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In: Accounting

Buying your company's stocks. What is the benefit in it? What is the downside of it?...

Buying your company's stocks. What is the benefit in it? What is the downside of it? When should you consider buying your company's shares?

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Expert Solution

Benefits in Investing in the company's stocks-

1. Easy to Invest: Investing is very easy to buy the company's stocks. We can purchase them through a broker, a financial planner, or online, in minutes.

2. Make money in two ways: Investing is beneficial to both short-term trends by earning dividends; while the latter expect to see the company's earnings and stock price grow over time (in long term).

3. Easy to Take the money back (Sale): The stock market allows us to sell our stock at any time. Whenever we want. We can sell them through a broker, a financial planner, or online, in minutes.

Downsides in Investing in the company's stocks-

1. Risk: We could lose our entire investment when we invest in the company's stocks due to the poor performance of the business of the company.  

2. Professional knowledge: One of the most downsides is the lack of professional knowledge of financial analysis. Without this knowledge, we are unable to find/ choose the right stock, at right time for purchase or sell.

3. Price fluctuations-Stock market is considered a market where maximum price fluctuation is found due to economic, natural problems that may negatively affect our investment.

We should consider buying the company's shares when we-

1. Investing for Long term-Our money to the best extent possible if we invest it for long period of time. If we invest in the stock market for longer times, economic function of the stock markets will help us to increase our money.

2. Having knowledge of Stock market-We can be benefitted when we have proper knowledge of stock market like-financial ratios, the financial position of company, market conditions etc.

3. Having Risk-taking capacity- We should invest in the stock market when we have capacity to bear the risk of losing our money. As we have discussed above (in downsides-point 1&3) risk and price fluctuation in investing in stock market are very common features.

Thanks & all the best......


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