We know that holding stock of any company means having an ownership in that company and its assets. The more stock you have, the more power, right of authority and ownership you will have in that company.
Now the biggest question arises why any one will give you the ownership within its company, share his assets and profit with you? The answer to this question is very simple. Any companies growth is directly related with its capital and the profit that it is making per year.
To increase profit everyone needs to expand his business. And to expand the business one needs more money. Companies can raise money in two ways:- one is taking loan from the bank or issue bonds and second is raise money from the public that is by issuing stocks.
The first method of raising money is known as "debt financing" where as second one is known as "equity financing". Issuing stock is the advantageous way to the companies to raise money as they don't need to pay back the money or interest payments to anyone.
This is the reason why the companies issue stocks and how does stocks come into the market. All that shareholder get in return is the hope that some day share rate will increase and they will be worth more of what they paid to buy them.
When first time any company issue stocks or float its stock in the market then it is known as Initial public offering(IPO).
Now the biggest question arises why any one will give you the ownership within its company, share his assets and profit with you? The answer to this question is very simple. Any companies growth is directly related with its capital and the profit that it is making per year.
To increase profit everyone needs to expand his business. And to expand the business one needs more money. Companies can raise money in two ways:- one is taking loan from the bank or issue bonds and second is raise money from the public that is by issuing stocks.
The first method of raising money is known as "debt financing" where as second one is known as "equity financing". Issuing stock is the advantageous way to the companies to raise money as they don't need to pay back the money or interest payments to anyone.
This is the reason why the companies issue stocks and how does stocks come into the market. All that shareholder get in return is the hope that some day share rate will increase and they will be worth more of what they paid to buy them.
When first time any company issue stocks or float its stock in the market then it is known as Initial public offering(IPO).
The company can also raise funds through issuing bonds. Bonds are also there in the market that you can buy. But it comes under "debt financing". Companies rarely issue bonds as they cost more to the company. If you are holding the bond of a particular company then there is surity that you will get back your money with interest payments as promised.But is case of stocks there is no surity that you will get your money back. I mean to say that, in case company goes bankrupt due to any reason then the value of its stock also goes to zero means the stock that you are holding also has no price.
But if you invest your money in some good stocks after through study then stocks can give better return as compared to bonds. Bonds give you fixed return that is the amount that you invested in buying it plus interest rate. But in case of stock returns are not fixed.
Suppose you have purchased 50 stocks of a certain company at 100rs each and after few days it becomes 200Rs each then you earn 100rs more per share. Means your profit is straight away around Rs. 5000 plus the amount you invested in it.
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