Skip to main content
added 448 characters in body
Source Link
Robert Longson
  • 5.1k
  • 2
  • 24
  • 33

If a company no longer makes any money then it could close down and return the money to shareholders but if it doesn't and keeps running then it will eventually run out of money as it pays employees and other running costs.

If you had shares in some profitable company then maybe you've been paid dividends and had some value from those shares already. Even if the company isn't predicted to make any more money then those shares probably still do have some value, the Net Asset Value (NAV) of the company.

Some companies do have a share price below the NAV of the company, and they do come under pressure in that case from their existing shareholders to either break the company into smaller and likely more profitable parts, cease some or all of their unprofitable operations and/or return money to those same shareholders. After all those shareholders could sell their shares and invest that money elsewhere.

On the other hand, if you had shares in a company that you thought would make a lot of money in the future, wouldn't you want to own those shares much more than a company that had the same NAV but that you didn't expect to make any more money. The latter company is worth its NAV, the former is surely worth more than that. That's why prospective shareholders pay more for companies that are growing than companies that are static or declining.

If a company no longer makes any money then it could close down and return the money to shareholders but if it doesn't and keeps running then it will eventually run out of money as it pays employees and other running costs.

If you had shares in some profitable company then maybe you've been paid dividends and had some value from those shares already. Even if the company isn't predicted to make any more money then those shares probably still do have some value, the Net Asset Value (NAV) of the company.

Some companies do have a share price below the NAV of the company, and they do come under pressure in that case from their existing shareholders to either break the company into smaller and likely more profitable parts, cease some or all of their unprofitable operations and/or return money to those same shareholders. After all those shareholders could sell their shares and invest that money elsewhere.

If a company no longer makes any money then it could close down and return the money to shareholders but if it doesn't and keeps running then it will eventually run out of money as it pays employees and other running costs.

If you had shares in some profitable company then maybe you've been paid dividends and had some value from those shares already. Even if the company isn't predicted to make any more money then those shares probably still do have some value, the Net Asset Value (NAV) of the company.

Some companies do have a share price below the NAV of the company, and they do come under pressure in that case from their existing shareholders to either break the company into smaller and likely more profitable parts, cease some or all of their unprofitable operations and/or return money to those same shareholders. After all those shareholders could sell their shares and invest that money elsewhere.

On the other hand, if you had shares in a company that you thought would make a lot of money in the future, wouldn't you want to own those shares much more than a company that had the same NAV but that you didn't expect to make any more money. The latter company is worth its NAV, the former is surely worth more than that. That's why prospective shareholders pay more for companies that are growing than companies that are static or declining.

Source Link
Robert Longson
  • 5.1k
  • 2
  • 24
  • 33

If a company no longer makes any money then it could close down and return the money to shareholders but if it doesn't and keeps running then it will eventually run out of money as it pays employees and other running costs.

If you had shares in some profitable company then maybe you've been paid dividends and had some value from those shares already. Even if the company isn't predicted to make any more money then those shares probably still do have some value, the Net Asset Value (NAV) of the company.

Some companies do have a share price below the NAV of the company, and they do come under pressure in that case from their existing shareholders to either break the company into smaller and likely more profitable parts, cease some or all of their unprofitable operations and/or return money to those same shareholders. After all those shareholders could sell their shares and invest that money elsewhere.