Why does a company's stock price affect its ability to raise debt?
As JB hints, it is likely due to superior or improving, fundamentals. If the fundamentals of a company improve then its ability to repay loans improves. If its ability to repay improves then more sources of cash become willing to lend to the company. Also if fundamentals are improving then more sources are willing to buy and/or hold the stock.
"The first 3 are the same as owning stock in a company would be measured in shares and would constitute some percentage of the overall shares outstanding. If there are 100 shares in the company in total, then owning 80 shares is owning 80% is the same as owning 80% of the common stock. This would be the typical ownership case though there can also be ""Restricted stock"" as something to note here. Convertible debt would likely carry interest charges as well as the choice at the end of becoming stock in the company. In this case, until the conversion is done, the stock isn't issued and thus isn't counted. Taking the above example, one could have a note that could be worth 10 shares but until the conversion is done, the debt is still debt. Some convertible debt could carry options or warrants for the underlying stock as there was the Berkshire convertible notes years ago that carried a negative interest rate that was studied in ""The Negative Coupon Bond"" if you want an example here. Options would have the right but not the obligation to buy the stock where there are ""Incentive Stock Options"" to research this in more depth. In this case, one could choose to not exercise the option and thus no stock changes hands. This is where some companies will experience dilution of ownership as employees and management may be given options that put more shares out to the public. Issuing debt wouldn't change the ownership and isn't direct ownership unless the company goes through a restructuring where the creditors become the new stock holders in the case of a Chapter 11 situation in the US. Note that this isn't really investing in a small business as much as it is making a loan to the company that will be paid back in cash. If the company runs into problems then the creditor could try to pursue the assets of the company to be repaid." "With debts exceeding assets by a billion dollars, this activity likely comes from penny stock speculators and ""pump and dump"" schemers. There is no rational expectation that the stock is even worth multiple pennies when the company is that far upside-down on its debts. Even if the debts could be restructured in a chapter 11, the equity shares would likely lose all of their value in the bankruptcy proceedings. Shareholders are at the bottom of the totem-pole when debts are being adjusted by the courts." Let's assume that the bonds have a par value of $1,000.  If conversion happens, then one bond would be converted into 500 shares.  The price in the market is unimportant.  Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense.  It would be decreased by the lost tax deduction.  It would be further diluted by the increase in 500 shares.  Likewise, the debt would be extinguished and the equity section increased.  Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price.  Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege.   I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense.  It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2.  The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment. There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio.  You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters.  The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere.  As more people want to buy stocks, the price rises.  Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere. "Debt is nominal, which means when inflation happens, the value of the money owed goes down.  This is great for the borrower and bad for the lender. ""Investing"" can mean a lot of different things.  Frequently it is used to describe buying common stock, which is an ownership claim on a company.  A company is not a nominally fixed asset, by which I mean if there was a bunch of inflation and nothing else happened (i.e., the inflation was not the cause or result of some other economic change) then the nominal value of the company will go up along with the prices of other things. Based on the above, I'd say you are incorrect to treat debt and investment returns the same way with respect to inflation.  When we say equity returns 9%, we mean it returns a real 7% plus 2% inflation or whatever.  If the rate of inflation increased to 10% and nothing else happened in the economy, the same equity would be expected to return 17%.  In fact, the company's (nominally fixed) debts would be worth less, increasing the real value of the company at the expense of their debt-holders. On the other hand, if we entered a period of high inflation, your debt liability would go way down and you would have benefited greatly from borrowing and investing at the same time.   If you are expecting inflation in the abstract sense, then borrowing and investing in common stock is a great idea. Inflation is frequently the result (or cause) of a period of economic trouble, so please be aware that the above makes sense if we treat inflation as the only thing that changed.  If inflation came about because OPEC makes oil crazy expensive, millennials just stop working, all of our factories got bombed to hades, or trade wars have shut down international commerce, then the value of stocks would most definitely be affected.  In that case it's not really ""inflation"" that affected the stock returns, though." Unissued capital is only a token restriction. When a company is incorporated a maximum number of shares is specified in the legal documentation. Most companies will make this an extremely large number so they never face that limitation.  See here. You wouldn't necessarily expect the stock price to change. The reason a company issues new stock is as a way to raise capital. Although new stock is issued, the cash raised by the sale becomes an Asset on the company's balance sheet.  