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What Is the Relationship between Company Success and Capital Stock?

By Larry Ray Palmer
Updated May 17, 2024
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Capital stock refers to the initial shares of stock offered by a company. As the company's value increases, these shares may become more valuable. In some cases, the value of the company and the capital stock shares becomes high enough that the board of directors may call a meeting with current shareholders to amend the company charter and offer additional shares of common stock. It should be noted that the failure or success of the company is one of the primary factors determining the valuation of capital stock shares. In effect, if the company is successful, then it can logically be assumed that the value of the capital stock will increase as well.

Since capital stock includes both common stock and preferred stock, it is tied closely with the success of a company. When a company sees a significant amount of success, the value of capital stock shares may rise in parallel to the company's increase in value. In some cases, the stock issuer may also offer additional cash payments, which are called dividends, to stockholders. To preserve the company's economic health, some investors may choose a company reinvestment option, using the dividend payments to purchase additional shares of stock in the company. In some cases, stock shares that have an initial value of fractions of a cent can become highly valued over a period of time as the company’s value increases.

The stock market can be very volatile, and there is the potential for investors to lose significant amounts of money when a company fails. In cases where a company's economic health suffers, such as periods of slow sales or other revenue losses, the shares of capital stock may suffer similar losses in value. A share of capital stock valued at over $100 US Dollars (USD) may become worthless almost overnight if a company goes bankrupt. Companies that become bankrupt may even declare total bankruptcy, which frees them from any further obligation to creditors, including investors.

The value of stock shares may be affected by several factors. The issuing company may choose to offer stock splits or reverse stock splits. A stock split divides each share of stock into two or more shares with a proportional value. A reverse stock split merges shares to create a single share of stock of higher value. In addition, the value of stocks may be affected by the laws of supply and demand, investor interest and other economic factors.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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