# Stock Price Factors: Types & Definitions

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• 0:00 Background on Stock Prices
• 0:40 Factor 1: Book Value
• 1:47 Factor 2: Beta
• 2:52 Factor 3: Market Bubble
• 3:40 Lesson Summary

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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

After reading this lesson, you will see how various aspects of a business can affect its stock price. Also learn how the market itself can affect stock prices to the point where it can make it crash.

## Background on Stock Prices

In this lesson, we'll take a look at stock prices and the factors that affect it. A stock price factor is something that influences the price of the stock. Some things increase the price of a stock while other things decrease the price of a stock. For example, when a company publishes a positive financial report that shows growth quarter to quarter, then the market may respond and the company's stock prices will increase. On the other hand, if the company produces products that are of low quality, then people will begin to lose trust in the company and, as a result, the stock prices will drop. Let's take a look at some factors that affect the price of a company's stock.

## Factor 1: Book Value

The first is a company's book value. This is the value of the company according to the company's financial records. To calculate the book value of a company, you take the company's liabilities and subtract it from its assets. For example, if a company has liabilities in the amount of \$15,000 and assets in the amount of \$500,000, then the company's book value is \$500,000 subtracted from \$15,000 and that equals \$485,000.

This book value can affect a company's stock price when potential investors look at a company's public financial records. Potential investors can look at the book value of a company and decide that this is the real value of the company. Potential investors can also look at the book value of a company and decide that the company's real value is more than its book value. The stock price in this instance then will be higher than the company's book value. In yet another scenario, if potential investors have lost trust in the company due to a bad report or if the company's products are of low quality, then the market value, the stock price of the company, will be lower than the book value of a company.

## Factor 2: Beta

Another factor that can affect the price of a company's stock is called beta. Beta is a statistical measure that compares how a company performs when compared to the stock market. The stock market has a beta value of 1.0. If a company's stock decreases or increases faster than the stock market, then the company's stock has a beta value greater than 1.0. But if a company's stock decreases or increases slower than the stock market, then the company's stock has a beta value lower than 1.0.

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