A company could keep the profits and earnings to the
owner's of the company. It is only possible if a company does not extend its
market share and stays in minimum profits limit. In order to extend market
share or be market leader or get bigger asset, at some point every company
needs to raise money. To do so, companies can either borrow it from somebody or
raise it by selling part of the company, which is known as issuing stock. A
company can borrow by taking a loan from a bank or by issuing bonds and both
methods are called debt financing. Conversely issuing stock in the market is
called equity financing. The advantages in issuing stock is a company does not
require to pay back the loan or interest payments along the way. No chances
involving into debt and creating obstacle in expanding market share or adapting
the advancement. However, it only leaves shareholder on hope the company will
achieve its target profit and earning per share which leads the capital gains
on holding a stock. If the trend shows negative growth shareholder can sell
instantly without having big loss. The first sale of stock by a company is
called the initial public offering (IPO).
