An Overview About Financing Firms

1633 Words Dec 10th, 2015 7 Pages
An Overview about Financing Firms

This essay aims to explain why some firms issue marketable debt and why some issue non-marketable debt and who is more likely to issue one type of debt rather than the other one.
I will start defining the debt and, then, distinguishing it between marketable and non-marketable.
Then I will make an overview about the previous literature, which has analysed the different ways in which companies can finance themselves and which way is more suitable for different types of firms.
Debt - How to Finance a Firm?
Firms to carry out their business needs to finance themselves to raise the necessary financial resources.
A company can finance itself in two different ways: using its own money with methods of internal finance or raising funds from external players/investors through, indeed, external finance.
The two typical instruments of external finance resources that a firm can employ to raise future cash flows are the debt claims and the equity claims.
An equity is, basically, a part of the stock of a company, which external investors buy becoming shareholders of the company and receiving annual dividends, if the company at the end of the fiscal year has reached a sufficient amount of profit.
A debt, instead, is in general an amount of money borrowed from one party to another. A debt instrument gives to the borrower a claim towards a person, a company or whoever is the lender, under some conditions, such as the interest rate and the date…
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