of capital. Choosing debt forces the management to manage cash flow, while, in a perfect economy, taking on equity means management places a priority on growth. However, in today’s credit markets, raising equity simply mean the company cannot borrow any more. Making decision on the financing technique to use rely on long-term goals of the firm and the level of control managers want to have (Melicher & Norton, 2011). The ratio (debt-equity-ratio) used should be reasonable because the ratio is used…