Key Takeaways

  • Companies can raise funds through equity financing - selling stock - or through debt financing - issuing bonds. Each option has its advantages and disadvantages.
  • Stock may be common stock or preferred stock.
  • Preferred stock is safer than common stock but it doesn't have the upside potential - namely, the possibility that shareholders will benefit greatly if a company performs very well.
  • Unlike common stockholders, however, whose dividends vary according to a company's profitability, holders of preferred stock receive annual fixed dividends.
Back to '4.6: Financing Options'