Companies need money to spend but their money comes from more places than just profit. There are a number of methods to raise money to finance activities including the following instruments:
a) Debt Securities (contracts to repay with securities)
- Bonds: secured with assets
- Debentures: unsecured
- Notes: typically short term
b) Equity Securities
- Preferred Shares: Paid first in dividends yet not owned; Hybrid.
- Common Shares: Ownership position in company; Risidual Owners.
Investors purchase these securities for:
a) Interest Income
b) Dividends
c) Capital gains
- Interest rate changes
- Growth of the company (div., splits, etc.)
Investors' risks will include:
- Marketability (varies): nobody to buy at price
- Default (credit): risk-> on contractual obligation (no interest)
- Market/business
Also remember, governments too rely on debt securities for financing:
[tags]financial assets, debt securities, equity securities, capital gains[/tags]