We have all experienced situations where financial position worsened and needed to borrow money. Not only individuals need additional funds, but also organizations and the government. A bond is one of the methods to increase capital. It has a lot of advantages, so you should familiarize yourself with it in detail.
Concept definition
A bond is a financial instrument that secures the right of its owner to receive from the issuer of a security its face value or other property equivalent within a specified period.
Bonds also imply the right of their holder to receive a fixed interest accrued based on the face value. It will be income. If to speak plain language A bond is a type of security that confirms that the issuer has borrowed money from the holder.
Types of bonds
There are several types of bonds.
- By income payment method. Bonds are divided into interest and discount. In the first case, the issuer pays interest, called coupons, over the life of the security. On domestic exchanges, this option is the most common.
- Discount bonds are issued below the face value of the bonds. In this case, they are paid at face value. The profit of the security holder is the discount, that is, the difference between the issue price and the face value.
- By type of bond issuer. Securities of this type are corporate, municipal and state. In the first case, bonds are issued by joint-stock companies, as well as LLC. The second type of securities is offered at the regional, city or district level. The Ministry of Finance of the Russian Federation issues government bonds.
- Eurobonds. This type should be considered separately. Financial instruments are issued by issuers to generate income in foreign markets. They are denominated in the currency of another state. The Ministry of Finance of the Russian Federation and domestic companies issue bonds of this type, which are denominated mainly in US dollars.
general characteristics
The economic essence of these securities is similar to lending, but does not require debt security. In addition, the process of transferring the rights of claim to a new owner has been significantly simplified. It is worth noting that bank bonds have a similar feature. These financial instruments are more valuable than shares, as they allow you to get a pre-emptive right to return money in the event of liquidation or bankruptcy of the issuer. The high reliability of bonds makes them much more relevant to investors, which leads to their wide range.
For the issuer, a bond is additional source income. Their release is mainly targeted. It consists in financing objects or programs whose profits will become a source for payments. Typically, the return on bonds is greater than the return on bank deposits in the same size. Prices for these financial instruments are formed on the secondary securities market, based on a comparison of their yield and loan interest.
Bond Properties
Considering bonds in detail, it is worth knowing that they have the following properties:
- holders of securities have priority in making a profit;
- the transaction has a certain period of validity;
- bonds differ in the amount of payments and frequency;
- bondholders are vested with the primary right to satisfy their financial requirements in case of bankruptcy or liquidation of the company.
Loan bonds are the main borrowing instrument financial resources, which can be issued by the following structures:
- government bodies;
- the government;
- corporations and companies;
- municipal institutions.
Regardless of the entity that issues bonds, they have similar properties.
Bond features
Bonds have several features that should be considered in without fail. The parameters of their release are considered to be:
- the nominal value of financial instruments;
- volume of loan issue;
- profit margin;
- debt repayment periods.
The considered type of securities has a certain maturity, according to which they are divided into:
- short-term bonds (up to five years);
- medium-term (up to ten years);
- long-term bonds with a maturity of more than 10 years.
Securities of this type perform the following functions in the financial market:
- source of financing the budget deficit, regardless of its level;
- source of costs of public authorities;
- source of funding for the contributions of joint stock institutions;
- forms of savings Money companies, financial institutions and population;
- provide profit.
In world practice, there are a huge number of types of bonds. These tools allow you to set individual requirements for a transaction, on the basis of which one market participant agrees to provide capital to another. The issue of bonds depends on their type and most often involves the establishment of conditions that are of interest to a certain group of creditors.
Methods of payment of income on bonds
World practice provides for the use of one of several methods, according to which bonds are redeemed:
- stepped interest rate;
- fixed interest payment;
- floating rate of interest income;
- sale of securities at a discount;
- face value indexing;
- making winning loans.
It is worth noting that the simplest and most relevant form of paying out profits is to set a fixed interest payment. A stepped interest rate implies the definition of several dates after which the holder has the right to fully repay them or extend them to the next date. In this case, the rate will increase in each subsequent period of time.
If the interest rate is called floating, it means that it changes regularly. The procedure is carried out in accordance with the dynamics of the discount rate of the Central Bank or the degree of return on government securities. It is worth noting that some countries provide for the issue of bonds with a par value, which is indexed to the increase in the consumer price index, which is carried out as part of an anti-inflationary policy.
