Equity financing

It is one of the mahor scope of corporate finannce

Financing is raise finance
Finance can be raised through external sources
1.Liabilities (debt) increase current or long teem
2.Equity issue shares in market
https://www.ntbinc.com/Common-Stock-vs--Preferred-Stock.c1019.htm
https://www.moneycrashers.com/preferred-vs-common-stock-differences/ -- very imp
https://www.adityabirlacapital.com/abc-of-money/what-is-share-what-are-types-of-shares
https://www.informdirect.co.uk/shares/types-of-share-a-company-can-have/
https://www.nibusinessinfo.co.uk/content/types-shares
https://www.rocketlawyer.com/gb/en/quick-guides/types-of-shares
https://www.toppr.com/guides/business-laws/companies-act-2013/types-of-shares/
https://www.wellersaccountants.co.uk/blog/how-to-understand-the-different-types-of-
shares-class-of-shares
https://www.iedunote.com/shares -imp
https://www.disnat.com/en/learning/trading-basics/stock-basics/different-types-of-stocks
https://www.accountingnotes.net/shares/types-of-shares-preference-and-equity-
accounting/12042 -imp
https://www.karvyonline.com/knowledge-center/beginner/share-meaning-and-types-of-
shares -imp
https://en.wikipedia.org/wiki/Share_class -imp
Equity financing is prefered or common stock
Diff debentures there and bond in liabilitites
i.. Common stock
https://pocketsense.com/advantages-common-stock-perspective-stockholders-2332.html

Company hs to pay back to company the return earned

Company issue karte real owners that take max risk to get most return
Taxes and debt and earnings to preferred stocks are paid then the earnings earned by them are given to
them.
ii.. Prefered stock

https://www.investopedia.com/ask/answers/040915/what-are-advantages-and-disadvantages-
preference-shares.asp
https://corporatefinanceinstitute.com/resources/knowledge/finance/preferred-shares/
https://b-tv.com/stock-market-guide-what-are-the-advantages-and-disadvantages-of-preference-
stocks/

Are paid before common

Modereate risk moderate return
Higher risk higher return
Diff between preffered and common
Voting right common elect board of director
Flunctuating dividend
Have no claim on asset and kiabilities in loss or winding up
Fixed divdend prefered
Preferend bear moderate risks
No voting right
Do not elect BoD
Prefered have claim Of return on dividend
Fixed Percentage of return

1. Cumulative dividend feature

If a company misses some of its dividend payments to shareholders due

to some reason, the cumulative provision requires a company to settle all
missed dividend payments to the shareholders whose shares include the
provision. The cumulative dividend feature ensures that the holders of
CCPPO shares will receive all the dividend payments that they are entitled
to.

2. Convertibility

The convertibility provision provides a right to a shareholder to exchange

his/her preferred shares for common shares at a
predetermined exchange rate.

3. Participation

The participation feature provides the holders of CCPPO shares an

opportunity to receive dividend payments above the normally specified
dividend rate. Unlike the holders of non-participating shares who are
subject to a restriction on earnings distributed through dividends, the
holders of participating shares can potentially receive earnings above
their fixed rate.

Participating shares also grant liquidation preferences to their holders

over common shareholders in case of a company’s liquidation. Essentially,
if a company is liquidated, the participating shareholders are entitled to
receive back the purchase price of their shares, as well as any leftover
value that would remain after the liquidation of a company as if the
shares were common shares.

4. Preferred-dividend feature

Note that CCPPO shares are ordinary, not preferred shares. Since ordinary
shares do not offer preferred dividends, such a feature is specified for
CCPPO shares. The preferred-dividend provision determines a fixed
dividend rate based on the stock’s par value at which dividend payments
are paid. Note that the preferred dividends are generally higher than the
dividends for the common shares.

If Cumulative shareholder arent paid up in last year then earnings for next year and last year are added
up so that they can be paid and get return from the company and benefit from company in coming year.
Participating
https://www.wallstreetmojo.com/participating-preferred-stock/

It is One pf the feature in which when the company is makes a policy to pay sufficienite lump sum
amount to common shareholders.
Participating preferred stock are entitled to receive fixed dividends plus
additional dividends where additional dividend is the positive difference
between the dividends paid to the common stockholder and the fixed
amount which is set to be paid to that preferred stockholder making the
total dividend amount paid to participating preferred stockholder equal
to that of the common stockholder.
Common shareholder have right to get lump sum if stocks are used as participating.
This is done in order to compensate common shareholder. Common shareholder are real owner of
business. They have voting rights and can be involved in management decision so that common
shareholders make the right and fair decision for the company other stakeholder, they are sometimes
given voting participatory shares.
Participating in profits is an attribute of a share and that attribute can be given to voting shares or to
non-voting shares. So you can have:

 voting participating;
 voting non-participating;
 non-voting participating; and
 non-voting non-participating.

