What Stocks Mean to Corporations

The stock market situation is creating a buzz throughout the United States. Newscasters are claiming the crisis is the beginning of recession; however, stocks are related to businesses and not necessarily the economy. More people need to understand what stocks are and how they work. Stocks and bonds are merely a method of loaning money. There is no reason to believe every company in the United States is going bankrupt.

Corporations use the stock market to gain money in order to expand business. There are two types of stocks. One type of stock gives a percentage of company ownership to the stockholder. The other type offers dividends to people investing in their company. People buy stocks in an attempt to collect interest off of the money they loan to corporations. The stock market protects the corporation, because if stock price go down the corporation is no longer obligated to pay interest on the loan.

Bonds are similar to stocks; however, they guarantee interest will be paid on the money investors give them. Bonds will eventually mature. Usually this happens when a project is finished. The corporation determined they will be able to pay back the invested capital with interest after improvements are made.

Right now investors are interested in supporting oversea corporations. They can make more money. Canada and Asia are in a growth cycle. It is worthwhile for corporate investors to invest in a fund that will produce higher gains. (A gain is the interest made in the sale of stocks.)

Corporations do not go out-of-business because a dip in their stock price. It is difficult for corporations, because several people want their money back; however, they still have bonds and bank loans to rely on if they are in a growth cycle. A growth cycle could include opening several new outlets, developing a new product line or manufacturing a new product line.

As long as competent people are in charge and they are making a profit related to sales companies will survive. It would be a good idea to slow down on expansion and reevaluate price to ensure a quarterly profit. Regardless of stock activity each company maintains a high enough annual net profit to secure bank loans. Management becomes more conservative; however, those not completely relying on the stock market will be fine.

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