Final answer:
To know if a company relies primarily on debt or equity to finance its assets, one should look at the company's balance sheet. Debt is represented by liabilities like long-term debt and bonds, while equity is indicated by items like common stock and retained earnings. Factors like control over operations and accountability to shareholders should be considered when choosing between borrowing and issuing stock.
Step-by-step explanation:
To determine whether a company relies primarily on debt or stockholders' equity to finance its assets, you would look at the company's balance sheet. The balance sheet will show you the proportion of debt (liabilities) and equity (shareholders' equity) that the company is using to finance its operations. Looking at items like long-term debt, bonds payable, and notes payable will give you an idea of the extent to which the company is leveraged, while common stock and retained earnings will indicate the extent of financing through stockholders' equity.
Regarding the choice between issuing stock and financial capital through borrowing, a company must consider the pros and cons of each option. Issuing stock results in dilution of ownership and becoming answerable to shareholders and a board of directors. Borrowing, such as through banks or bonds, involves committing to scheduled interest payments but allows the firm to maintain control over its operations.