If a company has issued different classes of shares with different attributes (i.e. some are voting and
some are participating), it can make the classes of shares have different values. Voting shares are
generally considered to have value because they can impact the future of the company. But
participating shares also can have value because they receive the profits

Voting Participatory is a demand, right in which an increase in dividend with voting rights can be asked
by common shareholder and company then becomes liable to pay them.
Common shareholder are payed increased dividends onky when the fixed dividends for the preferred
shareholders are paid. First, company pays fixed dividend for preffered then they can fulfil voting
participatory rights of shareholder.
Redeemable
Security which has maturity time
Security for 10 year
In 10 year, company has to return share in 10 year the invested amount and the previous year return
needs to be returned
Prefered has maturity
Common don’t infinite time period
Debentures and preferred both have maturity
Redeemable shares
Redeemable shares are shares that can be bought back by the company at some
point in the future. The redemption date can either be fixed in advance (eg 3 years
from the date the share is issued) or decided at the company's discretion. The
redemption price is usually the same as the issue price, but not necessarily.

Shares given to employees are often redeemable, so that the company can get its
shares back if the employee leaves. However, the ability to redeem shares is limited
and is subject to specific statutory requirements. For instance, the company may
only redeem the shares out of accumulated profits or the proceeds of a new issue
of shares.
Redeemable shares come with an agreement that the company can buy them back at a future
date - this can be at a fixed date or at the choice of the business. A company cannot issue only
redeemable shares, so they must ensure that they also issue non-reedeemable shares.
Convertible
The prefered stock can be converted into common stock
If prefered shareholder want to take financial decision
More better decision, more profit
Share capital
Capital which has been issued by share
The amount of share capital shareholders owe, but have not paid, is referred to as called-up
capital. Any amount of money that has already been paid by investors in exchange for shares of
stock is paid-up capital
https://pakaccountants.com/difference-authorized-issued-subscribed-called-up-and-paid-up-capital/
https://www.accountingverse.com/financial-accounting/elements/stockholders-equity-accounts.html
https://en.wikipedia.org/wiki/Stock
https://en.wikipedia.org/wiki/Share_(finance)
https://en.wikipedia.org/wiki/Share_capital

Authorized

Description
The authorised capital of a company is the maximum amount of share capital that the company is
authorised by its constitutional documents to issue to shareholders. Part of the authorised capital
can remain unissued. The authorised capital can be changed with shareholders' approval. 
Total amount of capital that a company can issue
Issued

Subscribed
Subscribed share capital is the value of shares investors have promised to
buy when they are released. Subscribedshared capital is usually part of an
IPO.
Under subscription
Raise capital of 1 lac we go into market and we genereate cash we received exactly 1 lac is exact
subscription we received 80,000 less under subscription we received 1.5 lac more shares than needed is
over subscription
Over subscription
https://www.monetarysection.com/dictionary/subscribed-share-capital
Company has issued this amount of subscribed
Paid up
Actually paid by investors

Call up
The amount of share capital shareholders owe, but have not paid, is referred to as called-up
capital. Any amount of money that has already been paid by investors in exchange for shares of
stock is paid-up capital
Revenue from retained earning
Additional capital is raising capital more than one time in a financial year that amount of capital will be
additional
Explaining 5 financial statements
Comprehensive equity
https://en.m.wikipedia.org/wiki/Financial_statement
https://www.investopedia.com/terms/f/financial-statements.asp
https://corporatefinanceinstitute.com/resources/knowledge/accounting/three-financial-statements/
https://www.wikiaccounting.com/five-types-of-financial-statements-ifrs/
https://www.myaccountingcourse.com/accounting-dictionary/financial-statements
https://en.m.wikipedia.org/wiki/Financial_statement
Notes to FS is 5th one
The balance sheet provides an overview of a company's assets, liabilities, and
owner's equity as of a specific date. The income statement provides an overview
of company revenues and expenses during a period. The cash flow statement
bridges the gap between the income statement and the balance sheet by
showing how much cash is generated or spent on operating, investing, and
financing activities for a specific period.

