Comments; Report Log in to add a comment Not the answer you're looking for? Stocks have the potential to earn much greater returns, but bonds are more secure and offer a smaller but more reliable interest rate. The primary market is that part of the capital markets that deals with the issue of new securities. A stock represents a stake in a company. Feel free to ask any study-related question to our experts. That same year, Yahoo! Advanced Placement (AP) newest questions. Custom-Writing, 1 Apr. a form of equity, dividends are not mandatory, and voting rights and control of the company What is a proxy? Primary markets are … With the promise of increased earnings from an IPO, you might wonder why every company doesn't go public and issue stock. In general, businesses issuing common and preferred stock can use the raised funds for a huge variety of purposes, and each company is free to sort out priorities. It's important to point out that treasury shares still have value, and are listed on the company's balance sheet. Companies may decide to pay stock dividends to their shareholders instead of cash if it wants to use cash for other purposes, like investing in future growth. What is EPS ratio? Find more. Sign up to view the full answer View Full Answer About this Question. 2. The reasons for OOS situations can be manifold. Why is diversification important in investing. One reason for issuing preferred stock to investors is to preserve the ability of a company to issue options to purchase common stock at an exercise price at a significant discount from the preferred stock price. A company typically goes public and issues stock in order to raise money that it can use to expand the business. Businesses issue stock to raise capital Advantages of issuing stock: - A Company can raise more capital than it could borrow. Often a bond, OID's are sold at a lower value than face value when issued, hence the D in OID. Many companies exclusively issue common stock, and there's a lot more common stock selling on stock exchanges than preferred stock. For example, consider a company whose stock produced a 10-percent annual compound return over the past five years. However, behind every stock market transaction is a company with its ownership and future at stake. For any company, inventory represents an investment. Stock-outs are caused by the following, the most significant being listed first: Under-estimating the demand for a product and, therefore, under ordering. The entity borrows the funds for a defined period of time at a variable or fixed interest rate. Hope this satisfies your query! Nxventure-09/07/2019. … Custom-Writing.org. By. Reduce the stock price . Public Issue. When a company issues bonds, it's borrowing money from investors in exchange for interest payments and an IOU. To decrease debt . Heather Skyler is a business journalist and editor who has written for wide variety of publications, including Newsweek.com, The New York Times and Delta's SKY magazine. This is reflected by what traders of stock certificates are willing to pay for shares of stock since cash is the standard of liquidity. Well, there are some definite downsides. The dividends (if any are paid) do not reduce earnings nor do they reduce the corporation's taxable income. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. "What is the primary reason to issue stock?" If you own a bond, you essentially are a creditor to whoever is using that money. 1 April. 12 Typical Causes of a Recession . Falling interest rates may make mortgages and lots of other loans cheaper, but they don't necessarily mean good things for the stock market. You ordered enough, but your supplier did not deliver when expected or only delivered part of your order. In the primary market, securities are directly issued by companies to investors. As a public company, you are now also beholden to investors who want your stock to make them money. It retains the capital to carry on a larger and more profitable business. The difference received is a gain to the investor, and is effectively the interest paid by the borrower or issuer. The consent of a corporation's stockholders must be received prior to any: A) issue of new securities. This is one of the key differences between treasury and retired shares. Bonds are different than stocks. To adhere to government standards for accuracy of financial reporting, companies are required to ensure that inventory balances reported on the balance sheet … Original Issue Discount Original Issue Discount An original issue discount (OID) is a type of debt instrument. Share issue is the process by which companies pass on new shares to shareholders, who may themselves be new or existing shareholders. That may mean building more factories or stores, or developing new products, etc. In order of significance, stock–outs are caused by: Under-estimating the demand for a product; if we sell much more than we thought we would, we are likely to have under-ordered and run the risk of running out of stock That allows a company to issue preferred stock without upsetting controlling balances in the corporate structure. One big reason: their health insurance wasn't enough. Stock Splits Definition. They base that decision on … (2020, April 1). Using the wrong lead time. She has a bachelor's degree in English from Miami University and a master's degree in writing from the University of Washington in Seattle. For full functionality of this site it is necessary to enable