There are types of bonds that do not pay interest. Their holders profit by buying at a discount and redeeming at par. There may also be special draws that allow bondholders to earn income in the form of winnings.
Definition of profitability
Bond yields vary by certain parameters. They depend on the conditions offered by the issuer. Securities that are redeemed at the end of the term, provides for the measurement of profitability of the following types:
- coupon;
- current;
- complete.
Coupon and current yield
The coupon yield is the rate of interest specified in the document and paid by the issuer on the coupon. In this case, payments can be made every three months, half a year or once a year.
The current yield of a fixed rate bond is the ratio of the periodic payments to the acquisition cost. The indicator is able to characterize the paid annual interest for capital. However, the current yield does not take into account the change in the value of bonds over the period of their storage.
The considered indicator is capable to change according to the prices established in the market. It is worth noting that it becomes fixed from the moment of purchase, since the coupon rate does not change. In addition, bond prices and yields will be higher for discounted securities.
The indicator of current profitability does not take into account exchange rate difference between the purchase price and the redemption price. For this reason, it cannot be used to compare the performance of transactions against certain baseline conditions. In order to determine whether it is advisable to invest in bonds, it is worth using the yield to maturity ratio.
Yield to maturity and full yield
Yield to maturity is the interest rate plus a discount factor. It establishes the difference between the current and market value of the payment stream. You can determine the yield to maturity during storage, the bonds are stored until the full maturity date.
Due to the full yield, the price of the bond and all possible sources of income are taken into account. This indicator often referred to as the room rate. With its help, you can determine how effective the purchased security will be. Thus, you can not make a mistake when concluding a transaction and make profitable investment. The determination of profitability will be useful both for individuals and legal entities, as well as for companies and municipalities who purchase the securities in question.
1. The concept and characteristics of bonds
A bond is a security that certifies the deposit of funds by its owner and confirms the obligation to reimburse him the face value of this security within the period specified in it with the payment of a fixed percentage.
characteristic features bonds are:
1. Borrowed funds;
2. The issuer undertakes to repay the nominal value of the bond to the investor after a certain period of time;
3. The investor gives a loan on certain conditions, for which the issuer undertakes to pay a fixed percentage.
An investor can receive two types of income from bonds:
Interest that is paid annually, quarterly, etc.;
Discount income, which is the positive difference between the purchase price (below face value) and the redemption price (at face value) of a bond.
The procedure for paying interest on bonds is regulated by the “Regulations on the procedure for paying dividends on shares and interest on bonds”.
2. Classification of bonds
Based on world practice and legislation Russian Federation, the following classifications of bonds are possible.
I. Depending on the entry in the register, the issuer distinguishes between bonds:
Nominal; in registered bond the name of the holder is indicated;
To the bearer.
II. Depending on the entities issuing securities, bonds are distinguished:
1) states:
federal,
Municipal;
2) joint-stock companies(corporations); in the Russian Federation, the most widespread at the first stage of development stock market received government bonds.
In world practice, the following types of bonds issued by local authorities are distinguished:
1. Bonds under general obligation, which represent unsecured bonds. In this case, local taxes can act as indirect security.
2. Project income bonds that are issued for financing specific projects and repaid at the expense of income from the implementation of these projects.
3. Special tax bonds that are redeemed against any council tax:
Interest-bearing bonds (payment is made on coupons) and interest-free bonds (with a zero coupon);
Bonds with a fixed interest and bonds with a floating interest (the interest is measured in accordance with the conjuncture of the loan capital market);
Secured bonds (bonds with collateral), which can be secured by a pledge of property, etc.
First mortgage bonds;
second mortgage bonds;
convertible bonds;
Extendable bonds, which allow the bondholder to push back the maturity date by a number of years;
Market and non-market bonds.
dividend policy.
A dividend is a part net profit joint-stock company, subject to distribution among shareholders, attributable to one share for a certain period.
Overall size dividends are determined after deducting from the received profit:
Amounts of taxes and other obligatory payments;
Contributions to the production development fund;
Refills reserve fund;
Interest payments on bonds;
Payment of dividends on preferred shares; if the joint-stock company has worked unprofitably, then the owners of preferred shares are paid a dividend at the expense of a special fund that can be created in the joint-stock company;
The rest of the net profit can be used to pay dividends on ordinary shares.
