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Eigenfinanzierung

What Is Eigenfinanzierung?

Eigenfinanzierung, also known as equity financing, refers to the process by which a company raises capital by issuing ownership shares to investors, rather than by incurring debt. As a core component of Unternehmensfinanzierung, it involves all measures that provide a company with additional Eigenkapital. This capital can either originate from internal sources, known as Innenfinanzierung, or from external sources, termed Außenfinanzierung. Unlike debt, equity financing typically does not require repayment of the principal amount or fixed interest payments, giving the company greater financial flexibility.,27
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History and Origin

The concept of equity financing has roots in the ancient world, with early forms of shared ownership in ventures like maritime trade. However, the modern form of equity financing, particularly through transferable shares, evolved significantly with the advent of joint-stock companies. These structures emerged in Europe as early as the 13th century, but gained prominence in the 16th century to fund large-scale, risky ventures such as overseas exploration and colonial expansion., 25Early examples include the English East India Company, chartered in 1600, which allowed multiple investors to pool resources and share the substantial risks involved in long-distance trade.,24
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Initially, shareholders in these companies often faced unlimited liability, meaning their personal assets could be seized to cover company debts. This changed gradually with the development of corporate law, which introduced the concept of limited liability, thereby encouraging more widespread investment. A notable historical moment impacting equity financing was the British "Bubble Act" of 1720, enacted in response to speculative bubbles like the South Sea Bubble. This act aimed to curb the formation of unincorporated joint-stock companies, influencing the legal framework for equity issuance for over a century. [Britannica source]

Key Takeaways

  • Eigenfinanzierung involves obtaining capital from company owners or by retaining profits, increasing the company's Eigenkapital.
  • It can be sourced internally (e.g., retained earnings) or externally (e.g., issuing new shares).
  • Equity financing provides capital that typically does not need to be repaid, enhancing financial independence.
  • A higher proportion of equity often improves a company's creditworthiness and resilience to financial shocks.
  • Unlike debt, equity investors generally have a claim on the company's profits and losses, and may have voting rights.

Formula and Calculation

While Eigenfinanzierung itself isn't a single calculated formula, its impact is reflected in a company's financial statements, particularly the Bilanz. The total equity (Eigenkapital) is calculated as:

Eigenkapital=Vermo¨genswerteVerbindlichkeiten\text{Eigenkapital} = \text{Vermögenswerte} - \text{Verbindlichkeiten}

Alternatively, broken down by asset types:

\text{Eigenkapital} = \text{Anlagevermögen} + \text{Umlaufvermögen} - \text{Fremdkapital} $$,, [^22^](https://www.studysmarter.de/ausbildung/kaufmaennisch/buchhaltung/eigenkapital/)W[^21^](https://www.lbs.de/finanzieren/finanzierungsrechner/eigenkapital-berechnen.html)h[^20^](https://agicap.com/de/artikel/eigenkapital/)ere: * **Vermögenswerte** (Assets): All resources owned by the company, including Anlagevermögen (long-term assets like property and equipment) and [Umlaufvermögen](https://diversification.com/term/umlaufvermoegen) (short-term assets like cash and inventory). * **[^19^](https://www.studysmarter.de/ausbildung/kaufmaennisch/buchhaltung/eigenkapital/)Verbindlichkeiten** (Liabilities): All financial obligations owed to external parties, representing [Fremdkapital](https://diversification.com/term/fremdkapital). * **[^18^](https://www.studysmarter.de/ausbildung/kaufmaennisch/buchhaltung/eigenkapital/)Fremdkapital** (Debt Capital): Capital provided by external lenders that must be repaid. A key ratio derived from equity is the [Eigenkapitalquote](https://diversification.com/term/eigenkapitalquote), which indicates the proportion of total assets financed by equity. It is calculated as:

\text{Eigenkapitalquote} = \frac{\text{Eigenkapital}}{\text{Gesamtkapital}} \times 100%

