Why Do Companies Care About Their Stock Prices?

Modified on Tue, 10 Jul 2018 at 11:45 AM

There are several reasons why corporations, or more specifically their management teams, care about their company's stock price and want it to perform well in the market.  

For a publicly traded company, its stock price can often be a barometer for the company's health. There are exceptions to this rule, but a company's stock price reflects investor perception of its ability to earn and grow its profits in the future. Typically, the higher the stock price, the more optimism about the company's prospects. 

Financial Health

A healthy stock price is a barometer for a company's financial health. Financial analysts are constantly scrutinizing a company's earnings performance and expected future earnings. Analysts and investors look favorably on companies with well-performing stock prices along with a track record of solid earnings. Many financial ratios use the stock price of a company in their calculations. For example, the price-to-earnings ratio, or P/E, measures whether a company's stock price is appropriately valued relative to earnings.

Source : Investopedia

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