Merits of raising capital through the issuance of Bonds or through Essay

Merits of raising capital through the issuance of Bonds or through issuance of Stocks - Essay Example Merits of raising capital through the issuance of Bonds or through issuance of Stocks Marvin Appel emphasized that â€Å"corporate bonds are debt instruments issued by organizations. And, unlike government which is very least likely to default, there is always risk that a corporate business may not be able to pay its obligations to the bondholders† (10). Matt Evans discussed few advantages of issuing bonds to raise capital for a company’s operations. Some of these advantages are: 1. Interest payments made to bond holders are tax deductible as reflected on the issuing corporation’s income statement; 2. Bond issuances do not dilute earnings per share or decrease control within the company; 3. Usually, cost of bonds issued is fixed; interest and principal do not change within the life of the bond; and 4. Expected return of investment to investors is usually lower than ROI on stocks. For tax purposes, legitimate interest expense payments to banks, financial institutions, and other investors are deductible from income before tax. This will include interest or coupon payments to bondholders of the corporation which issued bonds. This is part of the benefits of using funds from debt financing to augment business performance and the same time paying less tax with respect to the company’s income for a covered period. By issuing bonds, it does not change the control structure of a corporation. Equity holdings of stockholders will remain the same; also the same base for earnings-per-share consideration. On the other hand, Evans also pointed out advantages for a company raising capital through the issuance of stocks. These include: a. Stocks have no fixed payments required to investors; investors will receive return of investment based on profits; b. There is no maturity date on the stocks certificate and invested capital does not have to be repaid within a fixed period; and c. Issuing stocks will improve the credit worthiness of the company. At the company’s standpoint, issuance of stocks to raise capital is the cheapest way to finance business operations contrary to bonds. Unlike bonds, there are no scheduled payments for coupon and bulk of funds upon maturity. Shareholders will get income from their investments through dividends if they opt to hold their stocks for a longer period. By issuing stocks, the generated funds will improve ratios like current ratio, acid-test ratio, and debt equity ratio that are of significant considerations for financial statement users. Moreover, if a company continues to have negative results of operations, the invested capital by the stockholders may be absorbed by the loss. That is why it is regarded as the cheapest way to finance business operations. By its nature, stock holdings are not guaranteed in terms of return of investments. B. Risks of raising capital through the issuance of Bonds or through issuance of Stocks Bonds are debt instruments and usually they are huge fund obligations to pay in the future. Ian Giddy had stated that when a corporation borrows up to its capacity, it loses its flexibility of financing some more future projects through debt financing. â€Å"The corporation that is issuing bonds should continue to perform well in business to make profit enough to pay back its obligations on bonds† (Appel 29). If an issuing corporation will default in paying obligations on bonds, it has a negative impact to the organization in different aspects in the bond market and in the industry. It can be regarded that in the company’s perspective, debt financing through bonds is an expensive way of raising capital

Consumption and Consumer Behaviour Essay Example | Topics and Well Written Essays - 4000 words

Consumption and Consumer Behaviour - Essay Example (Perner n.d.) Researchers in sociology argue that consumption is both a cultural as well as an economic phenomenon; therefore participation in consumer culture is not restricted to those with financial resources to actually purchase goods. The new middle classes, gender, race and youth influence the development of consumer culture. In her seminal work Consumer Culture, Celia Lury argues that consumer culture should be considered as a subset of material culture; that in its current form consumer culture is characterised by 'stylization', following notions of the 'aestheticisation' of everyday life; the ability of subordinate social groups to influence development of consumer culture. This in turn suggests their relative autonomy form dominant structures of economic and social power and to an extent breaks down the distinction between high and low culture, thus levelling or augmenting social change (cited in Bowlby 1997 and Horrocks 1997). The implications of Lury's theses to marketers are obvious. Aesthetics in product presentation are as important as contents. Children, youth and other subordinate groups, which do not form dominant structures of economic and social power, determine or influence consumption. Marketers have data, analytical ability, practical tools and experience to understand consumer behaviour and presumably have the ability to influence it. Yet marketers influencing consumer behaviour on such a scale as to make their company's gigantic successes are an exception rather than the rule, the honourable exceptions being companies like Tesco, Dove, Innocent and iPod. Professor Andrew Ehrenberg observed "that keeping things the same would represent a reasonable success for most promotional campaigns." (Marketing theory2007). On the other hand from a consumer's viewpoint is buying a simple process Is it just that people recognise the need for a product, locate a place to buy it, buy it and consume it According to the post-modern approach, there are a lot of influences that affect the 'simple process'. The experience of Wal-Mart's Latin America operations have important lesson for marketers. The retail chain designed its stores the way they are in the US, with narrow aisles broad parking areas and red, white and blue banners. Latin Americans like wide aisles because they visit super markets with their large families; large parking lots do not appeal to them, as many do not own cars and the banners appeared to them as 'Yankee imperialism'. Consumer's buying behaviour is influenced by cultural, social, personal and psychological factors but in this mix cultural factors dominate. (Kotler 2003, p.183). The following diagram depicts the stimulus-organism-response model of buying behaviour: Model of buyer behaviour- Adapted from Kotler 2003, p. 184 According to Kotler, culture, subculture and social class largely determine the consumer's buying behaviour. (Kotler 2003, p. 183). Culture or civilisation is an individual's highest form of identification with the society. Each culture has within itself - sub-cultures - smaller