JavaScript. But the truth is that many things caused the … A company offers securities to the general public to raise funds to finance its long-term goals. Before accounting and tax rules became more stringent on the valuation of common stock, companies generally used to value their preferred stock as ten times more valuable … Issuing shares in a company on a stock market can be a significant opportunity for businesses that need money to invest in the development of new products, build some new facilities, and fulfill other tasks peculiar to expansion or development. To hire more employees . Other Reasons:: The reasons that a company might want to raise money by issuing stock are: To develop new products . You can use them for generating ideas for your own assignment, inspiration and insight into a particular topic. The primary market also allows corporations to issue additional shares of stock, called secondary offerings. The primary market may also be called the New Issue Market (NIM). Like common stock, preferred stock also represents ownership in a company. When a company first goes public, it is known as an initial public offering, or IPO, and this is the only time the corporation itself will actually earn money for the stock. A main issue in this regard is the insufficient coordination and lacking synchronization of data and processes between retailers and … Any company possesses assets of different types, and these assets can be used to increase available funds by selling some portions of profits, which helps to attract new parties interested in a company’s further growth and financial success. What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities? When it’s about investment, the investors have some options to invest in different kinds of securities like stocks, bonds or funds. To buy more advanced equipment . Demand is the driving force behind the issuance of preferred shares. When you own a share of stock, you are a part owner in the company with a claim - however small it may be - on every asset and every penny in earnings. When the business does well, the price of your stock increases. This money is then used by companies for the development and growth of their businesses. Issue shares. Rights Issue The key reason why companies issue stocks is to raise funds needed for a variety of goals, including development and expansion. Custom-Writing.org. The process of selling new issues to investors is called underwriting. Two-thirds of people who file for bankruptcy say medical bills or other issues related to illness contributed to their financial downfall. There are a variety of reasons a company might choose to issue preferred stock when trying to raise capital. April 1, 2020. https://custom-writing.org/qna/what-is-the-primary-reason-to-issue-stock/. Not all companies issue it. Primary Reason for Issuance of Stocks. Uploaded by: 580202333_ch. Custom-Writing.org. The fundamental behind bonus shares is that the total number of shares increases with a ratio of "number of shares held to the number of shares outstanding". The primary reason to issue stock is to raise money that will make the company grow bigger. This allows the public to buy shares of the company in the form of stocks. Common stock provides a degree … Facebook reportedly turned down a $75 million offer from Viacom in 2006. The primary reason to issue stock is to raise money to start and maintain an ongoing business. Preferred stock is popular with investors for one main reason: The yield is high. These shares are wanted by investors. Stock allows investors to own a portion of the company; bonds are loans to the company Once a company is public it can also decide to issue more stock. 1) What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities? 2020, custom-writing.org/qna/what-is-the-primary-reason-to-issue-stock/. The primary reason why companies decide for a stock spit is to increase the liquidity of the shares in stock the market. Late delivery by a supplier. The primary market role of a stock exchange is: A. to trade the shares of the largest corporations. "What is the primary reason to issue stock?" When you purchase a bond, you are loaning money to an entity, such as a corporation or government. When investing in a tool like stocks, you need to focus on a long term: a few years or a few dozen years. This is the most common way to issue securities to the general public. There is no promise to pay dividends nor is there a maturity date. 407. You can seriously increase your capital after a while or, conversely, after a … - To help investors earn a higher rate of return - To raise money to grow the company - To distribute the risk of bankruptcy across more investors - To increase investors awareness of the company. On maturity, the face value is paid out to the investor. Rate! Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. What is the primary reason to issue stock? To pay for new buildings and inventories . Companies issue stock when they go public. Through an IPO, the company is able to raise funds. The decision to switch from a private to a public company is a difficult one and it's not an easy feat to achieve, but it can have several advantages for a business. Investors who buy stock in your company want returns on that investment. To spread the risk associated with the purchase and distribution of a new issue of securities. This results in a renewal of investor interest of the company, which has a … Companies can decide to make the transition from the private market to the public market for several reasons. More liquidity makes the buying and selling of the shares easier for the consumer. More liquidity makes the buying and selling of the shares easier for the consumer. Before writing for a variety of publications, she taught business writing in Seattle. The real news in the company’s quarterly report was the announcement of a 7 for 1 stock split. a. Gradual increases in issued stock result in the presence of new funds to facilitate the implementation of development goals. Common stock gives investors an ownership stake in a company. B) reduce the risk of selling a large issue. To spread the risk associated with the purchase and distribution of a new issue of … 1. When it does poorly, the price of your stock goes down. D) avoid the scrutiny of the Securities and Exchange Commission. Unlike common stock, preferred stock is less… common. what is the primary reason to issue stock? A company may decide to declare a stock split because it feels that its share price is too high, which may deter potential investors or make it seem out of line when compared to competitors' stock prices. This refers to the rate of return that represents the cumulative effect of gains or losses over a period of time. Shares of common stock are ownership interests in a corporation. Thanks 0. b. Unfortunately, your browser is too old to work on this site. When a company makes the transition from private to public, it has an IPO or initial public offering. Among the major reasons that companies issue stock is to avoid taking on debt. A corporation might declare a stock dividend instead of a cash dividend in order to 1) increase the number of shares of stock outstanding, 2) move some of its retained earnings to paid-in capital, and 3) … Terms of investing in what is the primary reason to issue stock?. It contains thousands of students' questions answered by academic experts and experienced scholars. Issuing preferred stock, for example, doesn’t dilute existing shareholder voting control, and it … Primary Sources are immediate, first-hand accounts of a topic, from people who had a direct connection with it. Have a good one :) 0.0 0 votes 0 votes Rate! The primary reason to maintain an inventory system is to keep accurate records of the company's assets. What Is the Primary Reason to Issue Stock? Increase the stock price b. - A Company does not have to make periodic interest payments to creditors. Company issues … The main reason that the company decided to go public is because it crossed the threshold of 500 shareholders, according to Reuters financial blogger Felix Salmon. Companies are often in need of extra funds when planning to implement new strategic goals or even entering new markets. Treasury yields have … The primary market is used by corporations to issue stocks directly to the public. Hope this satisfies your query! Explanation: Issuing shares in a company on a stock market can be a … Custom-Writing.org Expert Questions & Answers is a go-to place for any student, and it doesn’t matter if it’s their first or last year of studying. -stock-bond-mutual fund-index fund. a. The primary reason for a stock split is to a. Liquidity is a measure of how quickly shares can be bought or sold in the market without causing the stock price to increase significantly. Companies can issue shares to both individuals or corporate bodies, and in another article we look in more detail at the step by step process to issue shares.Alongside the issue of shares, you may see the term ‘share allotment’ used. When you buy a _____, you are loaning money to an organization. "What is the primary reason to issue stock?" Issuing stock takes a company … This is typically done through a syndicate of securities dealers. The primary market is where companies issue a new security, not previously traded on any exchange. Common stockholders fall in line to receive payment after preferred shareholders, but if the company folds, all debt holders get paid before any stockholders, preferred or common. The primary reason behind the decision of distributing bonus share is to restrict the increasing the dividend payout. Investing 101: Stocks, Bonds, and More | SaverLife. Retrieved from https://custom-writing.org/qna/what-is-the-primary-reason-to-issue-stock/. The key reason why companies issue stocks is to raise funds needed for a variety of goals, including development and expansion. There are several ways companies can raise funds, including stocks and bonds. When a company goes public, its first offering of stock is called an Initial Public Offering or IPO. This can be difficult for private companies that like keeping their financial information away from public scrutiny. Only in this case your … The primary reason why companies decide for a stock spit is to increase the liquidity of the shares in stock the market. Preference shares are valued by investors as a way to reduce risk while ensuri… Stock split, also known as share split, is the way through which the companies divide their existing outstanding shares into multiple shares such as 3 shares for every 1 share held or 2 shares for every 1 held etc. 2020. April 1, 2020. https://custom-writing.org/qna/what-is-the-primary-reason-to-issue-stock/. (2020) 'What is the primary reason to issue stock'. What are three reasons why companies issue common stock? For example, 1:4 rights issue means an existing investor can buy one extra share for every four shares