Please explain how an initial share value is determined...

[shyguy]

Hi,

Can someone please give me an explanation on how a share value is first determined?

Also, if a share is say 2cents/unit what would have to happen for that share to jump to say $50 a unit?

im looking to understand more then just "the share becomes popular"... ie. my brief understanding as to the unit of a share is it comes down to the company and how they wish to issue their shares...

 

[prawn_86]

Share price is irrelevant. Market Capitalisation (total valuation of the co) is what you need to look at.

Company A has 100 shares at $1 - Market Cap = $100
Company B has 1000 shares at 10c - Market Cap = $100

However many 'punters' have no idea about this and think a stock with a low price is a spec and vice versa

 

[burglar]

So you are starting a company and wishing to issue some shares?

Or are you buying some shares at 2 cents/unit and want that share to jump to say $50 a unit?

 

[adobee]

However many 'punters' have no idea about this and think a stock with a low price is a spec and vice versa

This is so true ..

 

[skc]

Also, if a share is say 2cents/unit what would have to happen for that share to jump to say $50 a unit?

There are a few ways for a share to jump from 2c to $50..

1. A huge bubble where people chase prices up irrationally (e.g. tulips).
2. A substantial rise in current/future prospects (e.g. found a gold mine)
3. A consolidation of shares (A 2,500-to-1 will do it. But that's cheating a bit...)

 

[Tysonboss1]

Hi,

Can someone please give me an explanation on how a share value is first determined?

Also, if a share is say 2cents/unit what would have to happen for that share to jump to say $50 a unit?

im looking to understand more then just "the share becomes popular"... ie. my brief understanding as to the unit of a share is it comes down to the company and how they wish to issue their shares...

In a rational world the the share price should equal somthing like this.

Fair Price for whole business / total number of share = fair price for share.

meaning if the company is earning $1M/year, then some people might value the company at $10M. If there were 10Million shares on issue, then the shares should be worth about $10, for the shares to get to $50 the earnings should technically have to go up by 5times.

 

[So_Cynical]

Also, if a share is say 2cents/unit what would have to happen for that share to jump to say $50 a unit?

A miracle...a 1 in a 100K event.

 

[burglar]

Hi,

Can someone please give me an explanation on how a share value is first determined?

Just for example, say I had started a private company and in my working life built it up to be a 50 million dollar company.
Now I want to retire. I get an independent valuation for my business.

I publish a prospectus, it outlines what the business does and what it is worth.

I offer 49 million shares at $0.50, I give myself 51 million shares.

I do an IPO (Initial Public Offering) to float the shares on the market. Shareholders then decide the Share Price (and hence the popularity you mentioned).

I have a controlling interest, so I still make the big decisions.

Gee, I like this story already!