Comparison between debt finance and ordinary share capital, Finance Basics

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Comparison between Debt Finance and Ordinary Share Capital

Differences between Debt Finance and Ordinary Share Capital as Equity Finance as

 

Ordinary share capital

 

Debt

a)

b)

c)

d)

e)

f)

g)

h)

i)

It is a permanent finance

Return paid when available

Dividends are not tax allowable

Unsecured finance

Carry voting rights

Reduces gearing ratio

No legal obligation to pay

Has a residue claim

Owners' money

a)

b)

c)

d)

e)

f)

g)

h)

i)

It is refundable (redeemable)

It is fixed return capital

Interest on debt is a tax allowable expense

Secured finance

No voting right

Increases gearing ratio

A legal obligation to pay

Carries a superior claim

Creditors finance.

 


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