Debt and Equity Financing (HSC SSCE Business Studies): Flashcards
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Practise the cards
10 cards from this deck
Debt finance
Debt finance
Borrowing from external sources that must be repaid with interest
Equity finance
Equity finance
Internal funding from within business (owner capital, profits)
Tax treatment of debt interest payments
Tax treatment of debt interest payments
Tax deductible, reduces taxable income
Tax treatment of equity dividends
Tax treatment of equity dividends
Not tax deductible
Equity repayment obligation
Equity repayment obligation
No fixed repayment date, funds remain indefinitely
Priority claims in liquidation
Priority claims in liquidation
Lenders paid first, shareholders get residual (what remains)
Gearing
Gearing
Proportion of debt relative to equity in capital structure
Risk and return relationship
Risk and return relationship
Higher risk investments require higher returns
Self-financing (bootstrapping)
Self-financing (bootstrapping)
Investing own savings without external credit or borrowing
Trade credit
Trade credit
Agreement with suppliers allowing delayed payment for goods