The dividend rate is the shareholder's income, expressed as a percentage of the par value of the shares.
The dividend rate is defined as the ratio of the dividend paid per share to the nominal value and is expressed as a percentage:
The terms and frequency of payment of dividends are determined in the issue prospectus and can be changed by the decision of the general meeting of shareholders. Dividends can be paid annually, quarterly, monthly, etc.
The Board of Directors has the right to set the amount of interim dividends and pay them without convening a general meeting of shareholders.
Dividends are accrued and paid only on outstanding shares.
An important component of the dividend policy is the choice of the form of payment of dividends.
Dividends may be paid:
In cash;
Transfer to an account;
Securities of the same joint-stock company. carried out through the distribution of dividends in the form additional issue shares or through the automatic distribution of dividends to purchase shares.
Dividend tax is levied depending on the person to whom the income is intended:
For individuals - income tax;
Legal entities - tax on profits from non-operating transactions.
24 Essence and content of financial risks, types of risks.
Financial risks are commercial risks.
Pure risks - means the possibility of a loss or a zero result.
Speculative risks are expressed in the possibility of obtaining both positive and negative results. Financial risks are speculative risks.
Credit risks- the danger of non-payment by the borrower of the principal and interest due to the creditor.
Interest risk - risk of loss commercial banks, credit institutions, investment funds, Selengo companies as a result of the excess of interest rates paid by them on attracted funds over the rates on loans granted.
Currency risks - represent the risk of currency losses associated with a change in the exchange rate of one foreign exchange in relation to others, including national currency when conducting foreign economic, credit and other foreign exchange transactions.
Lost risk financial gain- this is the risk of indirect (collateral) financial damage (lost profit) as a result of the failure to carry out any activity (for example, insurance) or the suspension of economic activity.
The magnitude of the risk or degree of risk is measured by two criteria:
1) average expected value;
2) fluctuation (variability) of a possible result.
The mean expected value is that value of the event magnitude that is associated with the uncertain situation.
Ways to reduce risk.
Risk avoidance means simply avoiding the risky activity. However, avoiding risk for an investor often means giving up profits.
Retention of risk Leaving the risk to the investor, i.e. on his responsibility. So, an investor, investing venture capital, is sure in advance that he can, at the expense of own funds cover the possible loss of venture capital.
The transfer of risk indicates that the investor transfers responsibility for financial risk someone else, like insurance company. In this case, the transfer of risk occurred through financial risk insurance.
Reducing risk means reducing the likelihood and amount of loss.
When choosing a specific means of resolving financial risk, the investor should proceed from the following principles:
1. You can't take more risks than you can afford. equity, the investor must:
Determine the maximum possible loss this risk;
Compare it with the amount of invested capital;
Compare it with all your own financial resources and determine whether the loss of this capital will lead to the bankruptcy of the investor.
2. We must think about the consequences of the risk.
3. You can not risk a lot for the sake of a little, the investor must determine the ratio between the insurance premium and the sum insured that is acceptable to him. An insurance premium is a payment for the insured risk of the insured to the insurer, in accordance with the insurance contract or by virtue of law.
Sum insured- it sum of money for which material assets are insured.
To reduce the degree of financial risk, various methods are used:
Diversification;
Acquisition of additional information about the choice and results;
Limitation;
Insurance (including hedging), etc.
Diversification is the process of distributing invested funds among various investment objects that are not directly related to each other.
Limitation is the establishment of a limit, i.e., the maximum amount of expenses, sales, loans, etc. Limitation is an important tool risk reduction;
Bankruptcy.
Insolvency (bankruptcy) - the inability of the debtor (citizen or organization) recognized by the authorized state body to fully satisfy the claims of creditors under monetary obligations and fulfill the obligation to pay mandatory state payments.
World practice provides for the application of the insolvency procedure for both legal entities and individuals.
In the Russian Federation, a decision on declaring a debtor bankrupt is authorized to be made by an arbitration court.
In Russian legal science, the institution of insolvency (bankruptcy) is referred to as a branch of business law.
