Capital Structures and Gearing

Abstract

When stocks or shares are issued by a company there are two distinct groups whose differing interests have to be catered for. First, there are the people and institutions who are being invited to subscribe for the securities. They will be looking critically at the prospectus and forming their own judgements as to the company’s future prospects. If they have surplus funds they will find there are numerous options open to them and this company’s offer is but one of many competing claims for their cash. Further, they will have their own personal requirements for a suitable investment. Long-term growth may be less appealing to an older investor than high present income. And present income may be of little value to someone who pays a high rate of tax. Some investors will accept a high-risk stock so long as there is a hope for high profits, while others will wish to eliminate risk as far as possible. When a company decides to offer stocks or shares to the public it will be necessary to consider the market — in all its aspects.