As an entrepreneur, you have met with external auditors, and they have questioned the valuation of long-term debt and what effect rising rates will have on this accounting category over the next year

I would tell the external auditors that the category of long-term debt is very impacted by the effect rising rates has on this accounting category. As rates increase, the value of the long-term debt goes down, as rates decline, the price of long-term debt increases. I would explain that currently my company does not have a lot of long-term debt and that is why the level of the long-term debt and the impact of rising rates is diminished at my particular company. I would try to grow my company organically rather than through debt or capital.

If I were an investor planning to invest in a well-run profitable company, I would pursue an equity purchase. Any time there is a profitable company that is growing quickly, it would be a better idea to have an equity ownership in the company because this could provide the investor with better returns throughout ownership rather than a steady coupon payment that comes from long-term debt. However, it is notable that there is more risk present when an equity ownership is opened due to the fact that any gains and losses are spread among the owners. A long-term debt position will carry less risk as an investor will receive their debt payments whether the business is profitable or not.