Profut earned
Certain amount needs to be distributed between creditor, prefered,common
People investibg get profut
Reserves is savings long term basis used
Changes in equity statement shown
Retained earnings profit earned and given to shareholder or investor
Redeemable capital
Right share is when compny plan to issue more share the existing shareholder has roght to buy share
befor those are offered to public
Shareholder has a roght to get share from company
They would be able to make more better decision
Decision might vary if right ahare not offered
How much share is offered to existing shareholder depend on market price of the share If share price is
less than market
https://en.wikipedia.org/wiki/Share_price

 A stock's price indicates its current value to buyers and sellers.

 The stock's intrinsic value may be higher or lower.
 The goal of the stock investor is to identify stocks that are currently
undervalued by the market.
https://www.investopedia.com/articles/stocks/08/stock-prices-fool.asp
The theory relating share repurchase to stock price is “you get what you pay for.”
In other words, if the firm buys back shares at the going market price, the
reduction in cash is exactly offset by the reduction in the number of shares
outstanding, so the market price of the stock should remain the same.
Overall it can be concluded that shareholders react positively to dividend
increases and negatively to dividend decreases 
Changes in equity mentioned in equity statement.
Debt financing
Creditors
Secure as get fixed amount of profit, bear low risk, get interest,
Tax advantage benefit availed
There us an income tax by govt
There will be no tax on debt financing
Debt share bought then no tax needs to be paid on interest amount earned. And in come received.
Debt
Capital
Liabilities
Equity can be raised under category of capital management only

Public debenture is debenture issued by govt and diff banks

Like car loan on lease
It is Available to diff public
Gov different scheme for job
Loan
Secured
https://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-
unsecured-debts.asp
https://www.thebalance.com/the-difference-between-secured-and-unsecured-debts-960181
Unsecured any asset not on mortgage
Lease is secured
Pledge and have to pay at certain time
After u have payed u get profit
Equiptment and machinery long term asset
Short term asset can have lease
Risk is level of uncertainty
Level of risk is identified by company profit and financial position
How much risk is there can be depicted by company
Market rate is average risk,moderate level of risk
Risk is high when return is greater than market rate
unsecure one
Low return but investment can still be secure
Conservative approach
Moderate
Aggressive

Default risk is any person or supplier give loan there might be risk of default ie compny moght not be
able to pay back or handle risk taken.
Junk will not be able to give return
Moody
International credit risk agency
It assigns risk level to diff securities
Calculated by company internal factor
Market share are reviewd on basis of this

Investment grading
Parhne ki performance wvealuated
Diff market securities available
 We as lyperson we do not know which os good or bad
We want to have secure profit nice return high maturity due time par full pay kare
To know which is secure and unsecuee
Grade ke according we know which is good
Aggressive investor take high risk intention nahi principal amount Take less return one
Get desired investment by using harsh means
Conservative approch most secure one
Reluctant to make investement
Kahi hum default main chale jaye pay off na kar paye
Investment no get lost
Willing to take risk but moderate one
Make secure investement
Less profit but able to make it secure

https://www.acorns.com/money-
basics/investing/conservative-vs-aggressive-
investing-and-portfolios/
A conservative portfolio is more appropriate for
someone who has:
 A lower risk tolerance
 A shorter time horizon (typically considered less than three years, but could be
shorter in the case of a goal like saving for a down payment)
 A desire for steady returns that prioritize preserving capital
An aggressive portfolio is more appropriate for
someone who has:
 A higher risk tolerance
 A longer time horizon (more than three years, with the most aggressive
accounts typically held for at least 10 years)
 An appetite for higher returns
https://www.investopedia.com/terms/r/risktolerance.asp -IMP
https://www.thebalance.com/mutual-fund-portfolio-examples-2466523 -IMP
https://corporatefinanceinstitute.com/resources/knowledge/trading-
investing/risk-tolerance/ - IMP

Risk Tolerance: Your account has been assigned one of six Risk Tolerance classifications, as defined
below, based on responses to the Stifel Risk Assessment associated with your account. Your risk
tolerance for an account should reflect the amount of risk you are comfortable with for that account. It
is important to notify Stifel when there are material changes in your financial condition or risk tolerance.
1. CONSERVATIVE: A Conservative investor values protecting principal over seeking appreciation. This
investor is comfortable accepting lower returns for a higher degree of liquidity and/or stability. Typically,
a Conservative investor primarily seeks to minimize risk and loss of principal.
2. MODERATELY CONSERVATIVE: A Moderately Conservative investor values principal preservation, but
is comfortable accepting a small degree of risk and volatility to seek some degree of appreciation. This
investor desires greater liquidity, is willing to accept lower returns, and is willing to accept minimal
losses.
3. MODERATE: A Moderate investor values reducing risks and enhancing returns equally. This investor is
willing to accept modest risks to seek higher long-term returns. A Moderate investor may endure a
short-term loss of principal and lower degree of liquidity in exchange for long-term appreciation.

