Why do companies make investments in other companies? What are the differences between debt and...

Question:

Why do companies make investments in other companies? What are the differences between debt and equity investments? What is the experience of either your organization or an organization that you are familiar with when it comes to debt and/or equity investments? What would influence a company to choose equity or debt as an investment?

Investment:

Investment is a part of saving that can be used to purchase an asset that gives returns shortly. It refers to the allocation of funds in various forms such as equity, debt, capital, bonds, and so on, to get returns in different form such as interest or dividend.

Answer and Explanation:

Companies invest in other companies to maintain the liquidity of the firm. If an investment gives slow returns, a company invested in equity that provides fast and high returns. Also, companies investment in other companies to make control on the market and to broader their business.

Debt is a type of investment in which a person gets fixed returns as interest payment. On the other hand, equity investment is a type of investment in which a person gets some part or portion of their investment as dividend, according to the revenue of the company.

Both debt and equity investments has some pros and cons, it depends upon an investor that which is good for him. Debt investment is generally good for short-term and equity investment is good for long-run purpose.

Company size, financial needs, expected returns and many more factors are there which influence a company to choose equity or debt as an investment.


Learn more about this topic:

Loading...
Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
4.8K

Related to this Question

Explore our homework questions and answers library