PROGRAMME: CONSTRUCTION TECHNOLOGY AND MANAGEMENT (CTM3B)

COURSE: FINANCIAL MANAGEMENT AND PROJECT ACCOUNTING

GROUP ASSIGNMENT:

INDEX NUMBER.
25. MATEY - KORLEY Caleb. 8061719
26. MENSAH Abdul - Nazid. 8061919.
27. MENSAH Bright. 8062019.
28. MENSAH David Nii Martey. 8062119.
29. MUSTAPHA Chahal Kwakye. 8062219.
30. OSEI ADDO Spendilove. 8063219.
31. NANI - TOME Jake. 8062319.
32. NARH Foster. 8062419.
33. NEEQUAYE Andrew. 8062519
34. NEWMAN Andrew Tetteh. 8062719.
35. NINSON Obed. 8062819. 36. SOLOMON
Emmanuella. 8064319
An Overview
To raise capital for business needs, companies primarily have two types of financing as an
option: equity financing and debt financing. Companies usually have a choice as to whether to
seek debt or equity financing. The choice often depends upon which source of funding is most
easily accessible for the company, its cash flow, and how important maintaining control of the
company is to its principal owners. The debt-to-equity ratio shows how much of a company's
financing is proportionately provided by debt and equity.

KEY TAKEAWAYS
There are two types of financing available to a company when it needs to raise capital

Debt Financing.
Debt financing involves the borrowing of money and paying it back with interest. The most
common form of debt financing is a loan. Debt financing sometimes comes with restrictions on
the company's activities that may prevent it from taking advantage of opportunities outside the
realm of its core business. Creditors look favorably upon a relatively low debt-to-equity ratio,
which benefits the company if it needs to access additional debt financing in the future.

The advantages of debt financing are numerous.

• First, the lender has no control over your business. Once you pay the loan back, your
relationship with the financier ends. The main advantage of debt financing is that a
business owner does not give up any control of the business as they do with equity
financing.

• Next, the interest you pay is tax-deductible.

• Finally, it is easy to forecast expenses because loan payments do not fluctuate. It easier
for small businesses to secure funding.

The downside to debt financing is very real to anybody who has debt.

• Debt is a bet on your future ability to pay back the loan.

What if your company hits hard times or the economy, once again, experiences a meltdown?
What if your business does not grow as fast or as well as you expected? Debt is an expense and
you have to pay expenses on a regular schedule. This could put a damper on your company's
ability to grow.
• Interest must be paid to lenders
• Payments on debt must be made regardless of business revenue
• Debt financing can be risky for businesses with inconsistent cash flow
 • Finally, although you may be a limited liability company (LLC) or other business entity
that provides some separation between the company and personal funds, the lender may
still require you to guarantee the loan with your family's financial assets

Equity Financing
Equity financing is the process of raising capital through the sale of shares. Companies raise
money because they might have a short-term need to pay bills or have a long-term goal and
require funds to invest in their growth. By selling shares, a company is effectively selling
ownership in their company in return for cash

For example, the owner of Company ABC might need to raise capital to fund business
expansion. The owner decides to give up 10% of ownership in the company and sell it to an
investor in return for capital. That investor now owns 10% of the company and has a voice in all
business decisions going forward.

• The main advantage of equity financing is that there is no obligation to repay the money
acquired through it. Of course, a company's owners want it to be successful and provide
the equity investors with a good return on their investment, but without required
payments or interest charges, as is the case with debt financing.
• Equity financing places no additional financial burden on the company. Since there are
no required monthly payments associated with equity financing, the company has more
capital available to invest in growing the business.
• Credit issues gone.
• Learn and gain from partners.

In fact, the downside is quite large.

• In order to gain funding, you will have to give the investor a percentage of your
company.
• You will have to share your profits and consult with your new partners any time you
make decisions affecting the company.
• The only way to remove investors is to buy them out, but that will likely be more
expensive than the money they originally gave you.
• Potential conflict

Why Would a Company Choose Debt Over Equity Financing?

A company would choose debt financing over equity financing if it doesn't want to surrender any
part of its company. A company that believes in its financials would not want to miss on the
profits they would have to pass to shareholders if they assigned someone else equity.