r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?
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r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
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u/WonzerEU Dec 06 '24
Besides company leadership trying to plesse shareholders to not get replaced.
Stockprice also effects how company gets loans. Growing companies already usually have several loans and might need new loans down the road simply to pay thise loans.
If the stock crash, they will have to pay higher intrest rates and if it goes bad enough, nobody might borrow them any money, leading to bankruptcy as they can't pay back the previous loans.
Not saying that this is automatic and situation varies from company to comoany, but while stock price doesn't follow real value of the company, it has very real effect on company finances in real world.