What is the relationship between equity financing and asset liability ratio?

The asset-liability ratio, also known as the debt-to-operation ratio, is used to measure the ability of an enterprise to use creditors to provide funds for business activities, as well as an indicator that reflects the safety of creditors in issuing loans.

Equity financing refers to the financing method in which the shareholders of an enterprise are willing to give up part of the ownership of the enterprise, introduce new shareholders through the capital increase of the enterprise, and increase the total share capital at the same time.

The company does not need to repay the principal and interest of the funds obtained from equity financing, but the new shareholders will share the profits and growth of the enterprise with the old shareholders.

Debt-to-asset ratio.

Total Liabilities Total Assets*100

The higher the debt ratio, the worse the ability to pay debts. When the debt ratio is greater than 95, it can basically be regarded as insolvent.

If a company has a strong preference for debt, then its debt-to-asset ratio will be high, its solvency will be weakened, and its cash flow will be reduced.

stressful; If a company is only biased towards equity, then the cost of capital is too high, because there is no leverage, and the return on investment will also drop significantly.

There are two ways of equity financing: one is listing financing (public offering), including: main board financing (A-shares, small and medium-sized board financing, and GEM.

financing, financing in overseas markets; The second is unlisted financing, that is, enterprises can obtain financing without listing, which is called private equity financing.

For debt investment, the most important thing is whether the principal can be recovered on time, and secondly, whether the interest and income meet the requirements.

In summary, the asset-liability ratio is too high and is not conducive to equity financing.

We all know that the total assets of the business = total liabilities + owners' equity.

Debt-to-asset ratio = total liabilities Total assets, the debt-to-asset ratio also reflects what we often call the capital structure. In the course of an enterprise's operation, a certain amount of debt management can improve the operating efficiency of the enterprise. However, if the debt is too high, it will affect the solvency of the enterprise, which in turn will affect the cash flow of the enterprise, and eventually the enterprise will go bankrupt due to the rupture of cash flow.

Equity financing is a type of financing that does not require interest payments, and directly forms the ownership equity of the enterprise. When debt is relatively high, the use of equity financing can improve the capital structure of the enterprise. The cost of equity financing is relatively high, because equity financing bears a relatively large risk, although it does not require the payment of interest, but the required return on investment is relatively high.

At the same time, the qualifications and review of equity financing, especially the equity financing of listed companies, are more stringent.

Equity is a comprehensive right of the shareholders of a limited liability company or a shareholder of a limited liability company to the company's personal and property rights. That is, equity is the right of shareholders to obtain economic benefits from the company and participate in the operation and management of the company based on their shareholder qualifications.

The debt-to-assets ratio is the percentage of total liabilities divided by total assets at the end of the period, that is, the ratio of total liabilities to total assets. The debt-to-asset ratio reflects the extent to which the total assets are financed through borrowing, and can also measure the extent to which a company protects the interests of creditors in liquidation. The debt-to-asset ratio is an indicator that reflects the ratio of capital provided by creditors to total capital, also known as the debt-to-operating ratio.

Debt-to-asset ratio = total liabilities[1] Total assets.

One has to be returned, and the other does not have to be returned.

What is Equity Financing and What is Debt Financing? What's different, and how do companies make trade-offs?

At present, equity financing and debt financing are the two financing methods that have been discussed a lot, and only by choosing a good financing method can the enterprise successfully complete effective financing.

1. Equity financing.

The so-called equity financing means that the shareholders of the enterprise are willing to partially transfer the ownership of the enterprise, in this way to attract new shareholders to join, so as to obtain the funds needed for the development of the enterprise. The advantages of equity financing are obvious, first of all, the use of funds is long, secondly, equity financing does not have the financial pressure of regular repayment, and the financial risk is relatively small, at the same time, equity financing can also enhance the credit and strength of enterprises.

However, the disadvantages of equity financing are also obvious, first of all, the enterprise will face the risk of dispersion and loss of control, and the other is the high cost of capital. From the perspective of characteristics, the funds obtained from equity financing are permanent, there is no time limit, and there is no question of return. For investors, the only way to recover funds is to use the circulation market.

2. Debt financing.

To put it simply, debt financing is the way that enterprises borrow money to finance. Compared with equity financing, debt financing requires interest payments, and such payments are periodic, which creates greater financial risks. In addition, the funds obtained through debt financing are mainly used to solve the problem of shortage of working capital of enterprises, and their use is relatively narrow.

However, it has the advantage that control of the company is not affected, the financing cost is relatively low compared to equity financing, and it also has the advantage of financial leverage. The biggest feature of debt financing is that it requires the enterprise to pay the price of interest, but the creditor generally does not have the possession of the control of the enterprise, so that the enterprise can develop in the established direction.

In fact, whether it is equity financing or debt financing, there will be obvious advantages, but also certain disadvantages. When choosing a financing method, enterprises should choose according to their own characteristics, such as the use of funds, financial pressure, and the importance of corporate control, which are all issues that need to be considered before financing.

1.Equity: Advantages: No need to return, Disadvantages: cumbersome procedures, equity dilution.

2.Bonds: Advantages: Relatively simple procedures than equity financing, leveraged operation. Disadvantages: Pressure to repay the principal at maturity.

The relationship between the equity ratio and the asset-liability ratio is: asset-liability ratio Equity multiplier = equity ratio. According to the law, the equity ratio is the ratio of the total amount of liabilities to the total amount of owners' equity, the equity ratio = total liabilities and shareholders' equity 100%, and the equity multiplier = total assets and total shareholders' equity.

Article 10 of the Enterprise Reporting Act.

