[Hot News] [STOCKS] - WHY DOES A COMPANY ISSUE STOCKS?

[Hot News] [STOCKS] - WHY DOES A COMPANY ISSUE STOCKS?
Di Posting Oleh : Crew Blog
Kategori : 2016 COMMERCE FAQ FINANCE INVESTMENTS Q&A stock STOCK BROKERAGE STOCK EXCHANGE STOCK MARKET STOCK TRADING STOCKS

A company usually issues stocks to the public whenever it wants to expand its operation. This is a way of finding funding for its operation.

When a company sees an opportunity or a need to invest money on itself to expand its operation, it usually has two ways of raising this fund. One way is to go with bank loans called "Debt Funding" or open itself up for an stock option IPO (Initial Public Offering), called "Equity Funding".ck



Debt Financing Vs Equity Financing:

Why would a company choose equity financing as a viable option over debt funding, you may ask. The answer lies in the fact that in case of a equity financing like that of opening up its stocks and thereby the ownership, the company gets its required funding without having to worry about having pay the funding back to its investors or pay any interest on this funding amount.

But then what is the advantage for an investor on investing in the stocks of a company?

A person who would buy a company's stocks will never get his principle money paid back directly by the company. However, he will actually be able to hopefully sell his stocks to other interested stock market buyers who can offer him a price higher than the price at which he bought the stocks.

Also, there might be occasional (although not guaranteed) dividends being paid by the company to its stock holders that can add up to his profit. For a long term investment, it has been found that investing in a stock market can on an average yield close to 12% profit, way higher than any savings account interest. So it certainly makes sense for an investor to buy the stock of a company that can give him about 12% interest rates.

Now, if the company does really well, then the value of the stock will automatically increase due to an increase in demand for the said stocks and as a result, the stock holder can potentially make a profit of several magnitudes to his investment, if he made the right choice of picking the most profitable companies in the future.

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