What impact does equity financing have on a company's financial leverage?

Equity financing decreases a company's financial leverage because it involves raising capital by selling shares of the company, which does not require the company to incur debt. Financial leverage refers to the use of borrowed funds to amplify returns on investment. When a company utilizes equity financing, it is effectively reducing its reliance on debt, which means that its debt-to-equity ratio will decrease. This reduction indicates lower financial leverage, as the company has fewer obligations to repay borrowed money and less risk associated with high levels of debt. Therefore, the impact of equity financing is typically seen as a mechanism to enhance the financial health of the business by lowering its debt obligations and financial risk.