The income statement is a statement that reflects the operating results of an enterprise in a certain accounting period. The income statement shall be itemized according to the categories of income, expenses and items constituting profits. Among them, the definition and listing of income, expenses and profits shall comply with the following provisions:

1) Income refers to the total inflow of economic benefits generated by an enterprise in its daily activities such as selling goods, providing labor services, and transferring the right to use assets. Revenue does not include payments collected on behalf of third parties or customers. On the income statement, income should be itemized according to its importance.

2) Expenses refer to the outflow of economic benefits incurred by enterprises in their daily activities such as selling goods and providing labor services. On the income statement, the expenses should be itemized according to their nature.

3) Profit refers to the operating results of an enterprise in a certain accounting period. On the income statement, the profit shall be listed separately according to the composition of the profit, such as the operating profit, the total profit and the net profit.

Debt financing and equity financing are both direct financing with the characteristics of high liquidity, dispersion, large credit difference, partial irreversibility and relatively strong autonomy, which are represented by bonds and **, and the yields between them affect each other. Because in general, under the effect of market laws, the change in the yield of one financing means in the market will cause the yield of another financing means to change in the same direction.

There are five main differences between them:

1.The rights are different. Bonds are bond certificates, and the economic relationship between bondholders and bond issuers is a creditor-debt relationship, and bondholders can only receive interest on time and recover the principal at maturity, and have no right to participate in the company's business decisions.

It is a certificate of ownership, and the owner is a shareholder of the issuing company, and shareholders generally have the right to vote, and can participate in the deliberation and voting of major matters of the company by participating in the general meeting of shareholders to elect directors, and exercise the right to make decisions and supervise the company's operation.

2.The purpose and subject of issuance are different. The issuance of bonds is the company's need for additional funds, which is a liability of the company, not capital.

The issuance of ** is the need for the creation and capital increase of the joint-stock company, and the funds raised are included in the company's capital. Moreover, there are many economic entities that issue bonds, such as ****, local **, financial institutions, companies and enterprises, etc., which can generally issue bonds, but the only economic entities that can issue bonds are shares.

3.The term is different. Bonds generally have a specified repayment period, and the debtor must repay the principal on time at the end of the period, so a bond is a fixed-term bond**.

Usually there is no need to repay, once the investment is invested, the shareholder cannot withdraw the principal from the joint-stock company, so it is a kind of indefinite, or "permanent". However, holders can recoup their invested funds through market transfers.

4.The benefits are different. Bonds usually have a defined coupon rate and receive a fixed interest rate. **The dividend is not fixed and generally depends on the company's operating conditions.

5.The risks are different. **Higher risk, less risk for bonds.

This is because: first, bond interest is a fixed expense of the company and belongs to the scope of expenses; ** Dividends are a portion of the company's profits, and the company can only pay profits if it makes a profit, and the order of payment is listed after bond interest payments and taxes. Second, if the company goes bankrupt and the liquidation of assets has a balance to repay, the bonds will be repaid first, and the ** will be repaid later.

Third, in the secondary market, bonds are relatively stable because of their fixed interest rates, fixed maturities, and market conditions; **There is no fixed term and interest rate, affected by various macro factors and micro factors, the market fluctuates frequently, and the range of ups and downs is large.

Common debt financing methods for enterprises include: bank loans, ** loans, corporate bonds, etc.; Common equity financing methods include: direct investment, issuance**, private equity**, etc.

First of all, the risks are different:

For enterprises, the risk of equity financing is usually smaller than the risk of debt financing, and compared with the development of corporate bonds, the company does not have a fixed interest payment pressure, and the common shares do not have a fixed maturity date, so there is no financing risk of repayment of principal and interest; When the company is not operating well, it may face huge pressure to pay interest and repay debts, resulting in the rupture of the capital chain and bankruptcy, therefore, the financial risk faced by the issuance of bonds by enterprises is high.

The cost of capital is different.

Theoretically, the cost of equity financing is higher than that of debt financing because:

On the one hand, from the investor's point of view, the risk of investment is higher, and the required return on investment will also be higher;

On the other hand, for the financing company, dividends are paid from after-tax profits and are not tax deductible;

The interest expense of debt funds is paid before tax and has the effect of tax deduction. As a result, the cost of equity financing is generally higher than the cost of debt financing.

The influence on control is not the same.

Although debt financing will increase the financial risk capacity of the enterprise, it will not dilute the equity of shareholders, and will naturally not reduce the control of shareholders over the company.

The issuance of ordinary shares is the permanent capital of the company, which is the basis for the normal operation of the company and the protection against risks. The increase of sovereign capital is conducive to increasing the credit value of the company, enhancing the company's credibility, and can provide strong support for the enterprise to issue more debt financing. When the company's profit increases, the enterprise can obtain greater capital leverage income by issuing bonds, and the enterprise can also issue convertible bonds and redeemable bonds, so as to adjust the company's capital structure more flexibly and actively, and its capital structure tends to be reasonable.

Hebei Shunjie litigation guarantee.

1. Different risks: For companies, the risk of equity financing is smaller than that of debt financing.

2. Different financing costs: Theoretically speaking, the cost of debt financing is lower than the cost of equity financing, and there are two reasons for this:

1. The interest on the bond is paid before tax and can be deducted from a part of the income tax;

2. The risk of bond investment is less than that of ** investment, and the yield required by the holder is lower than that of ** holder.

3. Impact on control: Although the debt financing of different companies will increase the financial risk of the company, it is conducive to maintaining the ability of existing shareholders to control the company.

Fourth, it is affected by information asymmetry differently: the information asymmetry in financing is manifested between the first person of funds and the demander.

The difference between debt financing, equity financing, and PE financing.

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