During the Market Hours the price of stocks keeps on fluctuating. However when the market is closed the prices of shares remains still! Have you ever wondered that how or what keeps the values of shares to change constantly OR what are the factors affecting the share price.
Let's Find Out Who Decides The Price/Value Of Shares!
There are some factors that effects & hence result in the change of the share price. Let's understand what are those factors & how do they affect the share prices!
Demand & Supply Rule!
Whenever something is in great demand & its supply is less in comparison to demand. So the price rises but whenever the supply is more & nobody at all is willing to buy it than its price will decrease!
In Share Market, a share price rises. & The people owning it may sell it in order to claim profit. Now if almost all the people owning the share sold it then it's price will eventually decrease because no body at all is demanding it instead they are selling it. Let's say that NOW the same share price is at the lowest. So now people started buying it because it is like below it's intrinsic value (stay tuned to read the value investing article to know about intrinsic value), you know very cheap. The people will buy it because now it'll rise. Many will start buying. Its demand goes up & so do the price. Then again when the price is extremely high people again sell it to claim profit & it just goes on & on & on & on.....& ON!
& That is also how wisely investors invest!
So as you can see, that everywhere someone who's buying or selling a share is affecting the share price in some manner.
Company's Reputation, Position & Reviews!
A company with a bad reputation will have a hard time selling its shares to people. Even a rumour or even a comment made by a well known personality/celebrity can affect the stock price today & it can result in a fall of the company's share price.
Also the reviews of its customers do cause an affect on the company's share price because if the reviews are bad/negative then the company would not really perform well because nobody will be willing to buy it's products. Which means the company is performing bad in business & loosing customers. Hence, no one will invest in it.
The position of a company - like if the company is in debt or not - is also a factor which affects share price!
& news and all, etc. also matters.
Company's Performance (Current, Past & Future)!
Investors do check the performance of the company as well because if the company would not be performing well then it's reviews won't be great and it won't encourage new people to come and check their products. Hence the business will not perform Great.
It also includes company's business position. Investors do pay enough attention to the company's balance sheets, cash flow statements & the company's past performance (past income reports) in order to know if the company have been able to generate income or profit within the past years & also it does have an impact on its share price when it comes to future performance.
It do check future plans as well in order to calculate if the company will give profit in future & they also check that where will be the fund raised be used & also to decide that whether to invest in the long term or short term.
(Long term vs Short term Investment blog is coming soon!)
Who Decides The Share Price Of A Company When It Issues It's Shares In Market For The Very 1st Time (IPO) ?
The company's owners itself decides the share price the very first time of being listed on Share Market. The price depends on the Company because the shares will be divided on the basis of the entire company's value!
Who Decides The Share Price When A Listed Company Issues More Shares?
When A Company Have Once Sold All It's Shares In The Share Market Than It Is Known As A "Listed Company" & Can Ask To Issue More Shares! But this time the Company won't decide the price of the shares. As we already know that the price of every share of a company is equal. Hence, the current price of the share in the market will determine the value of the new shares being issued!
Number Of Shares Being Issued!
This topic does not get as much attention as it should but this is something which literally shapes a share. It decides whether the price of the share is high or less....
Let's Take A Fun CAKE EXAMPLE-
You know the larger the cake the bigger it's part; now it's upto you how small you cut its parts in order to have more pieces of cake.
Different Explanation while keeping the Cake Example in Mind!
Anyway, so lets suppose that a company named "abc" is offering an IPO. The value of the company is $10 Million. So it issued 100k shares each of 100$, right.
Let's change the share price, if instead of 100$ the share price is 50$ then the company issued 200k shares. Isn't it?
Hence, more parts lead to a decrease in the share price! This is a different explanation of the CAKE EXAMPLE! But the value & the Market Capitalisation is the same!!!! It seems it's just because more people will have access to shares but I feel like it has nothing to do with the profit bcoz its the same! This can be by a listed company or even in an IPO.
Inflation & Certain Economic Factors!
Inflation affects the share market as when it goes high then Share Market goes down but when inflation goes down then Share Market goes up. The Share Market goes down because consumer won't be willing to buy a product of a company as the value of a single penny decreases. So Investors don't invest a lot, anyway.
What do you think are more factors affecting the share price in Share Market today?
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Thanks For Reading!
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