Finance4747

Companies can finance themselves in diferent ways.The most common ones are:

Through a loan. This gives the company the chance of having the money right away which means a big advantage although it also presents an important disadvantage to take into account and it’s the fact that it will be not only repaying the principal back but he will also have to pay a significant amount of interest rates.

It is also important to take into account the issue of bonds which also increases the company’s liquidity and, compared to shares, the company that issues it does not lose any of the management control. This self-financing way has an important tax shield. The disadvantage of issuing bonds is that as well as repaying the money back to the bondholders the company must also pay a quantitative interest rate for borrowing the investors money.

Another way in which self-financing companies increase their funds is by becoming a public company, which will involve issuing shares. This may cause several disadvantages because it entitles the shareholders to take part in important decisions. Another disadvantage of floating a company is that it demands for it to have always, when possible, a high turnover, good results, transparency and in conclusion a prosperous business. In the other hand it also presents some advantages such as the fact that the company will not be paying interest rates but only dividends and the amount can vary based on the company’s profits. It’s also important the fact that the original owners of the company can get back the total control of the company by buying back the shares.

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