How do the Companies accounts relate to the market cap?

buzneg said: "Let me know if I'm right on this Campany A joins the stock market, they have 10 stocks which they sell to the market for $10 each, so they raised $100 for their use, and the market cap is $100. Then the owners of the stock sell it for $11, so the market cap is now $110, but the company didn't gain any money from that, only the traders did, right?"

LongArm said: "You got it, Buzneg."

buzneg said: "OK, and do the big exchanges (NYSE, NASDAQ) let companies issue more stock, like the small, penny stock exhanges do?"

buzneg said: "what I'm trying to understand is how much companies benifit from being listed. like they say the average listed company trades at 20 times earnings and the average non-listed company only sells for 5 times earnings. But that's not right if they listed at a 5 times earnings price, sold all at that price, and then the traders traded it up to 20 times earnings, they would have only sold their business to traders, at normal cost."

Rickster said: "The "company" consists of 3 entities. The employees may or not benefit from a rising stock price, depending on whether they hold stock (or options) in the company. The Management may or may not benefit from a rising stock price, depending on whether they hold stock (or options) in the company. The shareholders benefit directly from a rising stock price. BTW, the prime responsibility of management is to create value for the shareholders. There are also bondholders, but that is a different story."

Rickster said: "And yes, the company can get approval to either sell stock (to raise cash) or buy back stock (use cash to retire stock)."

buzneg said: "[QUOTE=Rickster]And yes, the company can get approval to either sell stock (to raise cash) or buy back stock (use cash to retire stock).[/QUOTE] I'm talking about granted stock, so to add more stocks overall to the market, which floods it and depriciates the other share holders holdings."

buzneg said: "[QUOTE=Rickster]The "company" consists of 3 entities. The employees may or not benefit from a rising stock price, depending on whether they hold stock (or options) in the company. The Management may or may not benefit from a rising stock price, depending on whether they hold stock (or options) in the company. The shareholders benefit directly from a rising stock price. BTW, the prime responsibility of management is to create value for the shareholders. There are also bondholders, but that is a different story.[/QUOTE] No offence but, the managements only repondsiblity is the bottom line of the company so they can pay themselves more. If the company is done selling stocks, and they don't buy any to trade with, then they don't get anything more out of being enlisted right? I'm trying to figure out how, after being enlisted for years, does the company gain from having a higher stock price. They must either grant themselves more stock, which takes value from the shareholders, or hold on the their origenial batch of stock (the amount they enlisted with) and sell that. Or buy low sell high, like they're a trader of their own stock, but have the benifit of insider info.?"

Rickster said: "Define "company.""

Rickster said: "Here is a question in return. Have you ever seen a company report in which the company stated that they made or lost money due to an increase or decrease in their stock price?"

buzneg said: "[QUOTE=Rickster]Define "company."[/QUOTE] "company: a number of persons united or incorporated for joint action, esp. for business." So stock holders are part of the company, but it very much depends on how long they held and how much. There's so many differnet time lengths and the traders are looking for a pumped-up stock price, and not so much for the profit, and long term well being of the company, so it's very differnet. For instance does a million day traders who own $5000 of the company have any say, or care about the long term performance of the company? Even an investor that owns 49% of a company and the other 51% is owned by the CEO, though the CEO plans to never sell his stock, so the company doesn't win or lose any money in the stock market, do they have to listen at all to that guy that owns 49% of it?"

buzneg said: "[QUOTE=Rickster]Here is a question in return. Have you ever seen a company report in which the company stated that they made or lost money due to an increase or decrease in their stock price?[/QUOTE] Yeah I've heard them say "profit of $100,000 or $0.03 per share" but I never really knew what that meant."

HornedOwl said: "[QUOTE=buzneg]Yeah I've heard them say "profit of $100,000 or $0.03 per share" but I never really knew what that meant.[/QUOTE] Let me try... Earnings per Share in a nutshell It's a way of rephrasing "Earnings" so we can compare it to a share. the company made this much money, but the part of the company that this one share represents made this much. Say your company BUZ has 3,330,000 outstanding shares, and in 2006 BUZ had earnings to the tune of $100,000, then BUZ had earnings of $0.03 per share Earnings -------- = earnings divided by shares, or earnings per share. Shares The share price will respond accordingly (as accordingly as Wall St allows), but the earnings of the company aren't determined by the share price. Acme makes money by selling Wile Coyote all the latest Roadrunner catching gear... rocket powered catapulting rubber mallets on bungee cords (for MORE than it cost them to produced it) All other things being equal, if it cost less to produce than Wall St expected, then earnings should be higher than expected wich means E/S will be higher. but if rubber mallets were expensive, and it cost more to make it than expected, then this will lower earnings. The share price should ideally be pretty close to priced for "Expected" earnings, if earnings are higher than expected, then you should see the share price go up some, and vice versa is earnings are lower than expected. "Expected" being a key word there that explains why you often see companies report "Yeah, we made 5 million dollars last year" and the share price drops considerably because Wall St expected 7 or 10 million dollars, and we as the investors bought shares until they were priced for expectations (people a lot better at math than I figure out what THAT price is) when the report comes out below expectations, the share price will rapidly adjust for correction, sometimes too much, and then have to recorrect. it's simply amazing stuff to watch. It's late, I'm going to sleep. My wife's probably going to kill me for sleeping late in the morning."

buzneg said: "OK so the profit actually does go to the share holders, so how does the company expand? When they get profits do they get to issue more shares or something?"

buzneg said: "I posted that a bit too quick. So if they buy a whole lot of new assets it would go into their expenses, and instead of a profit per share, there could be a huge loss per share. That there gives them an extreme amount of equity to tap into."

Corey said: "The fundamental equation of Financial Accounting: Assets = Equity + Liabilities Learn it. Understand it. Love it. Once you understand this equation, you will find your answer."

LongArm said: "[QUOTE=buzneg]OK so the profit actually does go to the share holders, so how does the company expand? When they get profits do they get to issue more shares or something?[/QUOTE] Depending on the company, they can either 1) distribute the profits to the shareholders in the form of a dividend, 2) put those profits back into the company, or 3) both. If they put the profits back into the company, that typically increases the value of that company (at least that's the goal), which in turn typically increases the share price (eventually), which benefits the shareholders. So if the company wants to expand, they can use their profits to do that, and if that expansion adds value, shareholders will eventually benefit with higher share prices."

buzneg said: "what I would really like to know is this: Listed company [B]vs.[/B] Private company 20 times earnings and sold [B]vs.[/B] 5 times earnings and not sold How can a private company compete with that, and why arn't more companies listed? The listed company will also inflate prices, of the things they purcase. Why not start a local stock exchange for small businesses?"