Equity and debt are two broad classification of sources of
finance for any firm, these are not mutually exclusive. It is not as if a firm must
choose only one of the two type of sources of finance. A firm may choose to employ both
equity and debt in different proportion.
Also, usually
every firm starts with financing from equity, and uses debt to supplement equity, rather
than replace equity. It is quite rare to find firms with zero equity
finance.
Then it is important to note that within the broad
classification of equity and debt financing many different alternative form of finance
exist. For example equity finance includes alternatives like, direct money invested in
proprietorship or partnership firms or issue of shares.
The
issue of equity shares also presents different choices such as form of company (private
limited, public limited, cooperative,, etc.) and type of shares (ordinary, preference,
etc.). Similarly debt financing can also take many forms such as supplier credit, short
term bank loans, long term loans from banks or other institutions, fixed deposits from
the public, and debentures.
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