Does the share price matter.

agent_orange_2

Hi, could the informed people of this forum please tell me, does the share price of a company actually make any difference to the Company itself?

Does it affect the day to day running?
I assume if a company is a going concern and the price drops lower than it's real value, it then becomes a take-over target.

thanks for any help

cepheus

A share price doesn't directly affect the company although it can affect the employees if they have shares or options. Profits however can affect the share price, the companies ability to stay solvent and the amount the company can afford to reinvest so the share price and factors that influence the companies prospects can go hand in hand.

The share price should reflect the expected future returns from the company, however, liquidity, sentiment and belief about other peoples sentiment are other important factors. If a share price is tumbling then it is usually the sign of poorer than expected news (but not necessarily bad news such as reduced profits) and vice versa.

1echidna

A low share price and angry shareholders can make life difficult for the board and in particular the CEO.

purch

Does it affect the day to day running?

Yes it can quite significantly

Company's often use their own stock as collateral

If the share price falls then the company will be required to put up more and more of it's own stock as collateral, or provide an alternative

You will often see company's buying their own stock from their cash reserves in order to boost the price (among other reasons)