Wher[^17^](https://info.swisspeers.ch/glossar/eigenfinanzierungsgrad)e[^16^](https://www.whk-controlling.de/wissen/eigenkapital-berechnen) [Gesamtkapital](https://diversification.com/term/gesamtkapital) is the sum of Eigenkapital and Fremdkapital, equivalent to total assets. ## Interpreting the Eigenfinanzierung The level of Eigenfinanzierung within a company's capital structure is a crucial indicator of its financial health and stability. A higher [Eigenkapitalquote](https://diversification.com/term/eigenkapitalquote) generally signals greater financial independence and lower risk for lenders and investors. This is because a substantial equity base provides a buffer against losses, reducing the likelihood of insolvency. Companies with strong Eigenfinanzierung are typically perceived as more creditworthy, potentially allowing them easier access to future debt financing on favorable terms., Conve[^15^](https://www.abcfinance.de/glossar/finanzierung/eigenfinanzierung/)r[^14^](https://www.svea.com/de-de/uber-uns/news-und-blog/was-gehoert-alles-zu-eigenfinanzierung)sely, a low level of Eigenfinanzierung might indicate higher financial risk and a greater reliance on external debt, which could lead to increased interest expenses and repayment pressures. The interpretation of an ideal [Eigenkapitalquote](https://diversification.com/term/eigenkapitalquote) can vary significantly by industry, as different sectors inherently carry different levels of business risk and capital intensity. ## Hy[^13^](https://www.ubs.com/microsites/impulse/de/growth-talk/2021/equity-or-debt-financing.html)pothetical Example Consider "Innovate GmbH," a tech startup looking to expand its research and development department. The company needs €5 million. Instead of taking out a large bank loan (which would be Fremdfinanzierung), Innovate GmbH decides to pursue Eigenfinanzierung. 1. **Current Situation:** Innovate GmbH currently has total assets of €10 million and Verbindlichkeiten (e.g., trade payables, small loans) of €3 million. * Initial Eigenkapital = €10 million (Assets) - €3 million (Liabilities) = €7 million. 2. **Financing Decision:** Innovate GmbH decides to conduct a [Kapitalerhöhung](https://diversification.com/term/kapitalerhoehung) by issuing new shares to venture capital investors. They successfully raise €5 million. 3. **New Situation:** The cash from the new shares increases the company's assets by €5 million. The [Eigenkapital](https://diversification.com/term/eigenkapital) also increases by €5 million. * New Total Assets = €10 million + €5 million = €15 million. * New Eigenkapital = €7 million + €5 million = €12 million. * Verbindlichkeiten remain at €3 million. * Check: New Eigenkapital = New Total Assets - Verbindlichkeiten = €15 million - €3 million = €12 million. This example illustrates how Eigenfinanzierung directly increases the company's [Eigenkapital](https://diversification.com/term/eigenkapital), bolstering its financial foundation without adding to its debt burden. ## Practical Applications Eigenfinanzierung is critical across various aspects of business and finance: * **Startup and Growth Funding:** Many startups rely heavily on Eigenfinanzierung from founders, angel investors, and venture capitalists in their initial phases. As companies mature, they might seek further Eigenfinanzierung through public offerings to fund significant expansion or new projects. [FRBSF source] * **Strengthening Solvency and Creditworthiness:** A high [Eigenkapitalquote](https://diversification.com/term/eigenkapitalquote) enhances a company's solvency and makes it more attractive to lenders, as it signifies a lower risk of default. This is a key factor in Unternehmensbewertung and credit ratings. * **Strategic Independence:** Companies with strong Eigenfinanzierung are less dependent on external creditors and can pursue strategic decisions without the constraints often imposed by debt covenants. This allows for greater flexibility in managing cash flows and pursuing long-term goals., * **Public Companies and Reporting:** For [^12^](https://www.studysmarter.de/studium/bwl/finanzierung/eigenfinanzierung/)p[^11^](https://www.svea.com/de-de/uber-uns/news-und-blog/was-gehoert-alles-zu-eigenfinanzierung)ublic companies, equity financing via stock issuance requires adherence to strict regulatory frameworks, such as those imposed by the U.S. Securities and Exchange Commission (SEC). These regulations mandate regular financial disclosures (e.g., Forms 10-K, 10-Q) to ensure transparency for investors., ## Limitations and Criticisms While Eigenf[^10^](https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/public-companies)i[^9^](https://www.sec.gov/resources-small-businesses/going-public/exchange-act-reporting-registration)nanzierung offers numerous benefits, it also comes with certain limitations and potential criticisms: * **Cost of Capital:** Raising [Eigenkapital](https://diversification.com/term/eigenkapital) can