Reasons for bankruptcy:
- completion of the production cycle for the enterprise;
- debt litigation
- unqualified management of the enterprise;
Signs that threaten the approach of bankruptcy
- low return on investment
- low profitability
- a sharp decline in the price of stocks and bonds
- inability to pay past due obligations
termination measures
- abandonment of unprofitable divisions and production equipment
- decline dividend payments
- timing and extension of debt maturities
- availability of company insurance
Finance analysis methodology.
The financial condition of an economic entity is a characteristic of its financial competitiveness, use financial resources and capital, fulfillment of obligations to the state and other economic entities.
Sources of information for analysis financial condition are balance sheet and annexes to it, statistical and operational reporting.
The profitability of an economic entity is characterized by absolute and relative indicators.
The absolute rate of return is the amount of profit or income.
The relative indicator is the level of profitability.
The level of profitability of economic entities associated with the production of products (goods, works, services) is determined by the percentage of profit from the sale of products to the cost of production.
Solvency analysis is carried out by comparing the availability and receipt of funds with essential payments. Most clearly solvency is revealed when analyzing it for a short period of time (a week, half a month).
Creditworthiness is the presence of the prerequisites for obtaining a loan and the ability of an economic entity to repay the loan on time. When analyzing creditworthiness, a number of indicators are used.
The most important are the rate of return on invested capital and liquidity.
The rate of return on invested capital is determined by the ratio of the amount of profit to the total amount of liabilities on the balance sheet.
The liquidity of an economic entity is its ability to quickly repay its debts. Liquidity is determined by the ratio of the amount of debt and liquid funds, i.e. funds that can be used to pay off debts.
Analysis of the use of capital is carried out in relation to the total value and to the constituent parts of capital. The efficiency of capital use as a whole is determined by the level of return on capital, which is the percentage of balance sheet profit to the amount of capital (to the amount working capital, fixed assets, intangible assets). Analysis of the use of working capital is carried out using indicators of the turnover of working capital in them, the turnover ratio. The turnover of working capital in days is determined by dividing the average balance of working capital by the one-day amount of proceeds from the sale of products.
The turnover ratio is the ratio of the amount of revenue for the analyzed period (year, quarter) to the average balance of working capital. Acceleration (deceleration) of the turnover of funds releases (additionally involves) funds from circulation.
Analysis of the use of fixed assets of intangible assets is carried out using indicators of capital productivity and capital intensity.
The return on assets of fixed assets (intangible assets) is determined by the ratio of the amount of revenue for the analyzed period to average cost fixed assets (intangible assets).
The capital intensity of production is determined by the ratio of the average cost of fixed assets (intangible assets) to the amount of revenue for the analyzed period. An increase in capital productivity (i.e., a decrease in capital intensity) indicates an increase in the efficiency of the use of fixed assets and leads to savings capital investments. The amount of this savings (additional investment) is derived by multiplying the decrease (increase) in the capital intensity of products by the amount of revenue for the analyzed period. Currency self-sufficiency is characterized by the excess of currency receipts over its expenditures for the analyzed period.
28 Methods of financial planning.
The purpose of drawing up a financial plan is to determine the possible volumes of financial resources, capital and reserves based on forecasting the value financial indicators.
The center of income of an economic entity is its subdivision, which brings him the maximum profit.
The cost center is a subdivision of an economic entity that is unprofitable, or even non-commercial, but plays important role in the overall production and trade process.
The essence of the normative method of planning lies in the fact that, on the basis of pre-established norms and standards, the need of an economic entity for financial resources and their sources is calculated.
The essence of the calculation and analytical method of planning financial indicators is that based on the analysis of the achieved value of the financial indicator taken as a base, and the indices of its change in the planning period, the planned value of this indicator is calculated.
The essence of the balance method of planning financial indicators lies in the fact that by building balances, the link between the available financial resources and the actual need for them is achieved.
Optimization method planned decisions allows you to develop several options for planned calculations in order to choose the most optimal one.
Financial plan business entity is a balance of its income and expenses.
towards sustainable sources own income include profit, depreciation, deductions to the repair fund, accounts payable permanently at the disposal of the economic entity.
