How do you know prices of stock for start up corporations?

Question

what detremines what company is worth when it is new

Answer 1

If a company is new or privately held, then its shares are not listed on any exchange. To determine the value of the shares you have to determine the value of the company. Its a big, complicated process. There are several methods. I mean you could take the net worth of the company and divide it by the number of shares, but that is very simplistic. You could forecast future earnings, and figure the forecast per share, and then take into account interest rates... You could compare the private company to public companies in the same industry and adjust for the differences in size. There are several methods and its more of an art than a science. So, as an investor, you can't really know the accurate price of a private company without a whole lot of research that requires company confidential information to conduct.

Answer 2

Hottotrot gave you a good answer. However, if you are talking about a start up, the value of the shares is the amount of investment shareholders contribute to start the company. For example, you and 3 friends form a corporation to start some business. The company will need money and other assets to operate. Your friends contribute $1000 cash each and you contribute a piece of equipment that costs $1,000. If the company issues 10 shares of stock to each of you, the price of the stock is $100 a share. If you issue 100 shares to each shareholder, they are worth $10 a share. It is meaningless, because you cannot sell the shares, except to one another.

The 400 shares you issue represent an interest in the assets of the company. The company has $4,000 of assets and $4,000 of capital. The capital is your ownership interest.

As you put the company to work, you will incur expenses before you earn any profit, so the value of your shares will go down. That is, the capital will decrease as the assets decrease. Still meaningless, because you went into business to use the assets to make a profit, not to trade your stock. Over time if your company is profitable and earns income, the assets will increase and your capital will increase accordingly. Now you get into the situation that Hottotrot described.

Answer 3

Others have already published sturdy solutions. ordinarily, a publicly traded business enterprise procuring returned their inventory means that they are regaining a much better proportion interest interior the business enterprise. the previous poster gave you lots explanation why a company might try this sort of situation. you may supply him superb answer.