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So what does overvalued stock do? My assumption is that if a company decides to close its shop tomorrow, then it would give us less money compared to what actually overvalued stock is representing. Say your 1000 shares in theory truly represents $1M assets hence actual worth of shares is also $1M.But due to high demand,1000 shares worth now $1.5M.So if company gets closed tomorrow completely, I will be receiving $1M instead of $1.5M,is that right?

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    A company that goes out of business doesn't have overvalued stock.
    – minou
    Jan 24, 2022 at 14:02

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The market cap of a company (the number of shares multiplied by the share price) is largely a fiction. It says how much value the stock market believes the company has. But it says little about how much capital is actually in a company.

When a publicly traded company is liquidated (either because it goes bankrupt or because it chooses to cease business activity), then:

  1. Everything owned by the company is sold on the open market. Physical property, intellectual property, financial assets and anything else you can think of. The revenue might be lower or higher than whatever value someone estimated for these assets beforehand.
  2. The company pays any outstanding debts it still has. Wages, bills, loans etc.
  3. If there is still some money left, that money is distributed among the shareholders depending in how many shares they have. When you own 5% of the shares, you get 5% of the remaining money.

So if and how much money you get has little to do with the stock price.

For more information, check out the article "What Happens to the Stock of a Company That Goes Bankrupt?" on Investopedia.

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    Shareholders are at the back of the line and tend to get nothing. Jan 24, 2022 at 16:24
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    @BobBaerker Shareholders getting nothing is the usual result of a bankruptcy. But when a company chooses to dissolve while it is still solvent, then there is a chance that the shareholders will still get their share of the companies capital. But publicly traded companies liquidating before going bankrupt is also rather unusual.
    – Philipp
    Jan 24, 2022 at 16:37
  • This is circular logic. I think you'd be hard pressed to demonstrate any publicly traded companies that liquidated before bankruptcy. The chance is near nil that in such cases, shareholders get anything. Apr 22, 2022 at 12:29
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When you have a company that goes out of business, that means that their stock should plummet to zero very soon. Your stocks might be worth 1.5 million while the company flourishes, but once it closes, there will be no more demand for the stocks! Thus their value will plummet very quickly.

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