Managerial Finance
A company’s stock can create hype because of how sensitive the value can be to various factors. In order to make the right choice when deciding to either “buy” or “sell”, there are certain factors that an observant investor should be aware of when evaluating a company’s stock. Some of the crucial factors include: Supply and Demand, Economic Situation, Company Performances, Market Rumors, and even Political Instability. The investor is required to familiarize with a company’s supply and demand to determine if the product is in high demand. If so, the stock prices will increase until it reaches a mutual settlement. Following is the “economic situation” factor, where the company’s stock market performance is known as the “leading indicator” of where the market expectations will be in a few months.
The investor will the consider “Company Performance”, where he will focus on the firm’s “business fundamental” because this would influence the stock price in the long run. New Strait Times states about this factor, “As an investor, your concern should be on the direction of the firm businesswise, projects, and potential growth”. According to this factor, investors would also need to keep an eye on the company’s financial performance and management strengths to make a good investment decision.
The last two factors are Market Rumors and Political Instability. Market Rumors can be a major contributor to short term volatility because of the panic that can stem from investors trying to sell based on negative rumors. Lastly, Political Instability factors is based on the country’s stability. If the country is facing instability, it can result in investors reacting negatively by pulling out their funds from all parties. To avoid triggering panic, investors will determine if this instability is a short-term vs long-term event.
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In determining the company’s stock worth, investors might require to valuate the ordinary stock of the firm that is not traded on a stock exchange. Also, some of these valuations are focused around the book values and market values of a company. By doing so, investors must first understand the difference between the two. “Book values are based on original values. Market values determine current values of assets and liability” (Brealey, Myers, and Marcus, 2015).
Overall, there will always be external and internal aspects which may affect a firm’s valuation and stock price. With company’s financial statements, not only can it obtain stakeholder’s interest but it will provide the foundation of determining the company’s value. Ultimately, it is up to the company’s executives to be honest and keep the stakeholder informed on the company’s finance position and management for the long run.