Stock

• When purchasing stock in a company, an investor receives an ownership stake. The investor believes that the firm will raise its value by increasing its profitability.
  
  

Bonds

• By purchasing a corporate bond, an investor is essentially providing a loan to the company. The investor has no ownership in that firm, but he earns a return on his investment if the company pays the loan back with interest.
  
  

Significance

• The ability to issue stock and bonds allows a public company to raise money and try to increase its profitability. One of the easiest ways for a company to fail is a lack of liquidity.
  
  

Liquidation

• Buyers of stocks and bonds are betting that the company will survive. In the case of abankruptcy and liquidation, the company must pay its creditors, including bondholders, before it can split up its assets to the owners.
  
  

Profits

• If a company is earning significant profit, its stockholders will receive a better return on their investment. But its will receive only their contractually agreed interest payments. So stock owners have a reason to want the company to grow, while bondholders simply hope the company can stay in business and not default.