How do you calculate share prices in a company?
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Q:

How do you calculate share prices in a company?

A:

Quick Answer

The price of a share of stock is not calculated so much as it is determined by the amount investors are willing to pay on any given day. According to About.com, the market opens each day with a clean slate. It is possible for stocks to sell for the same price as the day before, to sell for a fraction of their previous value, or to increase greatly in value.

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Full Answer

There are many things that affect the value investors put on a stock. For example, About.com indicates that a war which limits a company's access to the materials that it needs to make its products is going to affect its stock prices. New discoveries for uses of a product also affect what investors pay as demand for the product increases. A company's internal affairs also affect stock prices, such as an upheaval in leadership or actions that tarnish the company's image in public opinion.

The dot-com bubble burst of 2000 shows the volatility of the stock market. CNN Money uses Pets.com to demonstrate this problem. On its opening day in February of 2000, Pets.com offered stocks at $11 per share. Prices increased rapidly to $14 per share. However, its business model was not sustainable, and the company lost $147 million between January and August of the same year. Stocks plummeted to less than $1 per share before the company folded in November of 2000.

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