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Capital Structure Demystified: Debt vs. Equity – Which Strategy Should You Choose?

  • Writer: Collate Institute
    Collate Institute
  • Jun 24
  • 3 min read

💭 Starting or scaling a business? One of the biggest financial decisions you’ll face is how to fund it. Should you take a loan? Or bring in investors? Welcome to the world of capital structure—the way companies blend debt and equity to power their growth.

Let’s make this topic real and relevant by comparing two of India’s most iconic companies: Reliance Industries and Infosys.

What Is Capital Structure (And Why Should You Care)?

In simple terms, capital structure is how a company funds its operations. It’s usually a mix of:

  • Equity Capital – money from shareholders or investors (no repayment, but shared ownership)

  • Debt/Borrowings – money borrowed from banks or markets (needs repayment with interest, but ownership stays with you)

🔍 Why does this matter? Because the right funding strategy can accelerate your growth or weigh you down.

🏢 Case Study 1: Reliance Industries – Mastering High


Debt

📉 Balance Sheet Highlights (Mar 2025):

  • Equity Capital: ₹13,532 Cr

  • Borrowings: ₹3,69,575 Cr

  • Reserves: ₹8,29,668 Cr

At first glance, Reliance seems overloaded with debt—but here’s the twist:

✅ It operates in capital-intensive industries like oil, telecom, and retail

✅ Debt allows it to expand aggressively without giving up control

✅ Its returns outperform interest costs, making debt a smart move

💡 Lesson: For big, asset-heavy businesses, strategic borrowing can drive success.

The Balance Sheet of Reliance Industries indicates a steady rise in borrowings from 2014 to 2025, highlighting the company's expanding financial activities and liabilities over this period.
The Balance Sheet of Reliance Industries indicates a steady rise in borrowings from 2014 to 2025, highlighting the company's expanding financial activities and liabilities over this period.

💻 Case Study 2: Infosys – Low Debt, High Trust


📊 Balance Sheet Highlights (Mar 2025):

  • Equity Capital: ₹2,073 Cr

  • Borrowings: ₹8,227 Cr

  • Reserves: ₹93,745 Cr

Infosys keeps things lean on the borrowing front—and it works because:

✅ It operates in the IT services sector, which doesn’t need heavy capital

✅ It has steady cash flows and high profit margins

✅ Low debt means greater financial flexibility and investor confidence

💡 Lesson: For tech and service companies, equity and retained earnings fuel growth more sustainably.

Analysis of Infosys Balance Sheet: No Borrowings until 2019 and Minimal Borrowing through 2025 Despite Increasing Total Assets and Liabilities.
Analysis of Infosys Balance Sheet: No Borrowings until 2019 and Minimal Borrowing through 2025 Despite Increasing Total Assets and Liabilities.

✅ Quick Comparison: When Debt or Equity Makes Sense

Situation

💰 Use Debt

📈 Use Equity

Industry Type

Infrastructure, Manufacturing

IT, Consulting, Startups

Cash Flow

Predictable

Uncertain or seasonal

Growth Goals

Fast expansion

Gradual, organic growth

Cost of Borrowing

Low interest environment

High interest or risk-averse

From an Investor's Perspective: Which One Wins?

When it comes to investing, understanding a company’s capital structure can help you predict its risk, returns, and stability. Here's how each approach plays out for investors:


Reliance Industries: High-Risk, High-Reward

  • Volatility: More sensitive to interest rate changes and debt servicing pressure.

  • Upside Potential: Uses borrowed funds to scale fast, which could mean higher returns if execution is strong.

  • Investor Takeaway: Best suited for those with moderate-to-high risk tolerance who believe in the company’s strategic vision.

Infosys: Safe, Predictable Growth

  • Stability: Minimal debt = lower risk during economic slowdowns.

  • Consistent Dividends: Equity-funded models tend to return more to shareholders.

  • Investor Takeaway: A good pick for long-term, risk-averse investors who value stability over aggressive returns.


🧠 Pro tip for investors: Don’t just look at profits—look at how the company got there. How they fund growth can be just as important as how much they grow.

🎓 Final Insight: There’s No “One Right Answer”

Whether you're launching a startup or managing a growing company, your capital structure should align with:

  • Your business model

  • Your industry

  • Your growth stage

  • Your risk appetite

Both Reliance and Infosys are thriving—but with very different approaches. That’s the magic of capital structuring: it’s about finding the right balance for your business.

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