Why Do Stock Prices Rise When Earnings Increase?

Why do stock prices rise when earnings increase?

Why Do Stock Prices Rise When Earnings Increase? 1

It is very simple suppose there are 100 partners in a company and co made a profit of 10000 although company not distributed profits but each partner got share in profit 100 so now profit increases to 20000 next year means 200 per partner so obviously every partner would like to acquire more and would be willing to pay more than last year and would not like to sell his holding as co profits increasing. So demand getting higher and supplies shrinking, prices has to go up.Hope clear

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What happens to stock prices if the company is bought?

The market will respect the purchase price set by the buyer and the seller. The seller has represented the small investors during the negotiation

Why Do Stock Prices Rise When Earnings Increase? 2

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Would Walmart stock prices go up in this economic crisis?

The market does not care about what quality goods you sell. If the p/e ratio is in the right place as far as the analysts are concerned and if the corporation delivers the projected/expected profits then the stock goes up if not it goes down. Wal-mart is doing a little better than projections and should be going up steadily.

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When stock prices fall, does the money just disappear?

you are forgetting the value of a dollar $$$ also moves up and down inflation or deflation

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What determines stock prices in the short run?

Many things can effect a stock price. Earnings is the primary mover of a stock. If net income (earnings) is rising at a good pace the stock should be rising also. The future is big also. So a company has done well, will it continue to prosper and grow. If the answer is yes then that will help the stock go higher. Amazon and Ebay released to the public their latest quarterly sales and profits. They were better than expected and their view of their future was also good. So the stocks have risen. The direction of the economy is also a stock mover. If the economy is strong, earnings should stay strong and stocks should do well. Earnings and the rate of growth of earnings are the top stock movers. The economy is not far behind.

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What prevents stock prices from being artificially increased?

Honestly, most of the time Market Makers will widen the spread to change investor sentiment and this usually will be enough to slow it down and correct itself

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a good website for stock prices?

I use yahoo's finance but if I need to look deeper into a stock, I then use morningstar.com. They post the last 10 years of a stock!

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Is it possible to measure the impact of financial news on stock prices?

The approach above is a fairly reliable way to proxy the surprise element of news, because it's that which moves prices. The problem here is how to gauge the consensus against which the news may generate (or fail to generate) a surprise; and how you try to measure that. Otherwise it's easy to get into games like the following:Scenario A - XYZ Inc surprises the market with a collapse in profits, Stock down 10%. OK, simples. ..Scenario B - the market rumbles onto XYZ's problems in the weeks before their results reporting, and the stock is down 10% (but with no headlines). Then it confirms the market's fears. Stock unch. Scenario C - the market cottons on, and overreacts as the market fears a problem worse than it actually is. Rumours are mentioned in the press, but maybe not at exactly the same time as the stock falls 15% in the weeks before results. When XYZ reports a significant but limited and defined problem, relief rally of 5%. What is the result, the right answer for the "impact", supposed to look like here? Clearly in all the scenarios, XYZ is worth 10% less than an XYZ without its problem. But how you are supposed to derive that outcome without the counterfactual clean company is unclear. Plus my example above is in a sense a bit simplistic. It's one-dimensional: XYZ has the problem, and the only moving part is the market's (unmeasurable) expectations around thi. Reality is messier, because the probability of actual as well as expectations are fluid. Worse, if one company has a profit warning and the rest of the sector are also down, when does normal market correlation cease and second-order expectation revisions begin. This exercise quickly gets very messy. If you are happy to allow for news to sometimes explain price shocks - but are happy for this to work sometimes, ie not be consistent or relied upon - it can be done. If an event occurs that is:Then it is fair to conclude that news "caused" the price move. The move is significant: "something" happened that had signal as well as noise. The correlation/association is evident. The causation is reasonable: regulators did not fine the company for its stock falling at 1401 last Friday! And there's no superior explanation. But this is tantamount to accepting that you can capture Scenario A above; and the process gets dirtier once you start relaxing any of the constraints. Back in the day, we used to have an Excel spreadie. Hit the button to run the macro that would spin a roulette wheel with Vegas-style beeps. This landed on "merger talk", "JP Morgan bought/sold 500", "rumours of MidEast Sovereign Wealth interest", "North Korean Missile Test", "fears about upcoming roadshow" etc. Which was a fun (the clients were in on the gag) alternative to "I do not know, mate. Will let know if I hear anything". But it was also an effective antidote to the "explanatory" rubbish that just must be inserted into the stream of news passing through Bloomberg, CNBC et al. Nobody denies that news moves prices... just all too often, it seems to do so in mysterious ways.

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