Companies exist to make money. Their profits are expressed as earnings on a per-share basis. For explanatory purposes, let’s go back to our “chosen” company, McDonalds. I know that there are many people who just loves McDonalds and especially kids. Ask any kid where would they care to eat at if you gave them a choice and I’ll bet you most of them will say McDonalds. Try it!
The point here is that McDonalds makes a tremendous amount of money annually in sales and for those reasons they have terrific annual earnings. Someone or should I say, many bodies are out there tearing up those big macs! So, the company’s share price would rise as earnings increase. Do you see how this works? If a company makes more and more money, then theoretically the stock value goes up and up. The stock market symbol for McDonalds is “MCD”. Let’s see what their price performances looks like over the last 30 years:
June 1985 = $3.81/share June 1985 = $19.56 June 2005 = $27.75 June 2015 = $95.64
Wow, it looks like they haven’t been doing too bad! Remember though, past price performance does not guarantee future results.