4. MODERATE GROWTH: A Moderate Growth investor values higher long-term returns and is willing to
accept considerable risk. This investor is comfortable with short-term fluctuations in exchange for
seeking long-term appreciation. The Moderate Growth investor is willing to endure larger short-term
losses of principal in exchange for the potential of higher long-term returns. Liquidity is a secondary
concern to a Moderate Growth investor.

5. MODERATELY AGGRESSIVE: A Moderately Aggressive investor primarily values higher long-term

returns and is willing to accept significant risk. This investor believes higher long-term returns are more
important than protecting principal. A Moderately Aggressive investor may endure large losses in favor
of potentially higher long-term returns. Liquidity may not be a concern to a Moderately Aggressive
investor.

6. AGGRESSIVE: An Aggressive investor values maximizing returns and is willing to accept substantial
risk. This investor believes maximizing long-term returns is more important than protecting principal. An
Aggressive investor may endure extensive volatility and significant losses. Liquidity is generally not a
concern to an Aggressive investor. In any given strategy, depending upon an individual’s investment
objective(s), risk tolerance, and individual circumstances, an investor may utilize margin borrowing in his
or her investment portfolio. Margin borrowing will leverage your investments and increase the risks to
your investment equity. If there is a declining account value, additional deposits may be required and/or
there may be a need to sell securities in your account. It is possible to lose more than your investment
equity.

Conservative
How risk averse are you? Conservative investing is when you want your
money to grow but are afraid of losing your principal investment. A portfolio
that is more heavily weighted with bonds than stocks is considered
conservative.
A conservative investor is someone who wants his money to grow but
does not want to risk his principle investment. Conservative investors
choose financial products that do not fluctuate much in value, such as
conservative mutual funds. This is a wise investment strategy when the
investment money is needed soon or when the economy is in the midst of
a major downturn. However, conservative investors miss out on explosive
growth during times of economic prosperity.
https://www.investopedia.com/terms/c/conservativeinvesting.asp#:~:text=Conservative%20investing
%20is%20an%20investing,chip%20or%20large%2Dcap%20equities.- imp
https://bizfluent.com/about-4672590-conservative-investor.html - imp
https://capital.com/conservative-investing-definition
https://money.usnews.com/investing/investing-101/articles/ways-to-build-a-conservative-investors-
portfolio
https://www.investopedia.com/terms/c/conservativeinvesting.asp -IMPPP

A Conservative Investing Approach Means Building A Well-Balanced

Portfolio Gradually, Over Time

Conservative investing is an investment strategy that involves a focus on lower-risk,

predictable and stable businesses. This strategy typically involves the purchase of blue-
chip stocks and other low-risk investments. A conservative investing approach also
means building a well-balanced portfolio gradually, over time. The number of stocks in
your portfolio will depend on where you are in your investing career.

Some rules can undermine your conservative investing decisions at crucial moments

Look beyond price in deciding when to sell your conservative investments

When investors ask us about our conservative investing strategy, they often wonder when
they should dump a weak stock from their portfolio and replace it with something new.

There is no simple formula for deciding when to sell a weak performer, regardless of
whether you follow an aggressive or a conservative investing strategy. But there are some
helpful guidelines.

First, you’re never going to sell at the top or buy at the bottom. That’s why we’re so
selective about the stocks we recommend in our newsletters. The better the quality of the
investments you buy, the less you have to lose by failing to sell.
In fact, regardless of whether you practice aggressive or conservative investing, the
quality of your investments matters much more than your skill at selling.

Second, you should be quicker to sell aggressive stocks than conservative investing picks.
With stocks we rate as “Speculative” or “Start-up,” it pays to apply our sell-half rule.
That’s when you sell half of a stock that doubles in price.

Keep long-term conservative investing goals in view

In our view, your goal as an investor, particularly if you follow a conservative investing
strategy like the one we recommend, is to make an attractive return on your investments
over a period of years or decades. Failure means making bad investments that leave you
with meagre profits or losses.

Unsuccessful investors can still make some profits. They just don’t make enough to offset
the inevitable losses and leave themselves with an attractive return. If you focus on the
idea that you never go broke taking a profit, you may be tempted to sell your best
investments whenever it seems the investment outlook is clouding over.