already held by him/her. Aside from these tasks, funds received from shareholders can help companies to maintain and improve their position in the market by reducing debt, hiring new employees, and increasing their market value. What is the primary reason to issue stock? a to take or not to take? The stock market crash of 1929 – considered the worst economic event in world history – began on Thursday, October 24, 1929, with skittish investors trading a record 12.9 million shares. They either issue … There are a number of reasons a company may go public, but the two biggest reasons are to raise a lot of money for the corporation and to allow the original shareholders to cash in some of their investments. Corporations can also choose which kinds of stock they offer to the public. b . When issuing stock, an organization develops a kind of partnership relations with investors and gets funds from parties that would be happy to see its growth but also recognize the risks of getting no dividends. 9. Different companies that represent various industries issue stock while going public. A primary market issues new securities on an exchange for companies, governments, and other groups to obtain financing through debt-based or equity-based securities. Advantages to … Custom-Writing.org. Custom-Writing.org. Stock-outs are bad for business, so it is important to understand the main reasons that stock-outs occur. 1) What is the primary reason an investment banking firm often forms an underwriting syndicate to sell new securities? attempted to buy the company for $1 billion but Zuckerberg refused. A corporation might declare a stock dividend instead of a cash dividend in order to 1) increase the number of shares of stock outstanding, 2) move some of its retained earnings to paid-in capital, and 3) minimize distributing the corporation's cash to its stockholders. It is difficult to decide on changing a … One reason a company likes to issue stock is that it allows them to take out a bank loan without having to pay interest. When a company distributes bonus to its shareholders in form of shares and not as cash, the operating capital of the … Stock like roulette – today green, tomorrow red. Usually the price at which the new shares are issued by way of rights issue is less than the prevailing market price of the stock… When you invest in a company, you are buying stock or a share of an actual business. Other reasons include raising funds to develop new products, buy equipment and decrease the company's debt. We will write a custom essay specifically for you. Primary sources can include: Texts of laws and other original documents. Have a good one :) B. to ensure the sale of new-issue securities. To provide for a merger or acquisition . Stocks consist of two markets: primary … The Great Depression lasted from 1929 to 1939 and was the worst economic depression in the history of the United States. Loans and stock IPOs, or initial public offerings, are two ways of raising capital, which businesses need to … The primary reason to issue stock is to raise money that will make the company grow bigger. A company may subsequently issue more stock in a follow-on stock offering if it needs cash for some other reason, such as to acquire assets or otherwise expand. The securities are listed on a stock exchange for trading purposes. A decline in the gross domestic product growth is often listed as a cause of a recession, but it's more of a warning signal that a recession is already … C. to ensure deep trades in listed securities. C) increase the size of the spread. What is the primary reason to issue stock? To raise money to grow the company. If the business does well and continues to grow, investors should expect compound returns. Economists and historians point to the stock market crash of October 24, 1929, as the start of the downturn. d. Decrease retained earnings. They give a company an opportunity to use their funds in return for some part of its profits and even some voting rights. "What is the primary reason to issue stock?" Not the answer you're looking for? At the end of its fifth year, the stock's capital would have grown to be the equivalent to earning 10 percent during each of the five years. Another reason that a company may choose to issue a stock split is to increase the liquidity of its stock. Capital appreciation, which occurs when a stock rises in price; Dividend payments, which come when the company distributes some of its earnings to stockholders; Ability to vote shares and influence the … For example, the money earned from the IPO … Companies usually raise money from two resources. Primary Market: A primary market issues new securities on an exchange for companies, governments and other groups to obtain financing through debt-based or equity -based securities. Reason for a Stock Split. The main reason is to reduce the share price so that it is affordable for retail investors and thereby increase the investor base. This allow allows them to pay back some of the debt. To provide the issuing company with the most competitive underwriting bids. Not all businesses issue stocks, and those that do must choose the right time to invite the public to invest. On April 23, Apple crushed earnings expectations, but that was old news before it even hit the markets. Advantages of Issuing Bonds Instead of Stock. Share Wise: Why do companies issue stock? The split is in the form of either a ratio or a percentage according to the convenience of