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Tarun Suthar
ย โขย
The Institute of Chartered Accountants of Indiaย โขย 4m
Equity vs. Debt - Whatโs Better for Business Funding? ๐ค Letโs break it down with a simple example: Both scenarios (A & B) start with the same revenue and cost structure. But there's one key difference - the funding source. Scenario A: Funded entirely through equity Scenario B: Funded with debt, incurring โน500 interest Key Insight: Despite interest expense in B, the tax savings (โน150) make a significant impact. Result - Higher cashflow in Scenario B: โน1050 vs. โน900 in Scenario A. This is the power of the debt tax shield.๐ฅ However, while debt improves cashflow, it also increases financial risk. The optimal choice depends on your risk appetite and business stability. Moral: Leverage can work for you - if managed wisely. Note: Debt is better if ROI > Cost of Debt Would you go with equity or debt for your startup?
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