10 Advice to Struggling Teams - 10.4 Stock Price Drop and 10.5 Excessive Loss
10.4 Stock Price Drop
Stock price is a function of:
- Book Value
- Earnings Per Share (EPS)
- Annual Dividend
Book value is equity divided by shares outstanding. Equity equals the common stock and retained earnings values listed on the balance sheet. Shares outstanding is the number of shares that have been issued. For example, if equity is $50,000,000 and there are 2,000,000 shares outstanding, book value is $25 per share.
EPS is calculated by dividing net profit by shares outstanding.
The dividend is the amount of money paid per share to stockholders each year. Stockholders do not respond to dividends beyond the EPS, they consider them unsustainable. For example, if an EPS is $1.50 per share, and the dividend is $2.00 per share, stockholders would ignore anything above $1.50 per share as a driver of stock price.
Stock price generally drops in years where profits are less than previous years or losses occur.
10.5 Excessive Loss
Profits and losses are listed on page 1 of the Courier/FastTrack. Losses are usually the result of overproduction resulting in excessive inventory, a combination of costs being too high and prices too low. Profit can also suffer from excessive expenditures in Sales and Promo budgets (entered in the Marketing area) heavy interest payments on debt, and write-offs when products are discontinued.