Question

How you would weigh the risks involved in your corporate long-term funding strategy to ensure you would not jeopardize success and the expectations of investors?

Answer 1

First we need to identify the revenue streams of our company, the sole crieteria is how much sales the company is generating.If the company is generating good volume of sales and the trend is moving upwards, the we can move on.

Generally two types of funding are there-

• Debt
• Equity  

If the company is generating good amount of cash flows then funding through debt can be good but if the cash flows are not regular financing through debt can be risky because debt carries interset burden with it.

On the other hand, the company can raise equity if they don't want the interest burden and raise money through IPO( Initial public Offer).

Both the strategies for fund raising are good but corporate should keep in mind that it does not increses the risk for investors.Like, if the company finances debt funding contionously then, it upwards the risk for shareholders and on the other hand, company would now need to compensate more to the shareholders in term of dividend and capital appreciation.

But,if the company employs more funding through equity, then it gets costlier because equity is costlier source of fund and dilution of control is there.

So, company should take in mind these two impacts before the funding strategies.