On occasion, you may succeed in selling just prior to a major downturn, and buying back
at much lower prices. More often, prices will soon hit bottom and move up to new highs.
If you buy back, you’ll pay higher prices. If you had followed this strategy with Canadian
bank stocks, for example, you could have missed out on some big gains over the years.

In hindsight, market downturns are easy to spot. Spotting them ahead of time is much
harder, and impossible to do consistently. After all, if you could consistently spot market
downturns ahead of time, you could acquire a large proportion of all the money in the
world, and nobody ever does that.

The problem is that you’ll foresee a lot of market downturns that never occur. All too
often, the market-downturn clouds disperse soon after skittish investors have sold. Good
reasons to sell do crop up from time to time, of course, even if you follow a long-term
conservative investing approach. But “You’re never go broke taking a profit” is not one
of them.

Why you should be very wary of index-linked GICs

Index-linked GICs maximize the promises but minimize the payouts.

Index-linked GICs (guaranteed investment certificates) provide the buyer with a return

that is “linked” to the direction of the stock market in a given period. A quick look at the
rules on these deals may give you the impression that the investor can profit substantially
with little risk. However, the link depends on a formula or set of rules that is buried in the
fine print.

These investments are marketed as offering all of the advantages of stock-market

investing with none of the risk. But banks and insurance companies aren’t in the business
of giving customers something for nothing. The capital gain that holders get depends on
an ingenious formula which is cleverly designed to sound generous while minimizing the
potential payout.

For instance, the payout may depend on the average level of the index over the course of
a year, rather than the year-end value. This will tend to diminish the performance that
determines investor returns.

Index-Linked GICs Fail To Offer The Big Tax Advantages Of Stock

Investing.

Another drawback is that returns on index-linked GICs are taxed as interest. That’s
because you’re not actually investing in the stock indexes themselves; you’re just getting
paid interest based on the change in the indexes. That’s a drawback because interest is the
highest taxed of all investment returns.

Usually, stock-market investing produces capital gains and dividend income, both of
which are taxed at a much lower rate than interest. (Of course, if you hold the GICs in an
RRSP, all income is tax deferred.)

These GICs do protect your principal. But few investors if any make a good return on
index-linked GICs. Most make less (at times substantially less) in index-linked GICs than
they would have made in old-fashioned GICs.

5 easy investment tips for better long-term returns from conservative investing

1. Be skeptical. No matter how attractive they may seem, always take a skeptical
approach to investment products that add an extra percentage point or more to
your yearly costs. Make sure the expense is worth it.
2. Understand compounding, It’s how your personal wealth grows. Compound
interest is earning interest on interest. Over time, your long-term investments will
earn more and more money from the effects of compound interest. Compound
interest is what makes investing a worthwhile pursuit.Compound interest is
applied to dividend-paying equity investments like stocks, as well as to fixed-
return, interest-paying investments like bonds. When you earn a return on past
investment returns (including dividends), the value of your investment can
multiply. Instead of rising at a steady rate, the number of dollars in your portfolio
will grow at an accelerating rate. It’s very important to keep an eye on investments
 or expense fees that affect the amount of interest you earn. Even 1% a year can be
huge drain on your portfolio.
3. Seek dividends in your investments. If you’re new to investing, one tip we share
often is to invest in companies that have been paying a dividend for 5 or more
years. Dividends are typically cash payouts that serve as a way for companies to
share the wealth they’ve accumulated. These payouts are drawn from earnings and
cash flow and paid to the shareholders of the company. Typically these dividends
are paid quarterly, although they may be paid annually or even monthly as well.
Canadian citizens who own shares in Canadian stocks that pay dividends will also
benefit from a special tax break they may be eligible to receive.
4. Don’t take advice that comes from advisors or institutions that sell insurance
or other fee-heavy investment/financial products. The financial software they
use just naturally spits out investment plans that involve the kind of sometimes-
hidden costs in point 1.
5. Only buy bonds or other fixed-return investments if interest rates are high
enough to be attractive. Don’t buy bonds just to “cut your risk.” Adding bonds to
the mix will simply cut the volatility of your portfolio value in any given year. But
it does so at the cost of increasing your risk of loss to inflation.

How Conservative Investors Can Add Low Risk Investments To Their

Portfolio

Low risk investments equate to safer investments. For conservative investing, focus on
investing in high-quality stocks that offer hidden value.

These assets include long-time real estate holdings that are worth much more than their
balance-sheet value (usually original cost minus depreciation). Under-used brand names
are another good example. When they are developed in-house, they won’t show any
balance-sheet value. Another key hidden asset—one of our favourites is research
spending. Companies write off their research outlays in the year in which they spend the
money, but benefits such as new or better products may only materialize years in the
future.

