Difference Between Debt and Equity
Debt and Equity are the terms used in Finance. They are types of financing in Business. Even though both are terms in Finance. Both are used to make money by investing in them, but both have lots of Differences. Knowing the Differences Between Debt and Equity will help investors to invest their portfolio properly.
- Debt means obligation.
- The company who borrows money from the investors to raise the capital is obliged to the coupons and finite intervals and pay back the Pricipal amount at the end of tenure.
- Debt holders are like Money lenders.
- Raising Captial using Dept is a burden to the Company as they have to pay the interest monthly.
- Coupon or Monthly Interest is earned by the investors.
- Investment in Debt is less riskier compared to Equity.
- Returns are periodic and almost fixed.
- Equity means ownership.
- Everyone who owns the Equity is part owner of that company. He/She can also influence the decision.
- Equity holders are owners of the company.
- Raising Capital using Equity is that the Company who issues shares need not pay any money to the share holders.
- Investor only earns when Company issues dividends (it happens when the Company wants to share the profit to their shareholders).
- Investment in Equity is risky compared to Debt.
- Returns are only when selling of share happens or dividends are issued. Returns are not fixed.
These are the main differences between Equity and Debt. We can find more differences and also Pros and Cons of Equity vs Debt. You are welcome to share you own views on this. Just leave a comment below.
Posted under: Finance
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