how do you determine if a company needs equity financing or debt financing?

Question

I understand the difference between the two. But I’m confused as to when would either be necessary especially in the context of pessimistic and optimistic sales forecast. Thank you in advance!

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Answer 1

Equity is where the company sells pieces of itself (stocks, etc) in exchange for money. That money isn’t a debt that the company must repay. The investors are paid as the value of the stock increases. Debt financing is exactly that, the company borrows the money and agrees to pay it back according to a specific schedule.