1. Well-established companies are the key to profitable and low risk

investments Instead of moving between extremes of risk, we continue to think
investors will profit most—and with the least risk—by buying shares of well-
established companies with strong business prospects and strong positions in
healthy industries. That’s not to say that there won’t be surprises that affect every
company in a particular industry. But well-established, safety-conscious stocks
have the asset size and the financial clout—including sound balance sheets and
strong cash flow—to weather market downturns or changing industry conditions.
You can get our advice on investment issues, plus buy/sell/hold advice on stocks
you may be considering buying in our Successful Investor newsletter.
 2. Be skeptical of companies that mainly grow through acquisitions when
seeking low risk investments Making acquisitions can speed up a company’s
growth, but it also adds risk that can undermine a conservative, safe investing
approach. Great acquisitions are rare finds. Many acquisitions come with hidden
problems or risks, or they turn out to have been over-priced. Despite the risks,
some acquisitions turn out hugely profitable. So, your safe investing
strategy shouldn’t automatically discount companies that have grown through
acquisitions. Just keep the risks in mind, and avoid companies that seem unaware
of them.
3. Take a broad view when looking for low risk investments When we’re looking
for the best investments to recommend in our newsletters and investment services,
we start by putting all the important information we know about a company into
perspective. But things are never quite so simple. Your stock pick’s latest earnings
may reflect unusually favourable or unfavourable conditions. This can make the
company look safer or riskier than it really is. In addition, the company may put
the funds it borrowed to immediate profitable use, increasing its earnings and its
ability to pay interest. It may plan to sell assets to reduce debt, or cut costs to
increase earnings.

5 more powerful long-term investment strategies for higher returns

Here are five long-term investment strategies that we are certain will enhance your long-
term investment results.

1. No stock can ever be so undervalued or desirable that it overcomes a lack of

integrity on the part of company insiders

We’ve always believed that investors should sell a stock if they have any doubts about
the integrity of the people who are in charge of the company. In other words, if you think
a company is run by crooks, you should sell the stock right away, no matter how
attractive it seems as an investment.

2. Compound interest—earning interest on interest—can have an enormous

ballooning effect on the value of an investment over the long-term

Compound interest can be considered the mother of all long-term investment strategies.

This tip is especially important for young investors to learn. This stock trading tip’s
benefits apply to both stock and fixed-return, interest-paying investments, like bonds.
When you earn a return on past returns, the value of your investment can multiply.
Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an
accelerating rate.

3. As a group, investment long shots are overpriced.

If you have nothing but long shots in your portfolio, you are likely to make meagre
returns or lose money over long periods, rather than making the high returns you seek.
That’s why you need to be particularly cautious and selective when adding anything to
your portfolio that offers the potential of high returns. This advice is especially applicable
to new investors, who may seek outsized returns from investments such as IPOs, penny
stocks and stock options. These market vehicles are certain to hold you back from long-
term investment success.

4. Financial incentives have an enormous impact on the beliefs of otherwise

honest people.

That’s particularly true when it comes to what purveyors of investment products are
willing to say in order to spur you to buy something. Failing to spot these conflicts of
interest can be very damaging to your investments. We’re not just talking about stock
brokers. As the saying goes, never depend on your barber to tell you that it’s too soon for
you to get your hair cut.

5. The markets for fungible goods like oil, interest rates and gold are inherently
unpredictable.

Markets like these are so enormous that there is no practical limit to how much you can
trade in them. It follows that if you could predict them, you could wind up acquiring a
measurable proportion of all the money in the world, and nobody ever does that. That’s
why it’s a mistake to build your portfolio in such a way that you have to accurately
predict the future direction of fungible goods like oil, interest rates or gold. The key to
being a Successful Investor is to invest in well-managed companies. The unpredictability
of the market facilitates the need for this rule. Well-managed companies can weather
financial downturns and bear markets better than other companies.

Follow our three-part Successful Investor strategy

 Invest mainly in well-established companies;

 Spread your money out across most if not all of the five main economic sectors
(Manufacturing & Industry; Resources & Commodities; the Consumer sector;
Finance; Utilities);
 Downplay or avoid stocks in the broker/media limelight.

Aggressive
An aggressive investor wants to maximize returns by taking on a relatively high
exposure to risk. As a result, an aggressive investor focuses on capital
appreciation instead of creating a stream of income or a financial safety net. Therefore,
a portfolio using this model would have a higher weight of stocks and equities.
Meanwhile, a minimal percentage of the portfolio may containbonds, cash or other
fixed-income assets.

