Stock Market Question

[manlymatt83]

I have a question.

When I buy stock, I'm buying from another person, right? And if the price goes up, I sell to another person and I get the profits, right? So if a company's stock is worth $5 or $50, does it really benefit the company at all? How do they get the money? In my opinion, it seems the only time companies get money is from the IPO, when they are actually selling the stock to people, no?

 

[intogamer]

Good question.

 

[nickbits]

Most executives have shares in their own company so they make money when the stock goes up. Also the company can issue new shares at the current stock price to raise capital.

 

[Vageetasjn]

A company usually retains a percentage of ownership (in the form of shares) after the IPO.

 

[speg]

You are correct.

In addition to what others have said, the company would also be an easier takeover victim if their shares were worth less.

 

[manlymatt83]

Originally posted by: nickbits
Most executives have shares in their own company so they make money when the stock goes up. Also the company can issue new shares at the current stock price to raise capital.

They can just issue new shares at any time for any reason?

 

[DaWhim]

stock price is based on the expectation of the future income of that company.

a company can finance in two ways, debt or equity.

 

[IronWing]

Originally posted by: DaWhim
stock price is based on the expectation of the future income of that company.

a company can finance in two ways, debt or equity.

And the ability to obtain credit is based, in part, on a company's market capitalization.

 

[Nerva]

Originally posted by: ironwing

Originally posted by: DaWhim
stock price is based on the expectation of the future income of that company.

a company can finance in two ways, debt or equity.

And the ability to obtain credit is based, in part, on a company's market capitalization.

no it's not. it's based on credit worthiness and essentially how much cash flow you can generate. and companies can issue common equity (stocks), or equity-linked securities (convertibles), or debt (bonds and loans).

company issue stocks when they are in need of capital to spend on capex (buying new machinery, building new plants). typically issuing debt is cheaper, but that is a channel not open to some companies.

when you buy stocks, chances are you are not buying from another individual, you are more likely buying from an institution that sell you the stock. that's why you can't get in on the price that it's trading at because there is such a thing as a spread.