FEDERAL AGENCY FOR EDUCATION
Baikal State University economics and law
Department of Banking and Securities
Specialty 060400 (080105.65) "Finance and Credit"
Specialization "Banking and Securities"
COURSE WORK
in the discipline "Securities market"
on the topic "Bonds: concept, classification"
Supervisor: ______________________________ ________________________
Executor:
Irkutsk, 2010
INTRODUCTION
1. CONCEPT AND DIFFERENTIAL FEATURES OF BONDS 5
2. CLASSIFICATION OF BONDS 10
3. MAIN CHARACTERISTICS OF THE BONDS
CONCLUSION
BIBLIOGRAPHY
INTRODUCTION
AT international practice you can find a variety of types of debt: bonds, treasury bills, bank loans, consoles and the like. The most common of these are bonds and loans.
Bonds currently occupy a significant place in Russian market valuable papers. Therefore, this topic is very relevant. Today, bonds are one of the most competitive investment instruments that have the potential to provide an attractive yield in the form of interest and / or a positive exchange rate difference between the sale (redemption) price and the purchase price of the bond.
The investor must know what he is going to invest in or on what terms he provides a loan (credit), what income he can receive when providing this loan (credit). Before deciding to issue bonds, an issuer must take into account all the advantages and disadvantages of bonds over shares and a bank loan. Therefore, the purpose of writing this term paper is to disclose the characteristics and distinctive features of bonds, as well as their classification.
In the course work in the first chapter, the concept of a bond and its distinguishing features are given. Let's compare bonds with stocks and a bank loan, while finding out the advantages and disadvantages of bonds. The second chapter deals with the classification of bonds and their essence. The third chapter discusses the main characteristics of bonds.
When writing a term paper, the civil code of the Russian Federation is used, also Russian legislation on securities, including regulatory legal acts federal body executive branch for the securities market. When considering issues related to corporate bonds, we will refer to the federal laws “On Joint Stock Companies” and “On Companies with limited liability". And are being studied study guides such authors as Galanov V.A. Edronova V.N. Ivasenko A.G. Alekseeva I.A. Krinichansky K.V. Lyalin V.A. Selevanova T.S.
1. CONCEPT AND DIFFERENTIAL FEATURES OF BONDS
One of the important objects of trade in the securities market are bonds.
Bonds appeared at the end of the Middle Ages, during the formation of capitalism. The term “bond” comes from the Latin “oblige”, which means “to bind”. If you try to give short definition bonds, it can be noted that a bond is a security certifying a loan relationship between an investor and an issuer. Investors who purchase bonds are lenders. Issuers are enterprises, banks, authorities government controlled issuing bonds that are borrowers.
Bonds currently occupy a significant place in the Russian securities market.
The definition of a bond as a security is given in the Federal Law "On the Securities Market" and Civil Code Russian Federation.
A bond is an issuance security that secures the right of its owner to receive a bond from the issuer within the period specified in it of its face value or other property equivalent. A bond may also provide for the right of its owner to receive a fixed percentage of the nominal value of the bond or other property rights. The yield on a bond is interest and/or discount.
The Civil Code of the Russian Federation states that the issue and sale of bonds is one of the ways to conclude a loan agreement.
A bond is recognized as a security that certifies the right of its holder to receive from the person who issued the bond, within the period stipulated by it, the nominal value of the bond or other property equivalent. The bond also gives its holder the right to receive a fixed percentage of the nominal value of the bond or other property rights.
Bonds include the following properties:
1. A bond is an issuance security, that is, it fixes a set of property and not property rights subject to certification, assignment and unconditional implementation in accordance with the current procedure; placed by issues; has equal volumes and terms of exercising rights within one issue, regardless of the time of purchase of the security;
2. A bond is a loan certificate, a debt security, where two persons participate: the issuer (borrower, debtor) and the investor (creditor);
3. A bond is a redeemable, that is, an urgent security that has a circulation period, after which it is redeemed by the issuer, as a rule, at face value. In extremely rare cases, bonds can be perpetual, but in Russian practice there are no such bonds;
4. Bonds are the most innovative. Thanks to constant innovations, bonds are becoming more diverse and convenient financial instruments. In general, the entire development of the bond market in the post-war period can be characterized as the acquisition of flexibility by bonds, and both issuers and investors are more flexible.
