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Bond vs Stock

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

Bond

Stock
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
bond money.
 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
resolution.

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.

COMMENTS

: 1
  1. respected sir,
    i am the regular follower of your teachings and found that article provide immense knowledge, especially the articles which are practical oriented and shown with the help of you tube.
    kindly explain all the practical oriented articles with the help of you tube so that we can learn how to work in the office and other industries.
    like dealing in the foreign exchange, swaps, finance functions in excel like v look up, h look up others.
    sir you have mentioned in your previous example about swaps, but kindly teach us on the you tube how work is carried on in the exchange market.
    thanks
    your faithful student
    vikas bangur

    ReplyDelete
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Accounting Education: Bond vs Stock
Bond vs Stock
Accounting Education
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