Can someone explain to me how a company gains capital through stocks?
Correct me if I am wrong here:
A private company, "Goes Public" and sets 100 shares to sell, each is worth a 1/100 of the company's net worth. And they sell them at that price to investors. After they sell all 100, how do they make money? Why are they concerned with keeping high share prices after that if they already sold them? Why issue dividends? And it wouldn't be possible for them to make more shares, as it would just equally devalue all the shares that already exist. If they created 100 more, they'd just upset all the shareholders by cutting their investment worth in half. It seems like by the end of it, the amount of capital they received from selling the original 100 shares is inconsequential. Going public seems like a horrible idea, as then you have to report extra information that makes you more vulnerable to competition, or allows for hostile takeover by having someone buy out your company. I am not an expert, I just want to understand this better by giving my narrative and the flaws I see in it.
>>1267945
Because if the price of one share is higher, it's easier for the company to raise more capital.
>>1267951
But they would have already sold all their shares initially, and the rest is trade between private individuals. And creating more isn't an option.
>>1267945
if the price drops too low someone can come in, buy up all the stock and replace existing management. existing management does not like this which is why they are interesting in maintaing a high stock price, also their compensation is tied to it. raising stock is not to make money, but to organize ownership and aligh incentives between owners of a company (stockholders) and management
>>1267945
Companies constantly create more shares.
It's called a split.
Nobody complains about the value being cut in half if they get twice as many shares as a result.
Companies often don't sell all their stock in their IPO, that way if their share price increases they can issue more.
>>1267988
So it sounds like going public just takes power away from management to begin with, so why do it?
>>1267991
Sure, that doesn't mean they can sell more. If you sell 100 people a sandwich, you get some money. Cutting all their sandwiches in two doesn't give you any more to sell, no net benefit.
>>1267997
So they just savor the benefits of the IPO over time?
>>1268010
>So it sounds like going public just takes power away from management to begin with, so why do it?
Because you need the money to grow or to even finish your first product.
You can take a loan at a bank, but those guys even have more to say than stock holders.
>>1267991
So if 100 people own all 100 shares, if the company splits then 100 people own all 200 shares, i agree with anon above why does that change anything?
>>1268061
The company doesn't sell 100% of its shares. They double the shares of the shareholders and the shares in their own portfolio.
Say a company has a 10000 share market cap and every share is worth $100. 5000 are sold to investors and they keep 5000 in their own portfolio. If the company keeps growing than the price of the shares will grow with it. However $100 a share is allready quite expensive.
Then the company can do a split. Every shareholder now gets 2 shares for one. Market cap is now 20000 shares for $50 a share. This gives the company more shares to sell for a more reasonable price.
>>1267945
You're missing a few steps. A company would go public and issue stocks when it needs new investors. That's basically what investing is; buying part of a company to fund them and hopefully see a return. Lets say they do create 100 shares at 1% value of the company each (even though they would issue way more than that). A company would not put every one of their shares out to the public, they would keep a percentage either as an asset of the company and/or the 'owner' would have a large chunk. So in reality, the public would only be able to buy lets say 60 shares out of 100 total. After a good chunk of those shares are bought up, the company will split the stock halving it's value and doubling it's availability. Now there are 200 shares available worth .5% of the company each. Shareholders actually love when this happens because they end up having twice as much stock and while at first the value is the same but usually the value increases quickly (especially if it's a blue chip stock) and almost doubles their value. New investors also love it because for a time the stock is way cheaper for them.
Dividends are a bit different. A company does not need to pay dividends, that's their decision. When they do decide to pay dividends it's taken from the company's profits and used as an incentive to keep investors on and entice new investors.
>>1268010
Realistically, some will be retained withing the company. The genuine owners aren't going to let some random come in and buy 51% of the companies shares. Beyond that, shares aren't a real thing, they can issue as many as they want, they can also dilute the shares of existing shareholders.
The whole point of a share issue is to generate cash. The idea is that the buyer gets a share of future profits in the company. Theoretically, the money from the share issue goes into project with a high NPV, so everyone makes a profit that's greater than the cost of the share purchase. Whether the shareholders are angry about the dilution probably depends on whether they believe that or not.
>>1267945
No... it's not possible. /biz/ can't be this fucking stupid. People can't be this stupid, it's simply not possible.., r-right?
>>1267945
Okay shitpost. 1/10 bait though
>>1268227
>>1268236
What's sad is that you dumbasses make fun of OP for asking a "bait" question and yet not one person in this entire thread has given an accurate, complete answer this supposedly "easy" question (including you).
/biz/ is impossibly retarded. No wonder every quality person abandoned this place long ago.
I can easily create a web trawler that follows around and monitors a successful trader and makes trades on a smaller scale based on their's. What would stop me from doing this? Why can't I just do this? Unless he loses all his money I should be fine.
There should be plenty of people with expertise who make money, why gain expertise myself when I can just carbon copy their actions?