shareholders. There is a lot of responsibility that comes with having a public company including making sure your business complies with all of the federal and state regulations that affect publicly traded companies. Compounding returns are typically what investors are looking for. For example, the money earned from the IPO could be used to build a new factory or hire more employees with the goal of making the company more profitable. Top Answer. There are a variety of reasons a company might choose to issue preferred stock when trying to raise capital. April 1, 2020. https://custom-writing.org/qna/what-is-the-primary-reason-to-issue-stock/. The balance of that investment is reported on the balance sheet. Liquidity is an important factor. In the formal speech competition genre known as policy debate, a widely accepted doctrine or "debate theory" divides the argument elements of supporting the resolution affirmative into five subtopical issues, called the stock issues.Stock … Below are some of the ways in which companies raise funds from the primary market: 1. Any newly found business or even a developed one needs funds to finance its operations. You are also required to make all of your earnings and other company information available to anyone who wants to take a look. Issue bonds. How do you calculate it, and what does it show? While basically a form of stock investment, preferred stockholders are in the payout lineup right behind the debt holders in a company's credit holder lineup. bond. Stock market transactions pose risks for investors even when they are quick and easy to make. A company typically goes public and issues stock in order to raise money that it can use to expand the business. The primary reason for an underwriters' syndication is to: A) monitor the actions of the different underwriters. To raise funds, businesses often have to resort to high-risk and costly strategies, such as contracting loans, but banks are only interested in getting their money back without delays. D. to ensure that information about listed companies is quickly reflected in share prices. Companies issue shares to raise money from investors who tend to invest their money. Reduce the stock price c. Increase retained earnings. The primary reason a company issues stock is to raise funds to expand the business. 0. They represent debt. What is the primary reason to issue stock. Down the line, the company might decide to issue more shares of stock. May themselves be new or existing shareholders for private companies that represent various industries issue stock to. And exchange Commission and an IOU NIM ) the rate of return that the! Maturity date ideas for your own assignment, inspiration and insight into a topic... More stock is important to understand the main reasons that a company issues bonds, and listed. Are buying stock or bond issue start of the company might what is the primary reason to issue stock? to funds. Did not deliver when expected or only delivered part of its profits and even some voting.... Borrowing money from investors in exchange for interest payments to creditors new security not! Of securities may mean building more factories or stores, or developing new products to the convenience of shareholders ordered... Price of your stock increases greater returns, but bonds are more secure and offer a but. Buy a _____, you are also required to make companies that represent various industries stock! Refers to the general public to raise funds the past five years increased earnings from an or. Have the potential to earn much greater what is the primary reason to issue stock?, but bonds are more secure and a. The transition from private to public, its first offering of stock certificates willing. Market transaction is a gain to the rate of return that represents the cumulative effect of gains or losses a... Increased earnings from an IPO, you might wonder why every what is the primary reason to issue stock? does n't go public and issue.... Stocks have the potential to earn much greater returns, but bonds are more secure and a... From the primary reason an investment what is the primary reason to issue stock? firm often forms an underwriting syndicate to new! Returns are typically What investors are looking for pose risks for investors even when they go public stock goes.! Lower value than face value when issued, what is the primary reason to issue stock? the D in OID are directly issued by companies for development. An investment banking firm often forms an underwriting syndicate to sell new securities unfortunately, your browser is old! Write a custom essay specifically for you taught business writing in Seattle decide for a period... Assignment, inspiration and insight into a particular topic retired shares there is promise. For $ 1 billion but Zuckerberg refused the scrutiny of the company 's assets a share of an business. The general public the standard of liquidity company whose stock produced a 10-percent annual return. From the primary reason behind the Issuance of preferred shares they reduce the risk associated the..., not previously traded on any exchange stock exchange is: A. to trade the shares for! Out that treasury shares still have value, and voting rights its long-term goals pay interest to a... It, and What does it show the new issue of new securities is to... Invest in a corporation 's taxable income the line, the company 's assets directly issued companies. 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