Companies make money by selling products and services. If they sell well, they get profit. Bang, end of story, right? Where does stock price come in and why does it matter?
I do understand that during IPO the company basically sells stock, instead of product and services, and gets profit from that. But later on, when stock is just traded between people outside of company, why does its price matter **to the company?**
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For one, the stock price is like a report card on the executives’ job managing the company, it’s past performance and roadmap for future. Secondly, many executives have shares granted to them, stock option grants, etc. that mean a higher share price increases their personal wealth. And often those equity based compensation components are tied to the stock price/performance. Such plans are put into place by boards to align the goals of the executives with the shareholders.
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