5. Bondholders, as creditors, have priority in earning income. When issuing bonds, the issuer determines the amount and frequency of income payments. The amount of income is set as a percentage of the face value of the bond and shows the annual yield. For bonds, the issuer, even in the absence of profit, is obliged to pay income. Payments on bonds are the obligation of the issuer, which he assumed by issuing bonds into circulation. For bonds, the payment of interest is mandatory.
Thus, a bond is a debt certificate, which necessarily includes two main elements:
The obligation of the issuer to return to the holder of the bond after the expiration of the agreed period the amount indicated on the title (front side) of the bond;
The obligation of the issuer to pay the holder of the bond fixed income as a percentage of the nominal value or other property equivalent.
The presence and guarantee of fulfillment of obligations under bonds determine their main differences from shares. Shareholders cannot demand from the joint-stock company the redemption of shares and the return of their funds. The shareholder can only require the company to redeem his shares at market value, however, such a right arises only in certain cases, which are provided for by the federal law "On Joint Stock Companies", but they have the opportunity to claim dividends on shares in the presence of net profit.
Bonds have a number of advantages over stocks, both for the issuer and the investor. The issue of bonds contains an attractive condition for the issuer: through their placement, an organization can mobilize additional resources without the threat of their holders-creditors interfering in the management of the financial and economic activities of the borrower, that is, the investor becomes a creditor, and when buying shares, the investor becomes one of the owners of the company that issued it. It should be noted that the right to issue bonds can only be granted to companies that meet the creditworthiness requirement.
The obligations of the issuer make the principles of bond circulation similar to the principles of a loan: repayment, maturity, payment. But a bonded loan for the issuer also has advantages over a bank loan. As already mentioned, the creditor of the bond issuer is the investor. If the issuer receives a loan from a bank, then the latter lends it with funds initially accumulated from other sources, for the use of which he, in turn, pays money. A loan is more expensive than a bond loan. You can get a loan, as a rule, secured, then a bonded loan can be issued and not secured. Bonds may have long term appeals. And when receiving a medium-term or long-term bank loan, the bank risks losing liquidity, diverting financial resources out of circulation for a long time. Therefore, it is difficult to get a loan for a longer period. Also, the main advantage of bonded loans from the position of the issuer is the ability to maneuver in determining the characteristics of the loan, since all the parameters of a bonded loan - volume, timing, value interest rate, terms of issue, circulation and redemption, and so on - the issuer determines independently.
Despite the advantages of a bonded loan over a loan, enterprises rarely consider it as the main source of investment financing. The issue of bonds has a drawback, which consists in the need to go through a procedure state registration each bond issue, which lasts up to several months, while Bank loan can be obtained after application in an average of 3 weeks.
The bond is also interesting for investors. As a loan instrument, it is a better, safer, less risky security than a stock. The owner of the bond is relieved of the risks of violation of the rights of shareholders, which investors often face. In addition, the bond gives its holder a pre-emptive right over the shareholder in the distribution of profits: first of all, interest on bonds will be paid, and only after that dividends on shares. In the same order, property is distributed in the event of liquidation of the company: first, debts to creditors, which include bondholders, are paid off, only then to shareholders. Thus, shareholders can count on the part of the property that will remain after the payment of all debts.
2. CLASSIFICATION OF BONDS
There are many different types of bonds around the world. For description various kinds bonds, we classify them according to a number of criteria.
The following classification can be proposed:
1. Depending on the issuer, bonds are distinguished:
state;
municipal
corporate;
foreign.
If a bond is issued by the state represented by a federal executive body or an executive body of a constituent entity of the Russian Federation, then such a bond is called a government bond. to federal government bonds include short-term government bonds (GKOs), federal deputies bonds (OFZs), government savings loan bonds of the Russian Federation (OGSS RF), bonds of domestic currency loan(OVVZ), bonds of external bond loans (OVOZ), government savings bonds (GSO). If the bond issuer is an executive body local government, the bonds are referred to as municipal bonds. Legal entities also issue bonds: enterprises and organizations of any form of ownership and organizational and legal status issue corporate bonds. Individuals bonds are not issued.
Stocks are riskier financial instrument than Bonds (fixed income securities). These two types of securities have fundamental differences, which I propose to consider.
