Newbie Questions
I am trying to learn some finance, and no one I know can explain this to me (including the internet). I was wondering if someone on here could.
- If Earnings Per Share changes with number of stock shares, then can't a company have higher EPS by not splitting the shares? Then how is EPS valuable if it can be changed so easily? ---Why do companies split their shares? I understand that it might attract more buyers due to cheaper stock shares, but the EPS would still be lowered.
Which leads me to my next question: 2. Besides the initial amount of money, why do companies want to sell stock? When a stock is sold, isn't the previous owner, often a random person, the beneficiary of the payment (and commission of course)?
Thanks.
EPS has to be looked at along with a myriad of other variables. However, I will say, I am probably the last person here to start rambling on fundamental analysis so I will not even try to tackle it.
Companies can split shares for a variety of reasons - some of which you pointed out. One in particular is exactly what you said - to make shares available for a wider audience. It is also the same reason some companies, such as Google and Berkshire, do not split shares. To keep speculation to a minimum. Go ahead and try fucking with Berkshire shares. The volume is very low. GOOG is much more liquid but, I for one, will not be fucking around with a stock that can easily move 50-60 points in a day.
A company may want to sell b/c they know the stock is overvalued. These guys KNOW the book value of their company. If they can make money they will. This is why it is keen on watching insider buy and sells. If you see people running for the exits, you may want to consider it too.
Hope I didn't go above my pay grade with this elementary analysis....this area is not my forte.
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