Advantages and disadvantages of common stock financing

The advantages and disadvantages of common stock financing are as follows:

Advantages of raising funds through common stock:

1. Ordinary shares have no maturity date, and the capital they raise is the company's permanent capital, which needs to be repaid unless the company is liquidated. Therefore, common stock is the most stable source of funds in the company's capital, which is very important to ensure the company's minimum capital demand and promote the company's long-term sustained and stable operation.

Second, the company has no obligation to pay ordinary dividends. This allows the company to take action according to the specific situation: when there is more profit, or surplus but lack of funds or more favorable investment opportunities, it can pay less or stop paying dividends on common stock.

Third, the risk of raising funds with common stock is small. Since the common stock has no fixed maturity date and does not have to pay fixed interest, there is actually no risk of not being able to repay the principal and interest.

4. Financing by issuing common shares belongs to the financing of the company's sovereign capital, which can protect the company from various restrictions on the company's operation by creditors and preferred shareholders and ensure the flexibility of the company's operation.

Disadvantages of common stock financing:

First, the financing cost of common stock is relatively high.

Second, it is easy to dilute the participation of the original shareholders of the company by raising funds with ordinary shares.

Third, the issuance of new common shares may be regarded as a negative signal by investors, which may lead to a decline in share prices.