There's a good worked example in this Wikipedia article. Following a rights issue the Liabilities of the company will increase to account for the increase in owner's equity, but the Assets will also increase by the same amount with the cash received. Whether the stock price changes will depend upon what price the stock is issued at and on the market's opinions about the company's growth potential now it has new capital to invest.  If the new stock is issued at the same price as the current market price, there's no particular reason to expect the share price to change. Again Wikipedia has more detail. When new stock is issued it is usually offered to existing shareholders first, in proportion to their current holding.  If the shareholder decides to purchase the new stock in full then their position won't be diluted.  If they opt not to buy the new stock, they will now own a smaller percentage of the company as their stocks will make up a smaller part of the now larger number of shares. "In some cases, when a company purchases a minor stake, they often intend to increase the size of the stake over time. As a reference, note that Coca Cola has increased their stake in Green Mountain Coffee Roasters (GMCR) over time. It also adds some ""support"" to the price because these investors may be willing to step in and purchase the stock if there is any distress or poor performance. Finally, its generally a good ""tell"" that the stock has good things going for it and may be subject to additional interest from large investors." In addition to D. Stanley's very fine answer, the price of stocks change as a result of changing market conditions and the resulting investor estimation of its effect on the company's future earnings. Take these examples. Right now, in the USA, there is a housing shortage; that is, there are fewer houses available for purchase than there are willing buyers. Investors will correctly assume that the future earnings of home builders will be higher than they were, say ten years ago. Seeking to capitalize on these higher earnings, they will try to buy the stocks. However, the current owners of the stock, potentially the sellers, know the same thing as the investor-buyer and therefore demand a premium to entice a sale. The price of the stock has risen. The reverse is true, also. Brick and mortar retailers are declining as more consumers prefer on-line retail shopping. The current owners of these stocks will probably want to sell their stock before it is worth even less. The investor-buyer also knows the same facts; that future earnings will most likely be less for these companies. The potential buyer offers a very low price to entice a sale. The price of the stock has fallen. Finally, the price of stocks rise and fall with general market conditions. As an example, assume that next months jobs report is released showing that 350,000 new jobs were created in July. Investors will believe that if companies are hiring, then the companies are doing well; they are selling products and services at a higher than expected rate, requiring that they add new employees. They will also conclude that those 350,000 new employees will be spending their salaries to buy not just food, clothing and shelter, but also a few luxuries like a newer car, a TV, perhaps even a new home (please see paragraph 2!). All of these companies will have more business, more earnings and, likely, a higher stock price. Take a look at apple.  It has no debt.  So the ev is basically mkt cap - cash.  Also remember market cap is the float * share price nothing else.  Obviously share price takes into account the assets of the firm into perpituituy but the way you phrased it, adding debt , didnt sound quite right to me.  We remove cash since someone buying a company isn't going to pay for your cash.  In the transaction cash is distributed to share holders then the company is sold. Some qualitative factors to consider when deciding whether to finance with equity vs debt (for a publicly traded company):    1) The case for equity: Is the stock trading high relative to what management believes is its intrinsic value? If so, raising equity may be attractive since management would be raising a lot of $$$, but the downside is you give up future earnings since you are diluting current ownership  2) The case for debt: What is the expected return for the project in which the raised capital will be utilized for? Is its expected return higher than the interest payments (in % terms)? If so raising debt would be more attractive than raising equity since current ownership would not be diluted  That's all I can think of off the top of my head right now, I'm sure there are a few more qualitative factors to consider but I think these two are the most intuitive "The correlation I heard most about in economics/finance was that stock prices and bond yields were negatively correlated; as the stock market does better, bond yields fall (company's doing well as evidenced by stocks, so it's a good credit risk, so YTM of its bonds on the market goes down). The correlation, if any, between the stock and futures market should be visible in the actual price histories. Index prices may be useful, but what's more likely is that various future prices have correlation with various companies' stocks. Where the future reflects the price of a raw material that is a significant cost of goods sold for a company, you'll see these two move inversely to each other in the short term. I think that if there is a causative relationship here, its that futures prices influence stock prices, not the other way around. The futures market generally represents the cost side of a consumer goods producer's bottom line. The stock market represents its profits. As futures go up, profit expectations go down, putting pressure on stock prices. Industries that deal in services, or in other types of goods, can still be affected because a rise in the cost of something consumers need will cause them to spend less on other things which affects margins in those other areas. So, in the short and medium term, when the futures market goes up the stock market sees a dip, and vice versa.  