what do share prices matter?
- Thread starter dan
- Start date
Jeslek
Banned
People make their livings by buying and selling a company's shares.
Example: I buy a million units of stock X at $1.00/share. Stock X then goes up to $2.00 per share, and I sell.
The share price is a reflection of how much people want to buy/sell the company. In their confidence in the company. It doesn't actually reflect the company's value or achievements at all. The only time the company can do anything to affect it is to split (increase number of shares in circulation), or to issue a dividend (pay out X dollars or cents for every share you own).
Example: I buy a million units of stock X at $1.00/share. Stock X then goes up to $2.00 per share, and I sell.
The share price is a reflection of how much people want to buy/sell the company. In their confidence in the company. It doesn't actually reflect the company's value or achievements at all. The only time the company can do anything to affect it is to split (increase number of shares in circulation), or to issue a dividend (pay out X dollars or cents for every share you own).
Because then they have less working capital to work with. When you sell shares of a company, the company gets the money for those shares. If the share prices drop, people panic and sell, reducing the money you have, and further reducing the worth of the remaining shares.
dan
New Member
PuterTutor said:
perhaps i'm being dense... i still don't understand...
the first time the company sells the shares, yeah, they get the cash... but if i sell some to you, then surely i'm the one who ends up with your money, the company doesn't get any of it does it?
so how does a low share price reduce the working capital a company has?
Most working capital is just on paper. If the stock prices drop, the value of the company drops as well. Also, if a large volume of shares is sold, which happens often if the price starts dropping, it is the company that is ultimately responsible for the shares that are not resold to other investors.
Squiggy
ThunderDick
The initial stock issue is sold by the company and the company profits. Usually a large chunk of that is bought up by or set aside for the execs... The shares give you a vote in company elections, thus, the top stockholders comprise the board of directors by voting for themselves..Generally speaking, only someone holding a substantial amount of a given stock is concerned with small variations in share price. And, from the outside, its a good way to judge a company's stability....WTF am I talking about... 
dan
New Member
PuterTutor said:
don't you need a buyer if you want to sell shares?
can you really say "okay, i wanna sell 10,000 of this company X's shares.... oh, nobody wants them... well, company X, you'll have to have them"
how does that work? who decided how much X has to buy them for??
and if X doesn't have to buy them, just find a buyer, who does buy them??
Ok, as I suspected, That was one of the books I sold back, never to crack open again (God Willing). I did find a little info about it at www.howstuffworks.com/stock.htm
I'm certain the answers you want are here. http://www.sec.gov/
but to put it bluntly, I'm not going there.
I'm certain the answers you want are here. http://www.sec.gov/
but to put it bluntly, I'm not going there.
HomeLAN
New Member
Basically put, the stock price of a company is a good measure of how the market as a whole thinks of the company's future, management expertise, and psrospects. A high stock price means that the market thinks it's a well managed company with a future and a good earnings flow, and a dropping stock price can mean the reverse.
This impacts the options available to management. Most especially, it acts as a gauge to how solid the company might be as a borrower. A company with no prospects is going to find it harder (and more expensive) to borrow money for expansion in the future, until the current situation (or perception thereof) turns around. This is one of the major reasons a firm's stock price gets so much management attention. Another is that hghly placed managers are likely to hold a bunch of stock themselves. This is another built-in motivator for management.
As to having to have a buyer if you're selling, you will. The company doesn't usually buy it back. Your broker does. All major brokerages have millions of shares in thousands of companies in their house accounts. When you buy or sell a share, the other half of the transaction is likely to be a broker.
Of course, at any given time, what you can buy a share for is a little more than what yuou could sell the same share for. The difference is called a "spread", and in addition to commissions, it's how brokerages make money. They get the ask, but they only pay the bid price.
Make sense?
This impacts the options available to management. Most especially, it acts as a gauge to how solid the company might be as a borrower. A company with no prospects is going to find it harder (and more expensive) to borrow money for expansion in the future, until the current situation (or perception thereof) turns around. This is one of the major reasons a firm's stock price gets so much management attention. Another is that hghly placed managers are likely to hold a bunch of stock themselves. This is another built-in motivator for management.
As to having to have a buyer if you're selling, you will. The company doesn't usually buy it back. Your broker does. All major brokerages have millions of shares in thousands of companies in their house accounts. When you buy or sell a share, the other half of the transaction is likely to be a broker.
Of course, at any given time, what you can buy a share for is a little more than what yuou could sell the same share for. The difference is called a "spread", and in addition to commissions, it's how brokerages make money. They get the ask, but they only pay the bid price.
Make sense?
Janimal
New Member
Another site that explains things well...
www.motleyfool.com
One thing to note that I haven't seen mentioned explicitly yet. When you purchase stock, you are purchasing ownership in the company. Thus, all shareholders own some percentage of the company.
Another note. A "high" vs "low" share price needs to be taken in context. A company with a current share price of $5 per share may actually be doing better than a company that is at $10 per share.
I heard it said once that the stock market is not a valuation of how things are, but of how people predict they will be.
www.motleyfool.com
One thing to note that I haven't seen mentioned explicitly yet. When you purchase stock, you are purchasing ownership in the company. Thus, all shareholders own some percentage of the company.
Another note. A "high" vs "low" share price needs to be taken in context. A company with a current share price of $5 per share may actually be doing better than a company that is at $10 per share.
I heard it said once that the stock market is not a valuation of how things are, but of how people predict they will be.
I heard that too. The trade value of a stock is based on what the stock is GOING to be valued at in like 10 yrs...... which explains why the actual value is ALWAYS less than what you buy it at.
Example: "Amazon" in '99. Net stocks booming, people speculated that the internet was going to be worth more than it turned out to be. Amazon had almost NO actual worth, in the sense of cash or assets, but their stock did amazing things.
Get it? Company A has 100,000 units of stock floating around. Company A is actually worth $1,000,000. That is going by the CPA's books of cash on hand, property owned, and product it has stored. However, the stock will probably not trade for $10 a share ($1,000,000/100,000). Should trade for more than $10, depending on demand.
It's all spectulation.
A.B.Normal
New Member
A company that makes a huge(or any ) profit pays dividends on their stock .This makes there share/stock more valuable so the price goes up.If a company doesn't make a profit or sufferers a loss for the fiscal year ,then they don't pay dividends and there value goes down.