Google "follow-on offering." Look at the balance sheet of any public company. It will tell you how many shares are outstanding and how many are authorized. The authorized number is going to be a lot higher. That is the number of shares the company is authorized to issue. It can issue those shares to raise capital after the IPO. This will have a dilutive effect on ownership for the existing shareholders (i.e. if you held 1 out of 100 shares and then 10 new shares were issued, your percentage interest in the company just went down), but the company is getting money for those shares from the new investors, so the total enterprise value goes up accordingly. Its basically a wash because there are now more shares outstanding but the company now has more cash.
>>1268276
>dumbasses
I understand that you're upset because you're as ill-informed as OP, but why even post on /biz/ if you can't understand rudimentary concepts.
This statement alone:
>each is worth a 1/100 of the company's net worth (??????)
is so laughably crude, it just has to be bait.
If you do not understand: dilution, dividends, EV, S/E, Retained Earnings, treasury stock, par value, fair value, etc. you shouldn't even be on this board.
>>1268291
>>1268151
These seemed like good answers to my concern. They do create more shares at the expense of the shareholders. They just go in with the belief that the extra capital will make up for the lost percentage.
Other answers seemed to make no sense either through their ignorance or my own.
Thank you.
>>1267945
They don't offer 100% of the company to the public. They don't even offer a majority.
>>1268304
>If you do not understand: dilution, dividends, EV, S/E, Retained Earnings, treasury stock, par value, fair value, etc. you shouldn't even be on this board.
Those are important concepts to understand, of course, but no, they are not prerequisites for honest participation on this board.
>>1268324
Your "answer" (if it was indeed you under a different ID) was neither accurate nor complete. It was concise, but unhelpfully so.
>>1268480
>neither accurate nor complete
Given that you aren't the one I responded to, you're hardly in a position to judge that.
Plus, OP's post was so full of questions a whole paragraph would not have covered them all, making a concise reply necessary.
>>1268519
>a whole paragraph would not have covered them all, making a concise reply necessary
That you don't see the inherent inconsistency in this statement tells me everything I need to know about your intellect. You fit right in here,
>>1268531
That you don't see the inherent inconsistency in trying to spoon feed clueless posters on this board basic financial knowledge is tells me everything I need to know about yours.
But feel free to give complete answers, don't leave anything out. When you get a job, you won't have the time anymore.
>>1268558
If you're not going to try helping someone gain knowledge, why bother posting at all. No one thinks your frog memes are funny, and you're obviously too stupid to contribute meaningful advice. Maybe you should just leave board altogether?
>>1268073
your lack of basic understanding of finance is alarming, wtf are u even doing here
Stock market is a scam, at least as far as capital gains go when you see the legal responsibility of companies to maximize shareholder wealth. Imagine how it would hold up if companies decided to never issue dividends. IPO's are just cash grabs and from there a company is beholden to a market driven by speculators and insiders preying on human weaknesses.
>>1268691
>No one thinks your frog memes are funny
Good thing, since I didn't post any.
Holy shit, pull your head out of your ass.
The other anon was right, you're straight up clueless, trying to play the expert.
>>1267960
>creating more isn't an option
Intradesting pls go on. What are your theories?
>>1268746
>trying to play the expert.
Actually I haven't tried to play anything, let alone "the expert." I only posted in the thread to make you aware of your own stupidity, not to respond to OP. You tried to puff yourself up by making fun of someone else, when you yourself are even dumber than OP. I can't let that kind of hypocrisy pass unnoticed.
You're not smart, not clever, and not wanted here.
>>1268769
Ok, you've only been constantly wrong in your posts about me.
>your "answer" >>1268158 was not accurate
It was, though. Point out what was incorrect about it.
>your answer was "unhelpfully concise"
Subjective. And only something the recipient (not you) can judge.
>No one thinks your frog memes are funny
Never posted. Just admit you can't fucking read.
>not wanted here
I know you're king of /biz/ and all, but really, you're talking out of your ass.
>>1268788
Oh jeez, you're one of those sad losers who get defensive when their flaws are exposed even on an anonymous message board. Worse, you're so pathetically desperate for attention that you're trying to provoke a conversation with someone who clearly thinks you're not worth the time.
>inb4 "y u no answer me" because that's the fucking point, retard
>>1268817
It's actually a relief that you didn't address anything I posted.
Have fun educating.
>>1267945
The shareholders OWN the company. It's their company. CEO wants to keep shareholders happy or else he'll be fired. He can do that by reinvesting profit into the company which grows the company (and thus makes the shares worth more) or they can do that by paying dividends.
>>1268010
>Sure, that doesn't mean they can sell more. If you sell 100 people a sandwich, you get some money. Cutting all their sandwiches in two doesn't give you any more to sell, no net benefit.
Often the companies will offer existing shareholders new shares at a discount, making it justfiable to issue new shares.
Imagina a company selling cars, lets say they sell to the market 10 cars each costing 100€, selling this cars the company gained 1000 , the value o cars raises to 120€ the gain of the company remained uchenged, buyers who bought the car would profit 20€ if they sold the car to somebody
