How would you describe equity financing versus debt financing?

• A. Re-lies on borrowing and must be repaid with interest.
• B. Involves government grants with no ownership.
• C. Raises funds with ownership stakes.
• D. Uses internal profits only.

Answer: (C)

Equity financing involves raising money by selling ownership in the company. Investors who buy the shares become part owners and may participate in profits and some control, but there’s no obligation to repay them on a fixed schedule. This is why describing it as raising funds with ownership stakes is the best way to capture its essence. In contrast, debt financing borrows money that must be repaid with interest, with no ownership transferred to lenders. Government grants or reinvesting internal profits describe funding that doesn’t involve selling ownership or external borrowing, respectively.