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BONDS |
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Equity security |
Debt Security |
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Evidence of the owner's right to: |
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compensation in case of liquidation of the Company or its bankruptcy |
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Term of circulation |
Has an expiration date |
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Income generation |
1. Increase in market value |
1. Change in the price / yield of a bond |
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2. Dividends |
2. Coupon payments |
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Price change |
Share prices can fluctuate a lot |
Bond prices change slightly |
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Share prices are rising |
Bond prices are falling |
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During the economic downturn |
Share prices are falling |
Bond prices are rising |
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The current state of the issuing company. Growth prospect |
Significantly affect the price of the share through the expectation of an increase in the value of the share and dividends |
Only affects the credit quality of liabilities |
The main criteria by which Bonds differ from Shares are: Owners' rights, income generation, price changes, behavior during economic growth and recession.
Definitions of stocks and bonds.
A share is a security issued by a joint-stock company, reflecting the share of the investor (buyer) in the authorized capital, giving the owner the right to receive a certain income from profits in the form of dividends and formal participation in the management of the company.
Dividend - part of net profit current year per share. It is set as a percentage of the face value.
According to the law of the Russian Federation "On joint-stock companies", a joint-stock company (in the abbreviation JSC) is recognized commercial organization, the authorized capital of which is divided into a certain number of shares, certifying the mandatory rights of shareholders in relation to the company:
Only a commercial organization can be a joint stock company.
A joint-stock company can only be such a commercial organization, the authorized capital of which is expressed in shares.
All relationships between shareholders within the company are built on the basis of the share of their shares in the authorized capital.
A joint stock company is a self-governing company. The supreme governing body is the general meeting of shareholders, which is authorized to resolve the most important issues of the society's life. There is a three-tier structure of the governing bodies of a joint-stock company (meeting of shareholders - board of directors - executive directorate). The meeting of shareholders is the supreme governing body of a joint-stock company, and all the most important decisions of its life must be approved general meeting shareholders.
A joint-stock company is not responsible for its shareholders, and shareholders are not liable for the obligations of the company and bear the risk of losses associated with its activities, within the value of their shares. A share as an object of ownership is, by its nature, a category of rights, and not of things in their material form. Ownership of a share is the ownership of the rights that its owner has.
Thus, the share for its holder secures three types of rights:
- 1) to participate in profit (dividend);
- 2) to participate in management (a share gives the right to vote);
- 3) to the share of property upon liquidation (liquidation value).
Formally, each ordinary share gives the shareholder one vote. All decisions at meetings are made by voting of shares. All shareholders are divided into two main groups: shareholders and shareholders. The difference is that the majority in JSCs are "small" shareholders who own a small number of shares. A minority are shareholders who own a significant block of shares, have a great interest in the affairs of the company and significantly influence the decision-making of the general meeting of shareholders. It is they who are the executive owners of the joint-stock company and, manipulating the general meeting of shareholders, carry out decisions in their own interests, often limiting and infringing on the interests of the overwhelming number of small shareholders. In small JSCs, absolute control over the company is exercised by a person or a group of persons who have an absolute controlling stake (the majority of shares is 50% of shares + one share).
An absolute controlling stake contributes to the stagnation of a joint-stock company, since there is no competition in the company itself and there are no incentives for any changes in society and for its development. This situation can lead to the bankruptcy of the joint-stock company. An absolute controlling stake hinders the formation of a securities market in Russia. A developed securities market means free circulation of securities, i.e. their unlimited transfer from hand to hand through purchase and sale, exchange, donation, etc. The presence of absolute controlling stakes at least halved the number of shares of the issuer for circulation, since only shares that are outside the control stakes can be the object of purchase and sale. In large joint-stock companies, it is more difficult to put together a large controlling stake, and most often it is not needed. When a significant share of the shares is scattered among many small investors, it is enough to own a relative controlling stake (less than 50%) to really control the society. A relative controlling stake is a lesser evil compared to an absolute one, since it always retains the ability to put together a larger stake than the current owners of the company, which means that there is a possibility of seizing control over the company. Relative controlling interest allows for competition, and competition is the main driving force market economy. The joint-stock company lives a rich and intense life. Various organizational processes constantly take place in it, through the initiation and management of which the interests of those who manage society are realized. Ordinary shareholders must protect their interests first of all themselves. To do this, you need to know and feel tense inner life joint-stock company.
