Final answer:
Debt financing involves borrowing money from external sources, while equity financing involves selling ownership shares. Nike utilizes both debt and equity financing. They obtain debt financing through corporate bonds and raise equity financing through an IPO.
Step-by-step explanation:
Debt financing refers to borrowing money from external sources, such as banks or bondholders, to fund a company's operations or growth.
Equity financing, on the other hand, involves selling ownership shares of the company in exchange for capital. In the case of Nike, they utilize both debt and equity financing.
One way Nike obtains debt financing is by issuing corporate bonds. These are IOUs that Nike sells to investors in exchange for funds.
The company promises to pay back the principal amount with interest over a specified period of time. This allows Nike to borrow money while maintaining control and ownership of the company.
As for equity financing, Nike raises capital by selling shares of its stock to public investors through an initial public offering (IPO).
By doing so, individuals and other institutional investors can purchase ownership in Nike and become shareholders of the company.
This generates funds for Nike to use for various purposes, such as expanding operations or investing in research and development.