Share price to zero

seikothrill

I don't understand stocks and shares but was wondering:

Can someone explain what would happen if a FTSE listed Company fell to 0.00 pence?

Does it mean the Company is insolvent and closed down?

If it were a bank what would it mean? All accounts closed and people unable to get their cash.

If share price seems good value would it not be a target for a take over?

Would a government step in if it were a bank?

Thanks

MoneySaverLog

If share price went to 0.00p then the company is worthless and any shares you have in them become worthless too.

The 85K compensation scheme would probably kick in, if the government or another bank was not made to take over their debts. Just because a share price looks good for take over does not mean anyone would want to take it over, like you say 5p is better than 0p a share.

Reaper

seikothrill wrote: »

If share price seems good value would it not be a target for a take over?

Some companies are not even worth 0p if they have big debts. In which case they will be liquidated and their debtors will try to recover what they can.

MoneySaverLog wrote: »

The 85K compensation scheme would probably kick in, if the government or another bank was not made to take over their debts.

That only applies to savers. Shareholders would recieve nothing (eg Northern Rock)

As the government is fearful of a run on the banks they make sure savers are properly covered so people have the confidence to store their money at the banks. The same does not apply to the banks shareholders who understand (or should do) there is an element of risk in owning shares.

Ark_Welder

seikothrill wrote: »

Can someone explain what would happen if a FTSE listed Company fell to 0.00 pence?

Does it mean the Company is insolvent and closed down?

If it looked like the share price was going to fall to zero then the company's circumstances would probably dictate that trading in its shares would be suspended before then.

The company might be insolvent, but it would not necessarily have stopped all its activities until this was determined for certain and there was no chance of the company's activities being taken over by a thirdy party.

Note: a suspended share price does not necessarily mean bad news from a company: they sometimes ask for this to happen if there is corporate activity going on that could cause a jump in the share price once the news is revealed.

seikothrill wrote: »

If it were a bank what would it mean? All accounts closed and people unable to get their cash.

The accounts would remain open and those with up to £85K in total would be completely covered by the FSCS.

seikothrill wrote: »

If share price seems good value would it not be a target for a take over?

Not necessarily. What may look like good value might in reality be very bad value. Might be better - and cheaper - for interested parties to wait until the death-throes have finished and then pick over the corpse for their selected cuts.

seikothrill wrote: »

Would a government step in if it were a bank?

Yes. As has happened in the past - and not just in recent years either.

ses6jwg

For a lesson in "good value", see Woolworths.

Sir Alan thought them to be "good value" also

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article4919064.ece

sabretoothtigger

If share price went to 0.00p then the company is worthless

If the share price is zero then the shares are free. The company operation is not linked directly.

It would be strange to have a working company with free shares hence doom is usually linked to great falls in price, sometimes the link is incorrect



You cant be listed in the main index if the share value falls too far but they dont alter the index contents for a few months usually - http://www.stockchallenge.co.uk/ftse.php
Companies go private sometimes if the public values the company too low. Then the main owners buy back all the shares. Value and price are separate

almondsalty

A FTSE company would rarely be valued at £0, unless it suddenly went totally bankrupt and had no assets etc and so forth.

Market capitalisation is derived as number of shares x value of those shares.

seikothrill

Thanks to all who replied

thenudeone

MoneySaverLog wrote: »

The 85K compensation scheme would probably kick in, if the government or another bank was not made to take over their debts.

What??????

You don't seem to understand the difference between share capital and creditors/liabilities (i.e. to savers).

The price of the shares has nothing to do with the £85k FSCS kicking in. It just reflect the market view of what the future holds for the company.

For example let's assume that a big bank loses all its banking licences and can no longer trade in any way, but whose assets exactly match its liabilities plus the cost of winding it down. The share price will probably be zero because there will be nothing left for the shareholders after the wind-down and no business to generate profits in the future. However, all the savers will receive their money in full without any recourse to FSCS.

Alternatively, banks can still have a positive share price even though they are technically insolvent precisely BECAUSE the government has effectively guaranteed not to allow them to fail.