Stock Markets Exposed
stock market and the listed company, how are they connected?
Can someone explain to me in the most simplest of terms the connection between the stock market, the listed company and the benefit to the company when the price goes up and down in the stock market? I understand the bit about the company listing in the stock exchange to raise more capital etc, I understand that from O' Level Commerce, but tell me more, how does it benefit the company when the price fluctuates. Say for example: Company "A" lists in the NASDAQ, and floats its shares at US$1 per share. It sells one million shares, and raises one million dollars. Then 2 weeks later the market or the Index goes up a 1000 points as a result the price of this share is now worth US$1.20 So, now in the stock market the total worth of the company is 1.2 Million dollars. The share holders obviously will make money if they sell now. But what is the benefit to the company itself. The worth of the company is simply raised up due to a trend in the market rather than as a result of some new continued: ... rather than a new invention from the company that may change the world...
Public Comments
- Hi, You kind of have it backwards, Its the shares that move the market. While the market goes up 1000 points, that doesn't mean company A automatically goes up. You can see this on an "up" day in the market. look at biggest winners and biggest losers. even in an up day, some stocks still go down. Share holders will make and lose money as the stock goes up and down, those are shares in the public float. Company A still owns company stock, and it can use those shares as currency. So as the share price increases, so does the value of the company.
- There are several ways a company benefits from a rise in its own stock price. First, companies often hold shares of stock--their own stock or investments in other companies--just like individual and financial institutions. These holdings show up on the company's balance sheet under Assets. So the value of their stock holdings adds to the overall value of the company. If the stock price rises, the value of the company rises, to a more or less degree depending on the size of their holdings. Next, most corporations offer stock options to management and employees as an incentive. If the stock price rises these options are worth more money and the people holding them make more money. This is a great incentive for management and workers to do their best for the company, as it will increase their own pay. Unfortunately, it also is a temptation for management to resort to unethical business practices or even accounting fraud in order to raise the stock price. Finally, shares of stock represent ownership of the company. If a company's stock price falls too low, they might be in danger of being taken over by a larger company who buys up enough of their shares. If the smaller company does not want to be taken over this is called a 'hostile takeover.' A low stock price makes companies susceptible to hostile takeovers. In addition to this is the simple fact that the performance of the stock in a general way reflects the financial health of the company. If the stock price has gone from $80 to $4 in the past year, that is a strong indication the company is in trouble. The simple recognition of this fact by the financial world may make it harder for the company to negotiate new deals and secure necessary financing. The stock price is like a thermometer telling whether the company is sick or healthy.
