What is capital mix?

What is capital mix?
Capital mix is the mixture between debt financing and equity financing. Debt financing result in liabilities which typically have a fixed interest rate and must be paid back in a given period of time. An example would be over 30 years at 6% interest. Equity financing would be investments by investors purchasing stock or retained earnings from company profits over time. Stockholders may not have to be paid back but they do expect to be able to sell their stock at a higher price in the future. This is where the saying comes from that states buy low, sell high. If you sell stock and have pofits then you must share your profit with other users. Many company owners do not want to share their profits. They take a risk that they can pay off their fixed debt. If the company does not pay the debt or does not generate enough cash to pay their debts this can rsult in insolvency. The amount of risk the owners of the company are willing to take or the amount they desire to share results in the capital mix.

Glenn Smith, MBA
Glenn Smith Accounting, Inc.
Maple Valley, Washington