CAPITAL MARKETING THEORY
The Capital Marketing is about making decisions whether you would be engaging into any types of plan like Investment, Retirement or Financial Plan. Capital Marketing Theory therefore is the new version or a shift of Capital Asset Pricing Model (CAPM) which focuses on risk and returns while in the Capital Marketing represent a new theory of deeper thinking a new approach, since the marketing supply and demand has been constantly changing.
This theory is also about raising funds, a trade of financial capability or simply selling securities in order to raise funds where stock and bonds is a part of it. A company who sells the securities is open to the general public who wish to buy a part of it, the buyer will invest their money and in return they will earn in the form of dividend or interest according to the company performance. The primary role of Capital Market is to bridge the needs of company who are running or needing additional resources and investors who have the capacity to allocate their resources by sharing their capital to the company who needs it. Both of them have a mutual desire to expand profitability over others; this has been a win-win partnership in disguise.
Company’s source of funds can be gained through Capital Market in a long term investment that they can use to expand their business, the Capital Market they have gained are a joint complimentary from the buyers investment and therefore the investors is silently a part of the company. The company has the right to sell their shares the same with the investors if they like to. One of the most popular Capital Market trading is the India’s Capital Market which attracted more than 30 Million investors.
Capital Market has been widely practiced all over the world through Securities and Exchange Commission who has the control over the transaction between the buying public and the selling companies. The SEC is also the agency who can protect the investors against deceitful and fraudulent companies who gather funds for illegal purposes.
For now you may ask how the Capital Market works in a certain company it maybe a little bit confusing and hard to understand for a first time investors so we are going to simplify how the Capital Market works through examples and it goes like this. Let us presume that I have created a business in the clothing industry line where I have gained a customer’s response of an overwhelming ratio over the competition, during the start of my business I have bought at least fifty (50) sewing machine, a piece of land and constructed a building as a depot or factory to stock the merchandize. I have also contracted at least seventy five (75) employees to work on my factory, therefore I have invested at least USD10 million dollars to start my business.
During my first year of operation my distribution is somehow stable and my sales are a bit slowly gaining its strength. But the production continues and the prices of raw materials continue to increase due to inflation. I will be needing another USD 5 million dollars. What I am going to do to maximize profitability of my business is to go to the Securities and Exchange Commission to enroll my business to look for investors who are willing to engage themselves to invest with me. If investors have found the possibility of my portfolio they will invest in my company but a single individual do not have that much money, in a Capital Market a person can engage in an investment even if they only share a portion of what they have. Let’s say the investor would want to invest only the amount of USD 10,000 dollars, this may be acceptable since I will look for another investor continuously to reach my goal or probably exceed much more than I want. Their investment will be called stocks.
The money that I have gathered will go directly to the investment of new machineries and distribution channels for expansion and in return when our money grows, the investors will be having a share of income that they will receive monthly or bi monthly which is called dividend or interest, they will also have the rights to join and participate in some ways to the company if they want to by joining some events or stockholders meetings so they can participate in policy making or they can even choose to vote the new leaders. We will be both happy about our investment. If there will come a time that they are not happy about their income they are free to sell their stocks and the cycle goes for my business to continue to look for another investors. There is so much to discuss about stocks but this simple example should be enough to understand what Capital Marketing is all about.
Credit:ivythesis.typepad.com
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