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How companies benefiting from rising stock price

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  • Jan 16th, 2021 8:48 pm
[OP]
Jr. Member
May 4, 2020
197 posts
36 upvotes
Toronto, On

How companies benefiting from rising stock price

Hi
I wonder since public companies own by the public which means these companies do not own company stocks anymore, how a company will benefit from rising company stock price? Or now I am thinking maybe these public companies own some stocks for example 51%, but again, what and how the company benefiting from rising the share price? would they go and trade them or how? Thank you very much.
12 replies
Newbie
Oct 29, 2020
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lwlwlwlw wrote: public companies own by the public which means these companies do not own company stocks anymore
Is this true? I assumed a public company ONLY means it's publicly traded but I assume the company owns the majority of the stock so it can keep control. Does anyone know more about this?

I assume a company, and employees, specifically those in high positions, do have a large volume of shares. So if the stock price is high, then they have a lot of equality in the form of shares.
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Jan 19, 2005
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Many employees get stock as part of the compensation package. If the stock price doesn't go up, they may want to leave. Key people leaving can't be good for the company.
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May 2, 2019
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MrMikeDD wrote: I assumed a public company ONLY means it's publicly traded
That is correct. The shareholders could be mostly the company founders; or it could be the outsiders. It does not matter.

The company as such (the business) does not benefit from the higher stock price, other than an option for a secondary stock offering as mentioned above. Tesla did that. It added capital to the company and increased the value of existing shares.

Other than that, shareholders don't benefit from the higher stock price directly unless they want to sell. You can call it a benefit; they get a choice to cash out with good profits, and use the funds elsewhere. The employee bonuses are not benefitting the shareholders, it's the opposite: employees take value from the company, leaving shareholders with less.

What I'd call a more subtle benefit of higher stock price, is that it creates a good publicity that may draw customers and maybe create better financing options via debt.
Also higher stock price can protect the company from a hostile takeover. Which is when a competitor or an opportunist buys the company cheap, potentially to dismantle the company and sell the assets.
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Jan 23, 2011
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A company's rising stock price decreases the company's cost of capital. It's like the public dying to give money to the company, hence bidding up the stock price. The higher stock price gives them more financing options. They can raise money in the bond markets at low interest rates. They can take advantage of financial leverage by using more cheap debt, and boost the bottom line.

If you want to understand how important a rising stock price is to a company and its cost of capital, take a look at Canadian energy companies. Look at how few options they have in terms of financing. Also look at the airlines and compare their situation before and after the pandemic.
[OP]
Jr. Member
May 4, 2020
197 posts
36 upvotes
Toronto, On
Thank you all for the help. I hear most of you said that rising price is not helping the companies. I admit i need to get more education on that but what I do not understand why companies (many of them) are killing themself to get the stock price higher and higher, for example Enron! Oh my god, after I wrote that, now I understand that those top executive have many shares that is why they want the price higher, I thought the company would sell to get more money as a revenue.
Deal Fanatic
Apr 5, 2016
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A lot of performance bonuses are also tied to stock prices for employees.

Keep in mind a publicly traded company is owned by multiple owners. The sole interest of the company is to make money for these owners, the shareholders. If the company does not meet the expectations of the shareowners, share prices drop, owners start selling, and the entire company loses credibility and trust. This in turn can affect their contracts, sales, and ability to borrow.
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May 11, 2014
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A recent example of this is Air Canada. With exuberance of the stock price, Air Canada issued more shares to raise cash for their operations. The stock ballooned to $27, yet AIr Canada sold at $24. As can be seen with the fears on the UK new strain, the market price dropped further. If it wasn't for that increased confidence (even though fleeting) and share price rebound, Air Canada wouldn't have been able to raise those funds now. Very prudent to do so while the price was high considering it could take a whie before they can do so again.

This is also why management responds to the benefit of shareholders. Capital is needed in some form or another at different times. Having stable and confident shareholders gives access of capital that otherwise may not be there.

Don't blame people for not seeing these things especially as cash seems easy. Just add crypto, marijuana or technology in your name and cash is thrown at you :razz:.
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Sep 18, 2016
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xgbsSS wrote: Just add crypto, marijuana or technology in your name and cash is thrown at you :razz:.
add "renewable" to that trio
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Interesting to see that you still don't grasp in the slightest how the principle idea of div investing works.
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Jan 19, 2007
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More directly to the company itself (B2B) for publicly-traded
* Higher share price - can do secondary offerings on the equity market at the higher price - this might be done through dilution or not, as some companies repo stock
* Higher Market cap - is part of some enterprise valuation models. Such are used by lending companies /banks -- thus a higher market cap is able to justify better pricing for such funds. Especially in a low interest environment
[OP]
Jr. Member
May 4, 2020
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Toronto, On
Thank you all. I think I was wrong or misunderstood what a public company is. Thanks for the education. I have another question now if you do not mind. Lets say a company ABC has 1000 shares as a valuation. They went to IPO and sold 500 shares to the public. Now the company owns another 500 Shares. So if they want to raise money they go for secondary offering and go and sell lets say they sell the other 500. My question, can they issue new shares or they can not, what they have is 500 and that is all what they have. If they can issue new shares (beside the 500 they have) then would that change the valuation of the company? Are they allow to do that? Thank you so much.
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