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Tarun Suthar

 • 

The Institute of Chartered Accountants of India • 21d

Equity vs. Debt - What’s Better for Business Funding? 🤔 Let’s 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 ₹500 interest Key Insight: Despite interest expense in B, the tax savings (₹150) make a significant impact. Result - Higher cashflow in Scenario B: ₹1050 vs. ₹900 in Scenario A. This is the power of the debt tax shield.🔥 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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