What is the residual security?

residual security is any type of any type of security that could be converted into a ordinary share in the future in the future. The two most common types of these securities are convertible bonds and convertible preferred stocks. For both of these tools, the holder generally has the possibility to convert them to the ordinary share if the basic stock price exceeds a certain predetermined limit. One disadvantage of residual security for the issuer is that it has the potential to dilute profit per share by increasing the number of outstanding shares.

There are times when investors have the opportunity to participate in any hybrid investment that combines the characteristics of solid income and capital. This can be useful for investors who are not ready to commit to buying their own capital if the stock price is increasing. Companies issue these securities as a way to raise money. Such safety is known as Jacozbytký safety that contains the advantages and disadvantages for INVEstory and society.

As an example of how residual security works, the investor could buy a bond convertible that returns regular interest payments as well as a normal bond. The difference is that the convertible bond has a strike price, which is the price of the underlying stock in which the conversion process begins. Once this price is achieved, the investor has the opportunity to exchange a bond for a predetermined amount of shares.

The preference preference, another type of residual security, works in almost the same way as the convertible. In this case, however, an element with fixed security income comes from interest payments, but instead of dividends. With both of these instruments and other forms of residual securities, there is a danger to investors if the cost of stocks never reaches the price of strike and conversion does not occur. If this is the case, these securities will be compared to herGenerally insufficiently powerful tools.

Any company that issues residual security can use money obtained by issuing a new business initiative. However, if securities are converted into ordinary shares, the results can damage the company's profit into a share, a key metric studied by investors. When investors turn bonds and preferred shares to the ordinary share, it will increase the number of unpaid shares of shares. Given that the profit per share is calculated by distributing the company's profit according to its unpaid shares, a higher number of outstanding shares means lower profit per share.