How do companies finance theyr operations with the money coming from stocks?

Answer 1

Yes

Answer 2

Well, they spend the money they take from selling those shares or they use the shares themselves to buy things. Shares are a companies proprietary currency. If they can convince people they are worth something, they use that value (usually measured against the dollar) to help fund their operations like Cars, Extravigant vacations, summer homes etc. Then when those shares have been just about used up and they need more, they bloat prospects and convince current shareholders that they need to print more. This cycle usually continues till the CEO and the Board have lost all credibility and they file bankruptcy rendering your shares, if you bought any, worthless and they sell the stuff they've been buying with share proceeds to pay off the Bondholders they've been borrowing from on the side. And that, boys and girls, is how companies finance their... 'operations'.... with stocks.

Answer 3

Companies generally don't want to fund their operations by selling stock. They do this in the early days of the company -- because it is their only alternative. They issue stock through an IPO when they are ready to make a big push forward -- and to gain liquidity. Most firms shy away from seasoned offerings (selling new shares after going public). It is considered a bad signal to send.

The theory is this: Companies have private information about the value of their stock. If they think it is overvalued -- they would never want to sell stock (because they are giving away part of the firm). So -- if you see them selling stock after the IPO, then it is probably overvalued. Their stock prices generally fall after a seasoned offering -- but about 4% (based on research by Asquith and Mullins).

Stew Myers of MIT has a theory of how companies prefer to fund their operations. He calls it the Pecking Order. The preferences are:

1. Fund with money gained through sales.
2. Fund with debt
3. Find with hybrids (convertibles)
4. Fund with equity.

Young companies sometimes have no choice but to issue equity. They are growing at a fast pace, and may run at a deficit for a few years. Funding with revenue earned is impossible and funding with debt leads to a spiraling debt problem. Equity may be their only alternative. However, if growth is assured, many of these firms will fund with convertible debt. It is like selling equity with a guarantee. If the company does well, it turns into equity & they don't have to pay it back. If not, they return the money (plus interest). This is a way for companies to get around the problem of information asymmetry.

Answer 4

When a company 'goes public' by selling shares to outside investors the money is available for any purpose the company chooses. It may be to build a new plant, hire more workers, develop new products or buy other companies, etc.

Say two guys start a company making small computers in their garage. In the beginning they buy the parts with their own cash and probably credit cards. A couple of years later they go to 'wall street' and say "hey, we make some pretty cool computers and we're really growing, but if we had more money we wouldn't have to build them in our garage and could probably hire a sales force too. Can you guys find some other guys who would like to buy part of our company so we could have more money to make and sell more computers?"

And so the Wall Street guys write up some documents and have their lawyers look at 'em and then start calling other guys to buy this new stock. After they raise several million dollars, they take their cut and give the rest to the garage guys to go do whatever they want, such as get a factory and hire some guys to sell the computers.

Answer 5

well it is dependant on whether you are asking about there selling or investment in stocks.
with selling stocks, a company receives money for selling portions in the business(stocks). so selling 10 shares at $5 the company will get $50, so it depends on the asking price and the amount of shares sodl.
with investing, a company will receive rewards such as various dividends (like receiving interest from investing money in a bank account), all of which is dependant on the no. whihc the company invested in and the stocks current trading price as well as the profits made by the invested company