The company operated by Xiao Jia is doing well, and friend Xiao Yi sees an opportunity to collaborate. After negotiations, Xiao Yi decides to invest 3 million yuan in exchange for a 30% stake in the company.

What seems like a simple transaction actually hides the underlying logic of investment. Xiao Yi is spending real cash of 3 million yuan to obtain a paper-based 30% equity stake— but what makes this "paper" valuable? How can it be converted into real money and returned to Xiao Yi?

**Where Do the Returns Come From**

The actual cash that equity holders can ultimately receive comes from three sources.

First is dividends. The company profits each year, and a portion is distributed to shareholders. As a 30% shareholder, Xiao Yi naturally has a share. This money goes directly into the account, straightforward and tangible.

Second is equity transfer. If Xiao Yi sees an opportunity and sells his 30% stake to a third party, the cash paid by the buyer becomes Xiao Yi’s income. Equity transfer is like flipping a business; the key is finding a willing buyer who offers a reasonable price.

The third scenario is more extreme. If Xiao Jia and Xiao Yi feel they have earned enough or the company's development stalls, they may decide to end the partnership. They would distribute the cash on hand, sell assets like equipment and inventory, and divide the remaining value according to their equity shares—this is liquidation profit.

In simple terms, regardless of the method, the final cash that shareholders receive is tangible money.

**Where Did Xiao Yi’s 3 Million Go?**

From the company's perspective, once this 3 million yuan flows in, it immediately becomes part of the net assets. With this money, the company can expand production, optimize operations, and explore new markets—essentially, continue making money.

The profits earned are used in two ways. One is to distribute dividends to shareholders. The other is to stay within the company as working capital for future operations.

The retained funds are not idle; they continue to increase the company's net assets. An increase in net assets means two things: first, the company has more capital to generate new profits; second, if the company is liquidated someday, the book value is higher, and shareholders can receive more.

This creates a self-reinforcing cycle—net assets increase → generate new profits → some profits are distributed as dividends, others are reinvested to grow net assets → and so on.

**The Complete Profit Chain**

The entire logic can be summarized as follows: Xiao Yi’s investment of 3 million yuan becomes part of the company's net assets → the company uses this asset to operate and generate profits → part of the profits are distributed as dividends to Xiao Yi, and part remains in the company to increase net assets → the increased net assets continue to generate profits or enhance liquidation value → these increments are also converted into the three types of returns mentioned above.

This is the core logic of investing in a company. On the surface, it involves exchanging equity and cash, but fundamentally, it’s using cash to share in the company's future profits and value. Equity is just a vehicle; the real value lies in how much profit the company can earn with this money and what it’s ultimately worth.

Therefore, evaluating whether an investment opportunity is worthwhile depends on whether the company can effectively utilize this capital to continuously generate profits and increase value. Only then is that 30% equity truly worth the 3 million yuan price.