The basic accounting equation is Total Assets = Total Liabilities + Total Equity.

There are two companies A and B. Both have same amount of total assets of $100,000. A is totally financed by equity with no debt (liabilities). Firm B has 30% - $30,000 financed by debt (liabilities) and 70% - &70,000 with equity, and its has to pay 5% interest to the bank for the money it has borrowed. At end of the year both companies make $10,000 of income before tax. Which owner, the owner of firm A or firm B, receives more financial benefit then the other? Why?