Why do companies issue shares?
In order to raise capital, generally to
expand the business
• Raising capital
• Expanding the business
Why do people buy the shares?
Shares give their holders part of the ownership
of a company.
(Shareholders have a part of the ownership.)
Shareholders receive a proportion of a
company’s profits as dividend, and may be able
to make a capital gain by selling their shares at a
higher price than they paid for them.
(Shareholders receive dividend and may be able
to make a capital gain by selling their shares at
higher price than they paid for them.)
Why do most companies use a mixture of
debt and equity financing?
Why do most companies use a mixture of debt
and equity financing?
The advantage of borrowing money by issuing
bonds is that interest payments, unlike
dividends, are tax-deductible.
But interest has to be paid even in a year in
which a company makes no profit, so it is safer
to have equity capital as well, on which no
dividends need be paid if there are no profits.
• What are differences between
bonds and shares?
Stocks and Bonds
Which security is better?
- a form of debt with which you
are the lender instead of the
- contractual loans made between
investors and institutions that, in
return for financing, will pay a
premium for borrowing, known
as a coupon.
- the bond's face value is returned
to the investor at maturity.
- The guarantee of payback and all
coupon payments relies solely on
the ability of the borrower to
generate enough cash flow to
- a form of ownership
- investors are given no promises
about returns of the initial
investment depends almost
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