Can u please help me on this:
High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price.
is it true of false?? and why
thx
It is false, because share prices are inversely proportional to the number of shares outstanding. Share prices can be arbitrarily changed with stock splits or by combining shares.
There is, however, a tendency for VERY low-priced stocks (i.e. "penny stocks") to be risky and more volatile, in the USA at least. In some countries like Australia, there are many low-priced stocks with excellent cash flow.
The statement "High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price" is generally true but should be understood with some caveats.
High cash flow is often viewed positively by investors as it indicates a company's ability to generate profits and meet its financial obligations. When a company consistently generates strong cash flow, it may be seen as financially stable and capable of rewarding shareholders through dividends or reinvesting in growth. This positive perception can lead to increased demand for the company's shares, which can drive up the share price.
On the other hand, higher risk is typically viewed negatively by investors. If a company is considered to have higher levels of risk, such as financial instability, inconsistent earnings, or a higher chance of default, investors may perceive it as a less attractive investment option. This negative perception can result in reduced demand for the company's shares, which can lead to a lower share price.
However, it is important to note that share prices can be influenced by various factors beyond just cash flow and risk. Market sentiment, macroeconomic conditions, competition, industry dynamics, and other factors can also play a significant role in determining share prices. Additionally, the relationship between cash flow, risk, and share price can be complex and vary depending on the specific circumstances of a company or industry.
The statement "High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price" is generally true. Here's the explanation:
Cash flow refers to the amount of cash generated by a company's operations that can be used for various purposes, including reinvestment, debt repayment, and returning value to shareholders. Higher cash flow is generally seen as a positive sign by investors as it indicates that the company is generating more money from its core business.
When a company has high cash flow, it can demonstrate financial stability, efficient operations, and the ability to generate sustainable profits. This can increase investors' confidence in the company's ability to grow and generate returns in the future. As a result, investors may be willing to pay a higher share price to acquire a stake in the company, which can drive up the share price.
On the other hand, higher risk tends to result in a lower share price. Risk refers to uncertainties and potential negative outcomes that can affect a company's financial performance. If a company is perceived to have higher risk, such as facing intense competition, economic downturns, legal or regulatory challenges, or high levels of debt, investors may be more cautious and demand a higher return for bearing that risk.
Investors generally consider risk as a factor in valuing a company's shares. Higher risk levels may lead to a lower valuation, causing the share price to decrease. Investors may require a larger discount or a higher expected return to compensate for the increased risk associated with the investment.
While there can be exceptions and other factors at play, in general, high cash flow is positively correlated with a higher share price, while higher risk is negatively correlated with share price. It is important to note that other factors, such as market conditions, sector dynamics, and investor sentiment, can also influence share prices. Therefore, it is always recommended to conduct comprehensive research and analysis before making investment decisions.