Can share price alone send a company bust?
Discussion
The share price does not affect the day to day running of a company as such, but a low share price suggests lack of investor confidence and might affect the companies ability to borrow.
As regards rasing capital via rights issues and the like, Barclays had one recently when their price was below £3, having been upwards of £10 2 to 3 years ago.
As regards rasing capital via rights issues and the like, Barclays had one recently when their price was below £3, having been upwards of £10 2 to 3 years ago.
The balance sheet is more relevant. In the case of a company going to its bank to increase borrowings etc.. the bank look at the balance sheet and the P&L and the cash flow and the underlying performance of the business.
Obviously slightly different in the case of HBOS because they could be adversly affected by a run on the bank if depositors panic.
Obviously slightly different in the case of HBOS because they could be adversly affected by a run on the bank if depositors panic.
Maxf said:
If they need cash, they effectively can't issue shares to get it!
Why not? Share price as a rule is based on a) current profit + current assets and b) future prospects.If a company takes a loss in one year based on a one-off event such as sub-prime lending, there's no reason why their prospects shouldn't be good asuming that they've found a revenue stream to fill the gap.
spidermanUK said:
Maxf said:
If they need cash, they effectively can't issue shares to get it!
Why not? Share price as a rule is based on a) current profit + current assets and b) future prospects.If a company takes a loss in one year based on a one-off event such as sub-prime lending, there's no reason why their prospects shouldn't be good asuming that they've found a revenue stream to fill the gap.
But if investors see the share price tanking or just very volatile then they will not be willing to buy those new shares, potentially at any price.
The cash/debt liquidity requirement is not a problem as long as your underlying assets don't decrease in value (and you aren't actually making losses or taking on more debt).
The problem the banks have is that those assets are decreasing in value dramatically which means they need more cash to sure up the balance sheet and with a weak stock price you can't raise the cash easily, as above.
The share price is generally a good indicator of the financial health of a company; if it's making huge profits they will almost certainly have plenty of people willing to invest and so the share price will be healthy - and vice versa.It's rare to see a hugely profitable company with a rock bottom share price unless it has some other problems (financial or otherwise)which scares off investors .
So while the share price itself won't have much of an effect on the company day-to-day, the issues which are keeping the share price down probably will.
So while the share price itself won't have much of an effect on the company day-to-day, the issues which are keeping the share price down probably will.
spidermanUK said:
Simpo Two said:
Isn't there a rule that X% of a company must be in cash, which is where NR went wrong?
I think you'll find that's for banks and refers to the ratio of customer deposits to cash, i.e. liquidity.Listed companies outside the banking sector have no such requirement
Neil_H said:
The share price is generally a good indicator of the financial health of a company; if it's making huge profits they will almost certainly have plenty of people willing to invest and so the share price will be healthy - and vice versa.It's rare to see a hugely profitable company with a rock bottom share price unless it has some other problems (financial or otherwise)which scares off investors .
Not neccessarily. Sentiment has a lot to do with it. I was a director of a plc that was perfectly healthy but because of the poor relationship that the previous chairman had with the city the share price was underwater for a long time. As a result when we did manage to get the message across the price increased from a low of 29p to 327p in a year. Which was nice for all our 30p share options. 
Simpo Two said:
spidermanUK said:
Simpo Two said:
Isn't there a rule that X% of a company must be in cash, which is where NR went wrong?
I think you'll find that's for banks and refers to the ratio of customer deposits to cash, i.e. liquidity.Listed companies outside the banking sector have no such requirement
unrepentant said:
Neil_H said:
The share price is generally a good indicator of the financial health of a company; if it's making huge profits they will almost certainly have plenty of people willing to invest and so the share price will be healthy - and vice versa.It's rare to see a hugely profitable company with a rock bottom share price unless it has some other problems (financial or otherwise)which scares off investors .
Not neccessarily. Sentiment has a lot to do with it. I was a director of a plc that was perfectly healthy but because of the poor relationship that the previous chairman had with the city the share price was underwater for a long time. As a result when we did manage to get the message across the price increased from a low of 29p to 327p in a year. Which was nice for all our 30p share options. Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff