Question

1.Why is a financial structure of a mix of equity and debt finance being preferred in financing businesses?

2.Explain why people demand for money and how demand for money would have been influenced by Covid-19 epidemic?

  

Answer 1

Answer 1-Debt-Equity Mix is the combination of debt and equity that are used to finance companies asset. Debt equity mix is defined as the amount of permanent short – term debt, preferred stock and common equity used to finance a firm's assets. Debt-Equity Mix is also called capital structure.

Debt-Equity Mix is very useful to a firm because it is used to fund its day-to-day operations. These funds originates from equity, debt and hybrid securities. Debt-Equity Mix is preffered because it gives a clear picture he financial health and structure of the company. It is always used for analyzing a company's risk potential. The higher the company's debt-to-equity ratio the greater the risk of a potential investment and vice versa. It is helpful for investments decision making. It moderates risks in investments by tidying over volatility. It helps in proper allocation of resources to meet the financial goals of the company.