Which is better - own funds or borrowed?

carrying out economic activities, each company must have capital to invest in the formation of assets.It includes the total value of all assets in tangible and intangible form.Multidimensional nature of the concept of "capital" is characterized by dozens of definitions, but in this case will be considered types of capital accessories company, which allocate their own funds and borrowings.

Loan capital involves raise funds (bank credit, trade credit, financial leasing, emission or other assets) on a return basis, which is carried out with the help of venture funding.All of his forms are financial obligations that an entity must repay on time.By validity, they may be short-term - up to one year, and long-term - more than a year.

Own funds are characterized by the fact that they belong to the company's ownership and used for its development.They have the ability to generate higher profits in any industry because its use does not have to pay interest on loans.Assets generated at their expense, net assets are the company that provides its financial stability.

main sources of own resources are external and internal.To the outside are: the share capital (the amount of funds provided by the owners for activities);repayable financial assistance to enterprises;attraction of the share of additional capital and so forth.

The structure of domestic sources includes: income remaining at the enterprise;depreciation, etc.

high business results depend on the structure of capital employed.This structure - the ratio of own and borrowed funds involved in the process and affect the return on assets, the stability and solvency of the company and determines the ratio of risk and profitability during the development of the company.

Therefore, if the company only uses its own funds, it has great financial strength.However, it limits the same pace of growth, without the ability to generate additional volume of assets and growth without using return on investment.

businesses using only debt, has great potential for development and the possibility of growth in profitability, but it generates a large extent the financial risk and bankruptcy, which increases with the proportion of borrowed funds to the total mass of capital.

In practice, we can see that there is no single recipe for how much of the use its own funds and borrowings.However, there are a number of factors, taking into account that can be purposefully shape the structure, providing the necessary conditions for effective work of the enterprise.