Expert: Doug Ingram - 7/31/2006

Question
Hi,
Would you please clear my below doubts.
Difference between shares and equity
and difference between bonds and debentures.

Thanks for your help!


Answer
Companies have Assets and Liabilities.
Assets are things they own like inventory, buildings, equipment, etc.
The liability side is made of of ownership and leverage.
The major components are owner's equity and debt (borrowed funds).

When you invest in a company, you buy shares of equity and you may get paid a dividend.  You actually own part of the company.  Shares of equity come in the form of stock certificates, so you own "stock" in the company.

When you buy bonds, you are loaning the company money. You usually are more secured than the stock holders and there are varying degrees of debt (types of bonds).  Companies also borrow from banks, but can usually issue the debt a little cheaper depending on their credit rating.  Bonds and debentures are often the same thing, but ocassionally a debenture may refer to a specific type of debt with no pledge collateral or security pledged.