The document evidencing the ownership of shares is called a share certificate. It specifies the issuer, the registered holder or holders, the par value (if any), the type and number of shares held by the certificate holder, and the respective voting rights.
A share is an equity security that shows the owner's share in the authorized capital and is not a debt security, it does not imply redemption by a joint-stock company.
A share is a perpetual security, its circulation period is not limited, and it can be redeemed only by decision of the meeting of shareholders of the joint-stock company or upon its liquidation (shares are not returned, they can only be sold).
Thus, the main essence of the action is that it is a part of the capital, expresses a share in the capital.
A significant place among securities abroad is occupied by bonds, which account for 60% of the securities market.
A bond is an obligation of the issuer to pay a certain period the owner of this security a certain amount of money. Under this a certain amount It means the value of the bond plus the income, which is called interest, and it does not depend on the profit of the company. A bond is a debt, futures security. The issuer is obliged to repay it, and within a specified period, called the repayment date. This security does not provide rights to manage the enterprise. Due to their debt nature, bonds are a safer investment than stocks. Being analogous to a loan, they are senior securities in relation to shares, i.e. give a pre-emptive right in the payment of income or return of funds in the event of bankruptcy or liquidation of the issuer. The higher reliability of bonds makes them popular among investors, which has led to a wide variety of bonds on the market.
A bond is a security that certifies a loan relationship between its owner (creditor) and the person who issued it (borrower). The current Russian legislation defines a bond as an "issuable a security, fixing the right of its holder to receive from the issuer of the bond within the period stipulated by it its nominal value and the percentage of this value fixed in it or other property equivalent. Thus, a bond is a debt certificate, which necessarily includes two main elements:
- * the issuer's obligation to return to the bondholder after the agreed period the amount indicated on the title (front side) of the bond;
- * the obligation of the issuer to pay the holder of the bond a fixed income in the form of a percentage of the face value or other property equivalent.
The fundamental difference between stocks and bonds is as follows. By purchasing a share, the investor becomes one of the owners of the issuing company. Having bought a bond of the issuing company, the investor becomes its creditor. In addition, unlike stocks, bonds have a limited maturity, after which they are redeemed. Bonds have an advantage over shares in the implementation of the property rights of their owners: first of all, interest on bonds is paid and only then dividends; when dividing the property of the issuing company in the event of its liquidation, shareholders can count only on that part of the property that will remain after the payment of all debts, including those on bonded loans. If shares, being a title of ownership, give their owners the right to participate in the management of the issuing company, then bonds, being a loan instrument, do not give such a right. Bonds are the main tool for raising funds by governments, various government agencies and municipalities. Companies also resort to organizing and placing bonded loans when they need additional financial resources.
The issue of bonds contains a number of attractive features for the company of the issuer: through their placement economic organization can mobilize additional resources without the threat of their holders-lenders interfering in the management of the financial and economic activities of the borrower. However, bond issues of companies should be considered as an addition to borrowed funds, obtained in the form bank loans. A bonded loan expresses relations regarding the return movement of the loaned value; in its essence and purpose, it is similar to bank loan. In this regard, it should be noted that the right to issue bonds can only be granted to companies that meet the creditworthiness requirement. The procedure for issuing bonds by joint-stock companies is regulated federal law"On Joint Stock Companies". In accordance with the said Law, when issuing bonds, joint-stock companies must comply with the following additional terms:
- * nominal value of all bonds issued by the company should not exceed the amount authorized capital company or the amount of security provided to the company by third parties for the purposes of issuance;
- * issue of bonds is allowed after full payment of the authorized capital;
- * the issue of unsecured bonds is allowed in the third year of the company's existence and subject to the proper approval by this time of two annual balance sheets of the company;
- * the company is not entitled to place bonds convertible into shares of the company, if the number of declared shares of the company is less than the number of shares, the right to purchase, which the bonds provide.
Summarizing what was said above about a bond, we can think of a bond as:
- * promissory note issuer;
- * a source of financing for budget expenditures that exceed revenues;
- * source of financing for joint-stock companies' investments;
- * the form of savings of funds of citizens and organizations and their receipt of income.