be more expensive than debt, especially for startups or smaller companies. Equity investors typically expect a higher [Rendite](https://diversification.com/term/rendite) to compensate for the higher risk they undertake, as their claims are subordinate to those of creditors in the event of bankruptcy. * **Dilution of Ownership and Control:** Fo[^8^](https://wirtschaftslexikon.gabler.de/definition/eigenfinanzierung-35656)r existing owners, issuing new shares means diluting their ownership percentage and potentially their control over the company. This can be a significant concern for closely held businesses or founders. * **Lack of Tax Deductibility:** Unlike interest payments on debt, dividends paid to equity holders are generally not tax-deductible for the company, which can make equity financing less tax-efficient than Fremdfinanzierung., * **Information Asymmetry and Agency Costs[^7^](https://www.abcfinance.de/glossar/finanzierung/eigenfinanzierung/):[^6^](https://www.auxmoney.com/kredit/kreditarten/eigen-und-fremdfinanzierung.html)** Raising equity from public markets can involve significant costs related to information disclosure and potential agency problems between management and dispersed shareholders. Compliance with regulatory reporting requirements, while ensuring transparency, adds complexity and expense. ## Eigenfinanzierung vs. Fremdfinanzierung Eigenfinanzierung and [Fremdfinanzierung](https://diversification.com/term/fremdfinanzierung) (debt financing) are the two primary ways a company can raise capital, differing fundamentally in the nature of the capital provided and the obligations incurred. | Feature | Eigenfinanzierung (Equity Financing) | Fremdfinanzierung (Debt Financing) | | :------------------ | :-------------------------------------------------------------------- | :----------------------------------------------------------------------- | | **Capital Source** | Owners, investors (e.g., through new share issuance, retained earnings) | Lenders, creditors (e.g., banks, bondholders) | | **Repayment** | Generally no fixed repayment obligation | Principal amount must be repaid | | **Cost** | Share of profits (dividends), capital appreciation, no fixed interest | Fixed interest payments | | **Control** | New investors may gain voting rights and influence | Lenders typically have no direct control over company operations | | **Risk to Company** | Lower financial risk, no mandatory fixed payments | Higher financial risk due to fixed repayment and interest obligations | | **Tax Impact** | Dividends not tax-deductible | Interest payments are often tax-deductible | | **Claim in Insolvency** | Subordinate to creditors | Senior claim over equity holders | The core distinction lies in the legal status of the capital provider. Equity providers are owners and share in the company's profits and losses, bearing a higher risk but also having potential for unlimited upside. Debt providers are creditors who expect a fixed return and repayment, with their claims prioritized in liquidation., ## FAQs ### What are the main types of Eig[^5^](https://www.abcfinance.de/glossar/finanzierung/eigenfinanzierung/)e[^4^](https://www.sparkasse.de/fk/ratgeber/corporate-finance/fremdfinanzierung.html)nfinanzierung? Eigenfinanzierung can be broadly categorized into Innenfinanzierung (internal financing) and Außenfinanzierung (external financing). Internal financing primarily includes Gewinnthesaurierung, where profits are retained within the company as Rücklagen instead of being distributed. External financing involves bringing capital from outside the company, such as through the issuance of new shares, capital contributions from owners, or venture capital investments., ### Why do companies prefer Eigenfinanzierung[^3^](https://www.abcfinance.de/glossar/finanzierung/eigenfinanzierung/) over Fremdfinanzierung? Companies often prefer Eigenfinanzierung for several reasons, including increased financial independence, a stronger [Bilanz](https://diversification.com/term/bilanz), and improved creditworthiness. It avoids fixed interest payments and repayment obligations, reducing the risk of insolvency. This flexibility is especially valuable during economic downturns or for companies with volatile revenues., ### Can a private company use Eigenfinanzieru[^2^](https://www.studysmarter.de/studium/bwl/finanzierung/eigenfinanzierung/)n[^1^](https://www.auxmoney.com/kredit/kreditarten/eigen-und-fremdfinanzierung.html)g? Yes, private companies can certainly use Eigenfinanzierung. Common methods for private companies include capital contributions from founders or existing shareholders, and retaining profits. Unlike public companies, private firms do not issue shares on a stock exchange, but they can still bring in new investors through private placements or direct equity injections. This helps build their [Eigenkapital](https://diversification.com/term/eigenkapital) base.