Why is it benificial to a company if their stock price goes up?
Madalene asks:
When a company holds an IPO it sells a determined amount of stock and receives the money as capital to use in growing the business. So how does a company benifit from their stock price increasing when they have already received the proceeds from the sale?
When a company holds an IPO it sells a determined amount of stock and receives the money as capital to use in growing the business. So how does a company benifit from their stock price increasing when they have already received the proceeds from the sale?
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There market capitilization goes up. As the worth of a company increases, they qualify for more loans and can take more risks to increase their growth
Not much unless the company is sold, but of course the senior employees own a lot of stock so when they sell share they make the money.
It is a good indicator that they have a successful business. In that people are willing to pay more per share to have an ownership interest in the company.
Also, who says you only issue stock once.
Employees who have stock in their retirement plans benefit from the rising price.
A company that is financially strong, as indicated by rising stock prices, can negotiate for better terms from bankers and vendors.
A few rambling thoughts.
In general, the share price does not directly impact the company. However, there are times when it does.
If a company is considering doing a secondary offering (selling new shares beyond the IPO), the stock price is very relevant.
Likewise, if someone is thinking about buying the company, the share price is very important.as well.
But these things don’t happen every day to every company.
Additionally, if the company wants to borrow money, often a company’s market capitalization is taken into account as well, so the higher the stock price, the higher the market cap, the lower the interest rate, all other things being equal.
Also indirectly, but within the company, the share price affects many of the company employees who may hold shares and/or options. This is not a direct impact to the company per se, but isn’t as far removed as just people in general who own shares. The impact here is that if an employee’s incentive shares are worth a lot, the company is more likely to retain the talent who received the shares/options. If the shares/options are worthless, then you may see more of the good people leaving the company, which in turn will affect the company.
Hope that helps!
Company valuation is base on the stock value ( simply number of share outstanding times the price). The stock price can benefit the company in many way. the company can put the share up as collateral for a company loan. It can used the stock options to lure top executives to come work for them. They can even buy out other companies with stock swap arrangements.