Accounting Sample Paper on Stock Financing

Stock Financing

            Stock financing refers to the selling of part of an ownership, in order to raise funds to run a business. Business to start usually need a start up value that will enable the business owners to run the business. However, due to the money factor, some businesses usually need more capital than the owner can afford, and therefore there will be need to consider other sources of more capital, which could be through borrowed funds that must be paid back or or raising of funds through sale of stock. For instance, loans, ploughing back of business profits, leasing and hiring, and trade credit among other sources. Moreover, depending on the type of business to be started, since some business like a growth oriented business, will determine where and how they can acquire capital (Gitman, 2008, p. 188).

            Financing with stock has a number of advantages that have benefited many businesses, for instance there is flexibility. This is because the dividends on the stock can increase in price during profitable periods or decrease in a low profitable period. Therefore the debt interest is usually fixed in that a business is not in pressure on to paying much value (Porter and Norton, 2011, p. 575).

            However, financing with stock also bares a number of disadvantages such as, most of the ratios are affected where the issuing of the stock decreases financial ratios, for instance the earnings per share ratio (Porter and Norton, 2011, p. 575). 

            Due to the different effects that accompany the financing with stock, not all types of business are supposed to do that. For instance sole proprietorship and partnerships require less capital and therefore they do not need to finance their stock to avoid losing their personal assets on paying debts. Corporations can therefore sale stock to obtain more finances to run the business. The corporations and liability companies usually have a large base of assets and they could be the best options to practise such an activity (Pride, Hughes and Kapoor, 2012, p.581).

References

Gitman, L. J., & McDaniel, C. D. (2008). The future of business: The essentials. Mason, OH: Thomson South-Western.

Porter, G. A., & Norton, C. L. (2011). Financial accounting: The impact on decision makers. Australia: South-Western Cengage Learning.

Pride, W. M., Hughes, R. J., & Kapoor, J. R. (2012). Business. Mason, OH: South-Western Cengage Learning.