A non-dividend paying stock is the one that do not give interest to people who invest in it. Though this type of investment does not give interest on the capital invested, that does not mean that they are the worst investment ever. A person may decide to start a family business, which does not pay any dividend. However, with time the business can grow and become a major success. One of the reasons that can make a person invest in a non-dividend stock is the need by many people to be their self-bosses. The S&P 500 is one of the non-divided stocks whose value has risen rapidly in the recent past (ADVFN. 2012).
Primary factors affecting decisions of capital structure
Ability of cash flow
The business capacity to stabilize, generate cash inflows and promote certainity of such inflows influences the capital selection structure. It is important for a business to have stable cash inflows than average cash inflows.
Growth and sales’ stability
Rapidly growing firms need big amount of capital because the cost of floatation associated with debt is smaller than those in common stock.
The enterprise size highly influences the availability of funds. The debenture terms are more favorable to large companies.
Directors who may need to retain control may not want to sell common stock for it may bring new voting investors who may make control hard.
Risks of long term and short term loans
Long-term loans despite the advantages have risks both to the lender and to the borrower. The lender has the risk of not being paid while borrower has the risk of paying more due to inflation, due to interest and even be tied by the long time payment.
Weakness in managing my money
I have a big problem in managing my money. Some time I may say that I want to limit unnecessary expenses but that is in vain. I always spend unnecessarily. This is a critical problem in not only my life but other people’s lives because it affects their capacity to save which implies that they live from pocket-to-mouth. The possible way to control this is to set a fixed amount of money to save every month and to stick to a consistent saving pattern whatever the circumstances (Jones & Frank, 2007).