The Importance of Capital Structure Optimization: Balancing Debt and Equity

The capital structure in a company generally includes a mix of debt and equity. Business owners must manage this mix carefully, keeping things in balance to optimize profitability and value. Debt Financing vs. Equity Financing Debt financing involves borrowing money and paying it back with interest. The most common type is a loan from a bank or financial institution. There are tax benefits that come with debt financing, but too much debt can increase risk and impact cash flows. Debt financing may also come with restrictions depending on the terms of the loan.