Every private company wants to get to the level of large public liability companies. One way to measure the success of a public liability company is by estimating the value of its capital stock. The total amount of a company’s capital can be represented by the value of the issued stocks of the company in question. The total sum of ordinary shares and preference shares can be described as capital stock.
It has to be pointed out that it is in the interest of the public liability company to sell stocks to the public. This is because a reputable company can raise a huge sum of money by selling shares to the public. In most cases, the initial public offering of a solid firm can raise millions of cash for the company in question. This money can be used to finance huge projects. The money can also be used to expand operations and make the company much stronger than it was before the public offering.
For the investor, buying part of a company’s capital stock has a number of advantages too. The initial public offering is a wonderful opportunity to buy stocks at relatively low prices. The beauty of buying stocks in this way is that the stocks may rise in value and this will mean huge profits for the shareholder. Again, buying shares is a great way for the investor to get one foot in the door. This is because there are cases a public company may choose to sell stocks by the method of rights issue. In this case, only existing shareholders can buy the stocks. The advantage for people who have bought stocks already is that they can always be involved in subsequent rights issue.
It is important to point out that shareholders can also make profit from dividends and capital appreciation. A long a public company continues to grow, the shareholders will continue to make money as well. Finally, the idea of capital stock can be considered a sort of win-win situation. The public company raises money from selling stocks and the investor makes profit from buying the stocks. This means that the transaction is beneficial to both parties.