Debt vs. Equity

The saying goes that "debt is almost always cheaper than equity". Equity is the ownership by yourself or others in your Broadcast enterprise. In most cases Equity is traded for investment. However equity is expensive IF your broadcast enterprise is growing in value or expected to do so.

Debt is an investment in the enterprise usually without giving up equity. On the surface Debt may seem more expensive than equity yet it is rarely so. The investment of cash or capital in broadcast equipment is a use of equity since it dillutes equity. In cases where cash is used, vs. debt, the cost of financing (using ones own cash) represents a loss of investment return (ROI) that the organization would have received on its own capital. Financial managers must ask themselves: "If my enterprise can attain a 10% return on its capital, and obtain financing at 6%,why not leverage debt in acquiring depreciating assets and retain our own capital for investments that appreciate such as organizational growth, projects, acquisitions, people, advertising, etc.