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How is the share price determined by a company?

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Elliot

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19 February 2011
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Hi All

Just trying to understand on how to read Market Depth, when a company is selling its share .10cents where is that figure coming from ? I know that buyers & sellers make it go up and down, but, how is it determined what is the formula in the company coming up with .10cents, I say .10cents just as an example .

Thanks in advance
 
"One man's trash is another man's treasure."

There is no single "formula". It's all in the mind. Some people "believe" that company XYZ "has a rosy future" or "is worth more than the current sp"; others have been disappointed and want to sell.
In some cases - the large companies and the fund managers that back them - some financial analyst will run a ruler over their last published financial statement; make a few assumptions about future plans, earnings, demand; and come up with a hypothetical value that's then divided by the number of shares on issueto arrive at a price per share. But as that too contains a lot of assumptions, others may disagree.

In short: Investors and traders have different perceptions of a fair price; if it's higher than the last trade, they may decide to bid; if they hold and are happy with the bid, they sell. Or the sell a few, hoping that may drive the price lower, so they can buy more cheaper.
 
So is there anyway us traders can come up with the the assumption of the share price of the company ?
 

When you are looking at buying shares on a stock exchange, the company has nothing whatsoever to do with it IOW the "company" is not selling its shares, individual shareholders are.

The only time you buy shares from the company at a price determined by them is when the shares are initially floated. After that it is a continuous open auction as per pixel's comments
 
Elliot said:
So is there anyway us traders can come up with the the assumption of the share price of the company ?
Click to expand...
Of course we can.
Every time I buy a share, I make the assumption that its shareprice will go up, so I can sell it at a profit at some later time.
If I hold a share and find it is being sold down, I'll sell on the assumption it's going lower; if I bought the share for less, I'm happy to take what profit I can; if I bought and find that the current Market opinion does not confirm my initial hopes, I sell in order to limit the loss and at least retain as much of my initial capital as possible.

In other words:
A company's share price is exactly its current market price at which it is traded.
You can read it up in your favourite newspaper or follow it trade by trade on any price chart.
 
Tyler Durden said:
Just on a related note - how does a company determine its SP for an IPO?
Click to expand...

Usually they will have advisors that will determine a value for the company. That value would then be divided by the number of shares they wish to issue...


I can imagine that there would be some businesses that would issue shares at a price that gives them their required funding - with only a consideration of value...

It is important to note that due to the risk of IPO's the value will/(should) be discounted. Quite often it seems that IPO's are severly mispriced. Witness the SP movement of MLD after listing for an example. MLD could have raised double the amount if they had have listed their shares at $2 instead of $1...and now they are trading at over $2.60 I think?
 
You already have answers but I'm wondering if you are meaning how is the SP determined in the first place, before it's subjected to buying and selling pressures.

If this is what you mean, it's simply the company's market capitalisation, divided by the number of shares on issue. In the first place, the company decides how many shares it wants to issue.
 

, as to what the OP is asking is: on what premise is basic share value determined?

apart from the totally obvious answer of supply/demand

adding to the previous answers, (and for the IPO question)

type methods of share valuation into google

that will link you to various methods that can be used to ascertain an approximate value that a share "should" trade at

Obviously, different methods are used to value such things as;

*a non-producing mining spec stock
* a large stable dividend paying retail stock
* a service provider

There is also a lot of information available in brokers reports regarding how they arrive at a valuation for a given stock.

Go to a company website you are interested in, ususally brokers reports are available
 
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