Eignafjármögnun

Eignafjármögnun, a term originating from Icelandic, translates to "equity financing" in English. It refers to the process by which a company raises capital by selling shares of its stock to investors. Unlike debt financing, where a company borrows money that must be repaid with interest, equity financing involves giving up ownership stakes in the company in exchange for funds.

When a company issues new shares, it is essentially offering a portion of its ownership to the public or private investors. These investors, in turn, become shareholders and have a claim on the company's future profits and assets. The capital raised through eignafjármögnun can be used for various purposes, such as expanding operations, funding research and development, acquiring other businesses, or paying off existing debt.

There are several advantages to eignafjármögnun. Primarily, it does not create a fixed repayment obligation, which can be crucial for companies with unpredictable cash flows. Additionally, it can strengthen a company's balance sheet by increasing its equity base. However, a significant drawback is the dilution of ownership for existing shareholders. By selling more shares, the percentage of ownership held by current shareholders decreases. Furthermore, the company may have to share future profits with the new shareholders. The decision to pursue eignafjármögnun often depends on a company's financial situation, growth prospects, and the prevailing market conditions.