Two ways to raise ₹60 crore

Watch what each one costs.

A growing company needs **₹60 crore** to open new factories and shops. It can **borrow** the money, or **sell new shares** to an investor.

Both bring in the same ₹60 crore. Borrowing costs **interest**. Selling a slice costs **ownership**.

Debt and equity

• Debt a loan or a bond — Borrowed money. The company pays **interest** every year and repays the loan, in good years and bad. The lender owns nothing.
• Equity new shares — Money from selling new shares. No interest and nothing to repay, but the new investor now owns part of the company and its future profits.

A **bond** is debt too: the company borrows from many lenders at once instead of one bank. A company can also use its own past profits, called **internal accruals**.

**Remember:** debt costs interest; equity costs a slice of the company.

Which costs the owners more?

Switch between borrowing and selling, then change how the year goes.

Borrow ₹60 crore at **10%** (₹6 crore of interest a year), or sell **15%** of the company for ₹60 crore. How much of the year's profit ends up with the **original owners**?

**Remember:** borrowing is cheaper for owners when profits are high, but interest is due even in bad years. Selling shares is safer in bad years, but owners give up part of every good year too.

Example rate and profits. Taxes are left out to keep the idea simple.

Most companies mix

Tap each choice.

Companies rarely pick just one. They weigh what they have, what interest costs, and how much ownership they're willing to give up.

Selling shares also spreads the risk: each new owner shares in the good and bad years, as you saw with equity.

Check — Question 3 of 4

Put each one where it belongs.

What you now know

• A company can raise money by borrowing (debt) or selling new shares (equity).
• Debt costs interest every year and must be repaid; the lender owns nothing.
• Equity costs no interest but gives part of the company and its profits to new owners.
• A bond is debt from many lenders; internal accruals are the company's own profits.
• Debt suits owners when profits are high but hurts in bad years.
• Most companies use a mix.