| Factor | Use sources of debt capital | Use sources of owned capital |
| Cash flow position | If the cash flow position is good the business may use debt | If the cash flow position is poor the business may use equity. |
| Interest coverage ratio | If the interest coverage ratio is high the business may use debt | If the interest coverage ratio is low the business may use equity. |
| Debt service coverage ratio | If the debt service coverage ratio is high the business may use debt. | If the debt service coverage ratio is low the business may use equity. |
| Return on investment | If the interest coverage ratio is high the business may use debt | If the interest coverage ratio is low the business may use equity. |
| Cost of debt | If the cost of debt is low the business may use debt. | If the cost of debt is high the business may use equity |
| Cost of equity | The company may use debt up to a certain limit so that shareholders do not expect higher returns on equity. Shareholders expect higher returns when the company uses debt beyond a point due to increase in the financial risk, so the cost of equity increases. | |
| Tax rate | If the tax rate is high the business may use debt | If the tax rate is low the business may use equity. |
| Floatation costs | The floatation costs is lesser on using debt. | If the tax rate is low the business may use equity. |
| Financial risk consideration | If the financial risk is low the business may use debt. | If the financial risk is high the business may use equity |
| Flexibility | Too much use of debt reduces flexibility to raise more debt. | If the business doesn’t want to restrict its flexibility, it may issue equity. |
