1.Several factors, both internal and external, impact a company's stock price, and the subsequent perceived valuation of a company. Sometimes that perceived value matches that of the financial statements, and other times it is vastly different. Therefore, discuss the factors that lead to a valuation of a company's worth compared to that of the financial statements, and how company executives create the most value for all stakeholders.
2. There is a common phrase in business: cash is king. "Cash flow is the life-blood of a company. Without it, a company will fail" (Hicks, 2012). Yet, companies often have to take risks that could potentially jeopardize their cash flow (e.g. new projects, growth, capital budgeting, etc.). Assume you are the CFO of a struggling company. While you do have a positive cash flow, it is minimal at best. If something does not change soon, the company will go under. Fortunately, your product development team has just created a new product that will not only save the company from financial demise, but the product will revolutionize how the industry does business. The problem is that the product is still two years away before it can be sold to the public, and you will run out of cash within the next six months. How would you propose obtaining the funds needed to keep the company alive and thriving for the next two years until you are able to see a return on the product development, and keep the stakeholders happy?
First, a company's value based on how much its stock price is currently selling in the market is called market value. This value can be computed by multiplying the current price with the company's total outstanding stocks. On the other hand, the company's value based on its financial statements, or books, is called book value. This value is the difference between total assets as recorded in the financial statements and total liabilities.
Second, internal factors affecting a company's stock price are those factors that are within the firm's sphere of influence. These are the factors it can actually control. Internal factors include optimal capital mix, product sustainability, collection policies, and dividend policy among others.
Optimal capital mix is the mixture of debt and equity financing that leads to optimal value for stockholders. And this value is represented by the perceived valuation we have been discussing. How much debt and equity financing the company will acquire is an internal decision. Product sustainability is the economic and financial feasibilty of the firm's portfolio of products over a period of time. I remember a teacher in one of my MBA classes saying that 3M generates 80 percent of its ...
825 words on factors affecting Wal-Mart's stock price and alternative ways for a company to raise funds.