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All businesses need money to run day to day operations like buying raw materials, paying workers' wages, etc. So where does this money come from?
Private Companies
 For the case of private businesses, they tap the funds available from their private investors to run the day to day operations and any other expansion plans which the company may have. This is feasible up to a point where the company's growth is hindered by its present cash situation. The private investors of this company may decide that they are satisfied with the status quo and choose to do nothing and just maintain day to day operations. In reality however, most investors are motivated to maximize their profits so they will find ways and means to generate greater profits. One of the ways to achieve this is to take the company public.
Public Companies
When a company goes public, the company issues out stock to the investing public and interested financial institutions. By issuing out stock, the company receives cash in return from investors which they can use in whatever way they deem fit to achieve their goal of maximizing stockholder value. The motivation for investors to pump money into the company is the belief that the company's management will do their best in running the company and making strategic decisions with the aim of maximizing shareholder returns in the form of an increase in the value of their stock investment. Recent events, namely the Enron and Worldcom debacles, however have illustrated how some company managements have instead acted to the detriment of the interest of their shareholders.
How Do You Price a Stock?
 So how does an investor or trader "value" the price of the stock? This is where the fun begins. Theoretically, you can value a stock by using the Discounted Cash Flow (DCF) method. This can be done by projecting out into the future what its earnings (cash flow) will be and then discounting it to the present value of what price you are willing to pay. Typically, investors will include an earning's multiple, which could be based on other stocks in its sector, to determine what price to pay for the stock. Remember, when you buy a stock, you are buying into what the company is going to be worth in the future and not what it was worth last week!
In theory, all this sounds good but in reality, many other factors come into the picture, primarily the human factors of "greed and fear". When you really think about it, in the financial markets, it all boils down to the two basic human emotions of "greed and fear". Investors and traders who truly understand these human emotions and can relate it to the market, will make a lot of money!
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