Question

Given your understanding of the characteristics of debt as well as equity financing, which in your view is ideal for financing healthcare operations? Under what circumstances would an operation employ both?

Explain your rationale.

Answer 1

Many companies are using debt and equity financing in a proportionate manner which is called optimal capital structure. So here we can understand that it is very important to keep debt instruments as well as equity in a company for its smooth and proper running. Incase of health operations care also we need some equity fund and debt instrument. The main advantage of equity financing is that there is no obligation to repay the money acquired through it. Of course, a company's owners want it to be successful and provide equity investors a good return on their investment, but without required payments or interest charges as is the case with debt financing. Here the company issue its own shares and herby they can raise capital. In health care operations also these type of funds are very essential and important. Equity financing places no additional financial burden on the company. Since there are no required monthly payments associated with equity financing, the company has more capital available to invest in growing the business. So if the company wish to avoid such burden they can use equity funds mostly.

Debt financing is another method to raise funds. Here the company can borrow money from outside with an obligation to repay later. Creditors look favorably upon a relatively low debt-to-equity ratio, which benefits the company if it needs to access additional debt financing in the future. There are many advantages by debt financing that are  the lender has no control over your business. Once you pay the loan back, your relationship with the financier ends. Next, the interest you pay is tax deductible. Finally, it is easy to forecast expenses because loan payments do not fluctuate etc. If the company needs optimal capital structure then they will go for operating both equity and debt.

ThankYou....