Capital structure and shareholder dilution

Two companies can report identical profit and still leave shareholders in very different positions, depending on how that company chose to fund itself and what it does with the cash once it has it. Those choices don't show up in a single ratio. They show up in a pattern, tracked over time.

Debt versus equity

A company that needs money to grow has two basic choices. It can borrow, taking on debt that must be repaid on a fixed schedule regardless of how the business performs that year, in exchange for interest payments that are typically tax deductible. Or it can raise equity, selling new ownership stakes that carry no repayment obligation at all, in exchange for permanently giving up a slice of every future dollar the company earns to whoever holds those new shares.

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