Companies can raise capital with either debt or equity . Each strategy has its own advantages and disadvantages. Debt usually costs less than equity due to tax advantages, especially when rates are low. However, debt also obligates the company to pay out a portion of future earnings, even when earnings are declining. By contrast, equity does not need to be paid back; however, equity comes with an exchange of ownership. Most companies use a mix of both debt and equity to raise capital. This mix is referred to as the capital structure. It is the goal of most public companies to operate at an optimal capital structure to maximize profits.