Acc 205 Stock Prices Reflect Firms

Stock prices reflect Firms

M B

ACC 205

Mr. Jim Rodisch

Jul 25, 2010

With the vicissitudes in today’s turbulent economy an investor might wonder what the true value of a company or firm really is? Does the value of a stock hold true to the value of the company itself? In this paper, I am going to study the trends and see if and how this may hold true. My first thoughts are that the company’s stock is a good reference point when looking at the financial strength of the business.

An investor who is looking to invest his assets into the market will naturally want to make money off his endeavors. Therefore, an investor will instinctively look at a company’s potential to increase in value and base its value off several things. One of those things is the current prices of stocks along with the number of shares the company has. Another would be the assets the company physically owns or invest in. Since there are numerous things that actually determine a company’s wealth, I will focus on the two afore mentioned as they have the greatest affects overall.

When it comes to stocks, most people are lured in by the actual price of the share itself and believe that the price alone is the total value of the corporation. Overall, this is a fair assumption, but not true or very vague at the least. Stocks are a form of value or wealth of the corporation but do not be mislead into investing just over the price alone. It is the payout of the corporation over its stocks is what should be taken into consideration. These payouts are called Dividends. “A stock dividend is a distribution of a corporation’s own stocks to its stockholders. Unlike cash dividends, stock dividends do not give any assets to the stockholders” ( Horngren and Harrison; Pg 691). Some facts about Stock dividends are: They affect only the stockholders’ equity; Have no effect on total stockholders’ equity; and have no effect on assets or liabilities ( Horngren and Harrison; Pg...