As I understand it, once a company raises, say $5 billion in an IPO, the shares are sold and they get the money.
The shares are already with the public now. Why is it so important for public companies to grow their share price further every quarter? Why not focus only on the final profit margins?
In: Economics
The company has owners. These are called the shareholders. The shareholders control the company through the Board of Directors elected by the shareholders. The Board of Directors is responsible for hiring the CEO/CFO and some senior executives. The shareholders want their assets (ie the company) to be worth more over time – and this worth is the share price. Therefore the Board wants the CEO and the executive team to focus on increasing share price.
The share price is usually influenced by things like revenue growth, earnings growth, stability, development and launching of new products, efficiency of operations, good PR etc etc.
Bottom line though – share price increasing is the goal, profits are the means to that goal.
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