Discuss and explain three reasons that companies invest in debt and equity securities.

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The first reason why companies invest in debt and equity securities is that a company may have short-term, excess cash, and does not need it for normal operations. This excess cash could be used to invest in debt or equity securities to generate investment income. A company is able to earn interest revenue from investing in bonds (debt securities), but the interest revenue may not be the only reason to invest. Because bonds are long-term investments, companies purchase them to ensure money is available in the future to finance business obligations. Such business obligations include: pension payments, unforeseen business expenses, etc.

The second reason is when funds are not needed for current operations and they may be used to purchase the stock of other companies (equity securities). Stock investments are considered good investments to pursue because they provide dividend revenue and the opportunity for companies to gain from the appreciation of the stock.

Lastly, a company may invest in debt and equity securities to pursue a certain business strategy. A company may invest in a key vendor's debt or equity securities to further enhance a business relationship with a certain vendor. This action further strengthens the relationship between the investing company and the vendor, possibly influencing them, as well. Companies also invest in these securities to gain control over the operations of the investee's company. In addition, companies invest to ensure that key suppliers and/or customers have enough resources to maintain business continuously.

Some real-life examples of companies that have made significant investments in other companies are Google Corp., Apple Corp., AT&T, and Hershey Chocolate.

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