stock prices. Stock prices are not only susceptible to external factors like market movement, but also internal ones like a company’s financial health (revenue, cost and profits). Another factor which, at first glance, may not seem to have any effect on the share price movement is ’contingent liability’. This is the amount that a company may need to shell out in the future and its loss potential is measured in terms of the probability of those events coming to pass. Such liabilities include pending lawsuits (litigation filed against the company pending with authorities such as the National Consumer Disputes Redressal Commission, consumer dispute forums or civil courts), income tax or sales tax disputes, or patent infringements. This liability is very different from the fixed liabilities of a company, be it current or long-term, which mature at pre-defined periods. These include bank loans taken by the company to, say, purchase machinery or payable mortgages, bonds and debentures. Any change in the assets and liabilities of a company can have a major influence on the stock price. For example, an increase in the total debt via enhanced long-term loans of a company can make it susceptible to default. This is because the debt has to be serviced irrespective of whether the company makes profit or suffers losses. A company that is unable to manage its debt level relative to its assets often witnesses investors’ wrath.
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