Does the Company receive any funds when it purchases or sells its shares?
The short answer to this question is no! So, you might ask, why would they do this?
Well, imagine that you are approached by a friend who runs a successful Burger Bar. He needs $ 50,000 to get him to open another hamburger bar and raise his money and he gives you a suggestion – if you give him $ 10,000 he'll sell you 5% of your business
Your $ 10,000 you Have the right to 5% profit and 5% vote on the elements of the business run. Based on this, you have to decide how much of the 5% share of the business profit is worthwhile
Besides that, you also have the ability to sell some of your company in the future. Anyone who wants to buy your stock is now in your situation when you buy it, ie they have to decide whether the future profit is worth their selling price
Have given the company money to buy this stake In the first place, all proceeds from this sale will go to you, not the company.
In the stock market, the original sale of a company's stock is called an initial public offering (IPO) where the funds raised are used for the company (in the example above, this would be the raising of capital To create a new hamburger bar) stock market as a quick way to find a new owner of your business if you want to sell it. Because these companies are larger than a hamburger bar, there are often millions of shares to sell.
If a company needs more money (such as opening another hamburger bar), in this case they can offer them the price they are going to buy and sell their stock, extra The shares are sold. However, these are not the stocks they retain, what happens is that they offer more shares to existing business, so the value per share is less than before
Imagine you have a company worth 100,000 USD, with 10 shares, so each value is $ 10,000. If you now release another ten, then now only worth $ 5,000 if the company's value remains the same. So, why does existing shareholders allow this to happen if it underestimates the stock? The good idea is that the new capital will increase the value of the firm over each existing shareholder's loss
For example, the new capital may allow the firm to invest so that it will get a greater return than the purchase cost, Buy $ 100,000 in assets, then sell $ 200,000 or build more burgers. The other is that when the company thinks the stock price is higher than its price, it puts the money into the company, so they can sell each new stock more than its intrinsic value
Back to Hamburg example, After buying the business, you know you can sell your stock for $ 100,000, but if you now have a chance to buy a business, now you only have to pay $ 20,000 and you will sell them, right? So the company itself can also take advantage of it, if it thinks the real value of only $ 20,000, but it can get them $ 100,000.
If a company thinks its stock is undervalued, then it can buy them back. Each purchased stock reduces the number of shares outstanding, thereby increasing the value of the remaining stocks. For example, if a company is worth $ 100,000 and has 20 shares, each firm must be worth $ 5,000. However, if the company repurchases 10 shares, then the value per share is $ 10,000, because the company is still worth $ 100,000, but now only 10 shares, so the value of $ 10,000 per share.
Other Extra Products When a company desperately needs cash and all other sources of funding have been exhausted. This means that companies will have to sell their own value not enough to raise cash to survive – short-term painful long-term survival. This has happened in several recent financial institutions as they try to raise cash to shore up their balance sheets because the credit crunch means they can not raise funds in any other way, and if they do not, they will go bankrupt
So while a company is simply making money on the first sale of shares, a share can be raised at a future price as a mechanism to raise funds or deploy capital otherwise it would be under