Final answer:
To determine the amount of equity in a business, the Balance Sheet should be presented. It lists the assets, liabilities, and equity, with equity being assets minus liabilities. The choice between raising funds through debt or equity depends on several business factors.
Step-by-step explanation:
If a business owner wanted to know how much equity was in their business, the correct financial statement to provide would be b. Balance Sheet. This statement displays the company’s assets, liabilities, and equity at a specific point in time. Equity is calculated by subtracting total liabilities from total assets, and is represented as the owner’s or shareholders’ residual claim on assets after all liabilities are paid off. Therefore, the balance sheet gives a clear picture of the equity in the business.
In regards to the critical thinking question, if I owned a small firm that needed capital for a major expansion, the decision between borrowing (debt financing) or issuing stock (equity financing) would depend on various factors. Considering debt financing, the cost is limited to interest payments, and the debt will eventually be paid off. However, it comes with the obligation to make repayments regardless of business performance. Issuing stock dilutes ownership but does not require repayments and can bring additional benefits, such as the expertise of new investors. The choice between these financing options would depend on the current financial situation, future revenue projections, and the overall strategy and vision for the company.