Ways in Which Declining Share Price Can Hurt a Company

One could argue that the company gets money from its shares, so if the share price declines, the company should not be hit directly. When a company goes public, it raises funds in an Initial Public Offering (IPO). After that, the shares are in the hands of the  shareholders.

The investors buy or sell shares as they will. Therefore, they, not the company, will lose money if the share price declines. That is not to say the company will not be touched, but as an investor, you have reason to be concerned. You should therefore keep abreast with the goings on in the company you invested in by making regular checks. Typing the name of the company on the search bar, for example bunzl share price, should keep you in the  loop.

That notwithstanding, there are some serious ramifications on a company due to a declining stock price that should be taken into  consideration.

What a Share Decline may Mean for the  Company

  1. Shares can be a form of currency for a company. It can sell other shares to acquire other companies. A fall in share price could adversely affect the company in this respect.
  2. A share price decline might mean selling additional stock in order for funds to remain constant. This in the long run translates to more expenses for the company.
  3. If the share price falls, business transactions involving shares get more expensive. It is not easy to get investors interested in your stock if your share price has taken a nose dive.
  4. Companies often dispose of additional shares to raise financing for expansion. If the share price is on a downward spiral, the company will have to increase the shares to sell to raise the amount needed.
  5. If the decline is massive, the company may be compelled to look into other sources of funding. This is an attempt at euphemizing the term ‘loan’, but that is what it gets down to ultimately.
  6. The company executives have their money bound to the share price. Their salaries and performance may also be pegged on how well or how badly the share price is doing. This means that company executives will do all in their power to ensure that their stock prices are on the up and up. No one wants to face the axe over company shares or see their personal fortunes dwindling as aresult of a dip in share price.
  7. On the flipside, the company wants to retain its workforce. A decline in stock price may compel an executive or two to opt out and that could spell disaster for the firm. A good number of companies use the stock option to lure top executives to stay with the company. A declining share price is no incentive to stick it out.

It is safe to say that even if a company is not affected directly by the loss of funds, loss of confidence by investors and employees is just as bad and a quick check on bunzl share price or your preferred company’s website should put share price matters into  perspective.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.