Usually, an aggressive investor works with longer time horizons and a high level of risk
tolerance. For example, a young investor with small portfolios and longer time horizons
is typically an aggressive investor. A longer time horizon allows the portfolio to recover
from potential fluctuations within the market.

Financial professionals usually don’t recommend aggressive investing for anything bu a

small portion of a nest egg. But, regardless of an investor’s age, their risk tolerance will
determine if they become an aggressive investor.

https://www.investopedia.com/terms/a/aggressiveinvestmentstrategy.asp#:~:tex
t=An%20aggressive%20investment%20strategy%20typically,relatively%20higher
%20degree%20of%20risk.&text=Such%20a%20strategy%20would
%20therefore,allocation%20to%20bonds%20or%20cash. -imp
https://corporatefinanceinstitute.com/resources/knowledge/trading-
investing/aggressive-investment-strategy/ -imp
https://smartasset.com/financial-advisor/aggressive-investor

MODERATE
https://approachfp.com/profile-of-moderate-investor/#:~:text=In%20general%2C
%20you're%20a,as%20a%20%E2%80%9Cbalanced%E2%80%9D
%20strategy.&text=Clients%20often%20say%2C%20%E2%80%9CI%20want,'re
%20half%2Djoking).
http://www.scuddercom.com/version2b/modinv.asp ---VERY IMP

Am I a Moderate Investor?

In general, you’re a moderate investor if you want to

grow your money without losing too much. The goal is to balance out
opportunities and risks, and the approach is sometimes described as
a “balanced” strategy. To pursue growth, you need to tolerate some
losses, which tend to be temporary—but they can still be scary and
unpleasant.

You can reduce that volatility and attempt to avoid catastrophic losses
by using an investment mix that includes relatively stable investments.

If a moderate investor describes herself, here’s what you might hear:

“I believe I will be rewarded for taking some risk over the long term.
But I don’t want to get too crazy. I’d like to take a middle of the road
approach: not too aggressive, not too conservative. I know that my
account value will occasionally go down, but I believe that the risk
will pay off over long periods (10 years or more, for example).”
Clients often say, “I want high returns with a low level of risk” (usually
they’re half-joking). Unfortunately, that’s impossible. Diversification
can certainly improve your chances, but you ultimately need to decide
if you want to prioritize one over the other (or if you’re happy with a
moderate level of risk).

Capital structure[edit]
Main article: Capital structure
Further information: Security (finance)
Achieving the goals of corporate finance requires that any corporate investment be financed
appropriately.[22] The sources of financing are, generically, capital self-generated by the firm and
capital from external funders, obtained by issuing new debt and equity (and hybrid- or convertible
securities). However, as above, since both hurdle rate and cash flows (and hence the riskiness of
the firm) will be affected, the financing mix will impact the valuation of the firm, and a considered
decision is required here. Finally, there is much theoretical discussion as to other considerations that
management might weigh here.

Sources of capital[edit]
Debt capital[edit]
Further information: Bankruptcy and Financial distress
Corporations may rely on borrowed funds (debt capital or credit) as sources of investment to sustain
ongoing business operations or to fund future growth. Debt comes in several forms, such as through
bank loans, notes payable, or bonds issued to the public. Bonds require the corporations to make
regular interest payments (interest expenses) on the borrowed capital until the debt reaches its
maturity date, therein the firm must pay back the obligation in full. Debt payments can also be made
in the form of sinking fund provisions, whereby the corporation pays annual installments of the
borrowed debt above regular interest charges. Corporations that issue callable bonds are entitled to
pay back the obligation in full whenever the company feels it is in their best interest to pay off the
debt payments. If interest expenses cannot be made by the corporation through cash payments, the
firm may also use collateral assets as a form of repaying their debt obligations (or through the
process of liquidation).
Equity capital[edit]
Corporations can alternatively sell shares of the company to investors to raise capital. Investors, or
shareholders, expect that there will be an upward trend in value of the company (or appreciate in
value) over time to make their investment a profitable purchase. Shareholder value is increased
when corporations invest equity capital and other funds into projects (or investments) that earn a
positive rate of return for the owners. Investors prefer to buy shares of stock in companies that will
consistently earn a positive rate of return on capital in the future, thus increasing the market value of
the stock of that corporation. Shareholder value may also be increased when corporations payout
excess cash surplus (funds from retained earnings that are not needed for business) in the form of
dividends.
Preferred stock[edit]
Preferred stock is an equity security which may have any combination of features not possessed by
common stock including properties of both an equity and a debt instrument, and is generally
considered a hybrid instrument. Preferreds are senior (i.e. higher ranking) to common stock, but
subordinate to bonds in terms of claim (or rights to their share of the assets of the company). [23]
Preferred stock usually carries no voting rights,[24] but may carry a dividend and may have priority
over common stock in the payment of dividends and upon liquidation. Terms of the preferred stock
are stated in a "Certificate of Designation".
Similar to bonds, preferred stocks are rated by the major credit-rating companies. The rating for
preferreds is generally lower, since preferred dividends do not carry the same guarantees as interest
payments from bonds and they are junior to all creditors. [25]
Preferred stock is a special class of shares which may have any combination of features not
possessed by common stock. The following features are usually associated with preferred stock: [26]