However, companies adapt; they can put upward pressure on prices for their goods to restore their desired margins, usually by slowly increasing them to prevent sticker shock (though elasticity of demand plays a part; the more we need something no matter what it costs, the faster prices can increase). To maintain costs, they can make things cheaper using less expensive materials (more plastic, less steel). They can restructure production processes (translated: move factories offshore, or at least to ""right-to-work"" states with less union strength) to save costs elsewhere. All of these reduce costs and thus increase profits, but take time to implement. Many of these things reduce direct costs, reducing demand for the commodity and causing the futures prices to go back down. So, over the long term, these differences even out, and it's down to the things that affect the entire market (inflation, consumer/investor confidence, monetary policy)." There is a highly related question which is much easier to answer: what normally value-increasing news about a company would cause that company to fall in value in the public stock market? By answering that, we can answer your question by proxy. The answer to that question being: anything that makes investors believe that the company won't be able to maintain the level of profit. For example, let's say a company announces a 300% profit growth compared to the previous year. This should push the stock upwards; maybe not by 300%, but certainly by quite a bit. Let's also say that this company is in the business of designing, manufacturing and selling some highly useful gadget that lots of people want to buy. Now suppose that the company managed such an profit increase by one of: In scenario 1 (firing the engineering department), it is highly unlikely that the company will be able to come up with, manufacture and sell a Next Generation Gadget. Hence, while profit is up now, it is highly likely to go down in the months and years coming up. Because stock market investors are more interested in future profits than in past profits, this should push the value of the company down. In scenario 2 (selling off the machinery), the company may very well be able to come up with a Next Generation Gadget, and if they can manufacture it, they might very well be able to sell it. However, no matter how you slice it, the short-term costs for manufacturing either their current generation Gadget, or the Next Generation Gadget, are bound to go up because the company will either need to rent machinery, or buy new machinery. Neither is good for future profits, so the value of the company again should go down in response. In scenario 3 (their product getting a large boost), the company still has all the things that allowed them to come up with, produce and sell Gadgets. They also have every opportunity to come up with, manufacture and sell Next Generation Gadgets, which implies that future profits, while far from guaranteed, are likely. In this case, the probability remains high that the company can actually maintain a higher level of profit. Hence, the value of the company should rise. Now apply this to a slightly more realistic scenario, and you can see why the value of a company can fall even if the company announces, for example, record profits. Hence, you are looking for news which indicate a present and sustained raised ability to turn a profit. This is the type of news that should drive any stock up in price, all else being equal. Obviously, buyer beware, your mileage may vary, all else is never equal, nothing ever hits the average, you are fighting people who do this type of analysis for a living and have every tool known available to them, etc etc. But that's the general idea. "As others have pointed out, there are often many factors that are contributing to a stock's movement other than the latest news.  In particular, the overall market sentiment and price movement very often is the primary driver in any stock's change on a given day.   But in this case, I'd say your anecdotal observation is correct: All else equal, announcements of layoffs tend to drive stock prices upwards. Here's why: To the public, layoffs are almost always a sign that a company is willing to do whatever is needed to fix an already known and serious problem. Mass layoffs are brutally hard decisions.  Even at companies that go through cycles of them pretty regularly, they're still painful every time.  There's a strong personal drain on the chain of executives that has to decide who loses their livelihood.  And even if you think most execs don't care (and I think you'd be wrong) it's still incredibly distracting.   The process takes many weeks, during which productivity plummets. And it's demoralizing to everyone when it happens. So companies very rarely do it until they think they have to.  By that point, they are likely struggling with some very publicly known problems - usually contracting (or negative) margins.   So, the market's view of the company at the time just before layoffs occur is almost always, ""this company has problems, but is unable or unwilling to solve them."".  Layoffs signal that both of those possibilities are incorrect.  They suggest that the company believes that layoffs will fix the problem, and that they're willing to make hard calls to do so. And that's why they usually drive prices up." You wouldn't know it's value (Enterprise Value) without knowing its cash balance.  The equation:   EV = Market Cap + Minority Interest + Preferred Stock + Debt - Cash  Enterprise Value is the value of the company to ALL shareholders (creditors, preferred stock holders, common stock holders).  So, taking on debt could either increase or decrease the EV depending on the cash balance of the company.  This will have no effect, directly, on the market cap. It will, however effect the present value of its future cash flows as the WACC will increase due to the new cost of debt (interest payments, higher risk of bankruptcy, less flexibility by management). You are right that Facebook really doesn't get impacted as they got their $38. However it would make it slightly more difficult for Facebook to raise more money in future as large investors would be more cautious. This can keep the price lowers than it actually needs to be. Quite a few companies try to list the IPO at lower price so that it keeps going up and have more positive effect overall there by making it easier for future borrowings. See related question Why would a company care about the price of its own shares in the stock market?