Cost
The cost of raising funds from different sources are different. A wise finance manager opt for the cheapest source of finance.
Cash Flow Position of the Company
A stronger cash flow position may make debt financing more viable than funding through equity.
Control Considerations
Issue of more equity may dilute shareholders’ control over the business. Therefore, a company afraid of a takeover bid may prefer debt to equity.
Floatation Cost
If the floatation cost, i.e. the expenses incurred in issue of debt is higher, the source of finance becomes less attractive.
