If a person owns $2B worth of stock in a company that only has $300M cash on hand. And that person decides to sell all their stock. Where does the rest of the money come from? I can’t imagine people continuing to buy shares that are put on the market so the money has to come from someplace.
In: Economics
If I own $2 billion in stock and sell it, that money comes from the buyers. The company itself can be a buyer, but a lot of shares are just traded between people. Cash on hand is separate from the company’s value. The company’s value is determined by how much the company can give its owners, and how long it will take to give it to them. There’s usually more to a company than how much cash they have. Yes, if a company consisted of absolutely nothing except for 1 bank account in the company’s name that had $300M in it, then that company is worth $300M. If that company has that and a money-making asset like a factory then you add the present value of the future profits the factory will yield to the overall value. Another reason why cash on hand is separate from value is because what if a company has $300M in cash on hand but also owes $300M from leasing their assets? Then the value of the cash is negated by the company’s liabilities.
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