What are the two main ways companies finance their operations?

Companies primarily finance their operations through two main avenues: debt and equity.

Debt financing involves borrowing funds that must be repaid over time, often with interest. This can come from various sources, such as bank loans, bonds, or credit lines. Companies utilize this method to leverage their capital and fund growth without diluting ownership among existing shareholders.

Equity financing, on the other hand, involves raising capital by selling shares of the company. This can be in the form of common stock or preferred stock. By issuing equity, companies can acquire necessary funds without the obligation to repay, as investors take on the risk of ownership and expect returns through dividends or appreciation of share value.

Together, debt and equity represent the foundational strategies for capital acquisition, allowing businesses to fund their operations, expand, and invest in new opportunities while balancing the trade-offs between risk, control, and return on investment.