Visual Guide to Financial Markets

Companies Revisited

When companies report on the state of their finances, they make a clear distinction between equity and debt. This isn’t as easy to do when looking at variations on their stock and bonds. The three types of securities we’ll consider in this chapter, preferred stock, convertible securities, and bank loans, don’t fit neatly into either category.

Though companies can count preferred stock as equity, the dividends they pay on the securities are more in line with bond interest than common-stock payouts. Convertible securities start out as bonds or preferred and end up as common equity, assuming the company’s shares perform according ...