Enterprises should choose financing methods suitable for themselves based on their own financial and operating conditions, combined with macroeconomic policies.

◆ Consider the impact of the economic environment

The economic environment here refers to the macroeconomic conditions in which the financial activities of the enterprise are carried out. In the stage of rapid economic growth, in order to keep pace with the economic growth rate, enterprises need to raise funds to purchase fixed assets and inventories, and introduce talents. At this stage, enterprises can adopt financing methods such as issuing additional shares, issuing bonds, bank loans, etc. After the economic growth rate stabilizes, the demand for capital will gradually decline, and at this stage, enterprises should try to avoid the use of debt financing and gradually reduce the scale of debt financing.

◆ Consider the cost of capital for the financing method

The cost of capital refers to the price paid by the enterprise to raise funds, and the financing cost is inversely proportional to the financing income. Because the financing methods are different, the cost of capital is also different, in order to obtain more funds at a lower cost, enterprises should compare and analyze the capital costs of various financing methods, and try to choose low-cost financing methods.

◆ Consider the risks of the financing method

Different financing methods have different financing risks. Generally speaking, because debt financing requires regular repayment of principal and interest, and enterprises may not be able to repay on time for various reasons, thus inducing financing risks. Equity financing is less risky because it does not require regular repayment of principal and interest. If a company chooses debt financing, under the effect of financial leverage, if the company's EBIT declines, the after-tax profit and income will decline at a faster rate, which will induce financial risks and may even lead to bankruptcy. In this regard, several major investment banks in the United States have already learned from the past. Therefore, when choosing a financing method, enterprises must choose a financing method that is suitable for them according to their actual situation and the risks of different financing methods.

◆ Consider the profitability and development prospects of the enterprise

According to the general law, the profitability, financial status, liquidity and development prospects of an enterprise are all directly proportional to the ability to bear financial risks. If the company's investment rate of return is higher than the interest rate on debt funds, then the company's return on equity will increase with the increase of the company's liabilities, the owners of equity capital will make more profits, and the company's development prospects will be better. Therefore, if the company is in the stage of increasing profitability, it can give priority to debt financing. On the contrary, if the profitability, financial status and development prospects of the enterprise are not good, it is necessary to avoid using debt financing as much as possible to reduce financial risks.

If the profitability of the enterprise is strong and has the ability to expand its share capital, it can raise funds through new or additional stock issuance, and can choose equity financing or a combination of equity financing and bond financing to raise funds.

◆ Consider the degree of competition in the industry in which the enterprise is located

If the competition situation in the industry in which the enterprise is located is very fierce, the entry and exit threshold of the industry is low, and the profitability is declining, in this case, the enterprise should give priority to equity financing and use debt financing prudently. On the contrary, if the competition in the industry where the enterprise is located is not very fierce, the entry and exit threshold is high, and the sales profit of the enterprise is likely to achieve rapid growth, the enterprise can give priority to debt financing, increase the proportion of debt, and obtain financial leverage income.

◆ Consider the asset structure and capital structure of the enterprise

Generally speaking, if the proportion of fixed assets in the total assets of the enterprise is relatively high, the operation speed of the total assets will decrease, and the enterprise needs more equity funds to support. If the current assets account for a relatively high proportion of the total assets of the enterprise, the operation speed of the total assets will be accelerated, and the enterprise can raise funds through current liabilities.

Enterprises want to have a reasonable capital structure, and when the asset-liability ratio is too high, they should try to reduce the debt ratio; When the asset-liability ratio is too low and the financial policy is relatively conservative, we can seize the appropriate opportunity to expand the debt, share the benefits of financial leverage, and make the capital structure of the enterprise gradually perfect.

◆ Consider the control of the business

The issuance of common shares may result in dilution of control of the business and may even result in the loss of control of the business by the original shareholders of the company, whereas debt generally does not adversely affect the control of the business. Therefore, enterprises should make reasonable choices of financing methods based on their own circumstances.

◆ Consideration of changes in interest rates and tax rates

If interest rates are low at the moment, but there is a possibility that they will rise in the future, then companies can opt for debt financing in order to stabilize interest rates at a lower level. Conversely, if the current interest rate is high, the company can choose equity financing or current liability financing to reduce financial risk. From the perspective of tax rate, enterprises can obtain tax deduction benefits through debt financing, and this tax reduction benefit will increase with the increase of income tax rate. In this case, the business can opt for debt financing. Conversely, if debt financing has fewer tax deductions, companies will opt for equity financing.

To sum up, every enterprise has to face the problem of choosing a financing method. When choosing a financing method, an enterprise should comprehensively consider the internal and external factors that affect the choice of financing method, and choose a financing method with low cost, low risk and high value based on the specific situation.