2.4. Debt Securities

Issuing debt securities, such as bonds, is the other way for a company to raise money in the securities markets. Issuing debt securities allows a business to get financing without diluting ownership and control, which are downsides of equity financing. Companies generally seek a balance between equity and debt financing based on the size of the operation, profitability, cash flow needs, and the nature of the company’s assets.

A bond is a promise-to-pay issued by the borrowing company for a fixed amount of money lent by the bondholder. The company that issues the bond promises to return a specific amount of money plus periodic interest payments to the bond purchaser by