Bond and shares are both main source of the fund of company. Company gets money from bond and stock for buying fixed assets, paying past loans and fulfillment of working capital requirements. Both are the inflow of cash. Liability of company is also limited up to the value of stock and bond. But there are many difference between bond and stock, if we go to deep of both finance terms. Following are main difference between bond and stock.
Bond vs Stock
|Basis of Difference || |
|1. Return || Company pays interest with fixed rates on the taken amount of bond || Company pays dividend which not fixed. |
|2. Conversion || We can convert bonds into stock || We can not convert stock into bonds. |
|3. Priority || Company prefer to repay the amount of bonds at the time of liquidation || Company will return money after paying the money of bonds. |
|4. Mortgage || Bonds may be mortgage. It means company can give its assets as security for getting |
| Company can never issue mortgage stock. |
|5. Creditor or owner || Bond holders are only creditors of company. They have no right to manage company. || Stockholders are the real owner of company. They have right to manage company by voting and |
|6. Name || - Bondholder || - Stockholder |
|7. For Example || Suppose, XYZ ltd |
issued $1 million bonds and raised same amount. For this company issued 10000 bonds certificate and each value is $ 100.
| Suppose, XYZ |
Ltd issued stock of $ 5 million and raised same amount. For this company issued 500000 shares and value of each share is $ 10
|8. Strategy || You can buy bonds |
for short and middle period investment.
| You can buy stock |
for bargaining or long period investment.
|9. Risk || If bonds are |
secured debt, there is no risk of loss of money. For example, at the time of liquidation, company raised $ 10000 from sale of assets. Secured bonds are $ 6000. and stock are $ 10000. Now, company will repay full amount of secured bonds.
There is 100% risk
of loss of money of stockholders if they invest in stock. For example, at the time of liquidation, company raised $ 10000 from sale of assets.
Secured bonds are $ 6000. and stock are $ 10000. Now, company will repay stockholder after repaying bonds $ 6000. $10000 stocks will get only $ 4000. It means every person who has $ 10 will get $ 4.
|10. Share of Profit || Bondholders do not share in a company's profits. || Company enjoy the |
business with trade on equity. At that time stockholder will share in a company's profits at high level.