Question

You are the CFO of a publicly held company and need to raise capital for the firm by issuing some kind of equity. Why would a firm want to issue both preferred stock and common stock rather than just one category of stock? Search an article or the Internet for an academic or industry-related article. Select an article that relates to these concepts in the context of doing business in Saudi Arabia. For your discussion post, your first step is to summarize the article in two paragraphs, describing what you think are the most important points made by the authors (remember to use citations where appropriate). For the second step, include the reference listing with a hyperlink to the article. Do not copy the article into your post and limit your summary to two paragraphs. Let your instructor know if you have any questions and enjoy your search. You need to reply to at least two of your peers’ answer posts to this discussion question. These replies need to be substantive and constructive in nature. They should add to the content of the post and evaluate/analyze the answer. Normal course dialogue doesn’t fulfill these two peer replies, but is expected throughout the course. Answering all course questions is also required.

Answer 1

Summary:

Businesses raise money from investors by selling stock in one of two flavors: common stock or preferred stock.

Common stock gives investors partial ownership in a company. Investors holding common stock typically have the legal right to vote to name representatives on the company's board of directors and to approve major corporate decisions, such as mergers. Common shareholders also have the right to receive any dividends that the company declares on their shares.

Preferred stock usually pays fixed dividends year in and year out, rather than seeing changes in payout amounts from quarter to quarter as common stock dividends are.

The label "preferred" comes from two advantages that preferred stock has over common stock.

1. A company must pay out dividends to preferred shareholders before common shareholders receive any dividends.
2. If a company fails and its assets get distributed to investors, preferred shareholders must receive a fixed amount of money before common shareholders can get any of their investment back.

Hyperlink to the article- https://www.fool.com/investing/common-stock-vs-preferred-stock.aspx