Stock prices, in fact, have moved more violently than almost anything else in the business cycle. Earnings are only a means to an end, and the means should not be mistaken for the end. Therefore we must say that a stock derives its value from its dividends, not its earnings. In short, a stock is worth only what you can get out of it . The purchase of a stock represents the exchange of present goods for future goods, just as in other cases where interest arises.
Dividends are the claim on future goods.
Present earnings, outlook, financial condition, and capitalization should bear upon the price of a stock only as they assist buyers and sellers in estimating future dividends. The Evaluation of Net Quick Assets. A word as to financial position and its bearing on the price of a company's stock may be added here. If a company has cash holdings, for instance, in excess of what are needed to maintain its earning power, it is in a position to pay an extra, non-recurrent dividend, equal in amount to the excess cash per share. Likewise, if its receivables, inventories, or other quick assets are redundant, an extra dividend can be paid whose amount will depend upon what the excess of quick assets can be liquidated for.