Final answer:
Two methods of equity financing that increase stockholders' equity are issuing stock, which provides capital without repayment obligations, and reinvesting profits back into the company. Issuing stock makes a company visible in financial markets but requires regulatory compliance and professional services, while reinvested earnings come from a company's profitable operations.
Step-by-step explanation:
Two sources of equity financing that increase stockholders' equity are issuing stock and earning profits that are reinvested in the company. Issuing stock allows a firm to raise capital without the need to repay the money, enhancing its visibility in the financial markets.
This method involves selling ownership of the company to the public, hence, aligning the company to work for the interests of the board of directors and the shareholders. When a firm earns profits, the board of directors has the option to provide a dividend payout or reinvest the earnings into the company to spur further growth. Reinvested profits that are retained within the company also increase stockholders' equity.
However, issuing stock comes with certain caveats. It is an expensive process requiring professional services from investment bankers and attorneys and adherence to reporting regulations set forth by the SEC. Additionally, once a company goes public, it becomes accountable to its shareholders.
Alternatively, while debt financing such as bank loans or bonds comes with a requirement for interest payments regardless of a company's income, equity financing ensures company control is not compromised, as it would be when borrowing funds. Whether it's through issuing stock or reinvesting retained earnings, both methods elevate the financial health of the company by boosting stockholders' equity.