 Preference in dividends
 Preference in assets, in the event of liquidation
 Convertibility to common stock.
 Callability, at the option of the corporation
 Nonvoting
Capitalization structure[edit]

Domestic credit to private sector in 2005.

As mentioned, the financing mix will impact the valuation of the firm: there are then two interrelated
considerations here:

 Management must identify the "optimal mix" of financing – the capital structure that results in
maximum firm value,[27] (See Balance sheet, WACC) - but must also take other factors into
account (see trade-off theory below). Financing a project through debt results in a liability or
obligation that must be serviced, thus entailing cash flow implications independent of the
project's degree of success. Equity financing is less risky with respect to cash flow
commitments, but results in a dilution of share ownership, control and earnings. The cost of
equity (see CAPM and APT) is also typically higher than the cost of debt - which is, additionally,
a deductible expense – and so equity financing may result in an increased hurdle rate which
may offset any reduction in cash flow risk.[28]
 Management must attempt to match the long-term financing mix to the assets being financed
as closely as possible, in terms of both timing and cash flows. Managing any potential asset
liability mismatch or duration gap entails matching the assets and liabilities respectively
according to maturity pattern ("Cashflow matching") or duration ("immunization"); managing this
relationship in the short-term is a major function of working capital management, as discussed
below. Other techniques, such as securitization, or hedging using interest rate- or credit
derivatives, are also common. See Asset liability management; Treasury management; Credit
risk; Interest rate risk.
Related considerations[edit]
Much of the theory here, falls under the umbrella of the Trade-Off Theory in which firms are
assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when choosing how
to allocate the company's resources. However economists have developed a set of alternative
theories about how managers allocate a corporation's finances.
One of the main alternative theories of how firms manage their capital funds is the Pecking Order
Theory (Stewart Myers), which suggests that firms avoid external financing while they have internal
financing available and avoid new equity financing while they can engage in new debt financing at
reasonably low interest rates.
Also, the Capital structure substitution theory hypothesizes that management manipulates the capital
structure such that earnings per share (EPS) are maximized. An emerging area in finance theory is
right-financing whereby investment banks and corporations can enhance investment return and
company value over time by determining the right investment objectives, policy framework,
institutional structure, source of financing (debt or equity) and expenditure framework within a given
economy and under given market conditions.
One of the more recent innovations in this area from a theoretical point of view is the Market timing
hypothesis. This hypothesis, inspired in the behavioral finance literature, states that firms look for the
cheaper type of financing regardless of their current levels of internal resources, debt and equity.

DEBT ISSUE
https://www.investopedia.com/terms/d/debt-issue.asp#:~:text=A%20debt%20issue%20refers%20to,as
%20a%20bond%20or%20debenture.

https://www.investopedia.com/terms/d/defaultrisk.asp#:~:text=Default%20risk%20is%20the
%20risk,payments%20on%20their%20debt%20obligation.&text=A%20higher%20level%20of
%20default,turn%2C%20a%20higher%20interest%20rate.

https://www.wallstreetmojo.com/default-risk/
https://corporatefinanceinstitute.com/resources/knowledge/credit/default-risk/

Types of Default Risk

Rating agencies rate corporations and investments to help gauge default risk.
The credit scores established by the rating agencies can be grouped into two
categories: investment grade and non-investment grade (or junk). Investment-
grade debt is considered to have low default risk and is generally more sought-
after by investors. Conversely, non-investment grade debt offers higher yields
than safer bonds, but it also comes with a significantly higher chance of default.

While the grading scales used by the rating agencies are slightly different, most
debt is graded similarly. Any bond issue given a AAA, AA, A, or BBB rating by
S&P is considered investment grade. Anything rated BB and below is considered
non-investment grade.