Ok, so I think I remember hearing how a company recently was fine and then people were worried it would not do well, then they got scared and sold stock so the price dropped so much that he company went bankrupt.

What does it matter to a company what stock is worth after it is initially sold?

Are you talking about Enron?

The stock price is often an inidicator of other issues such as credit worthiness. For example, Genworth saw its stock price plummet last month when it revealed it may not be eligable for the TARP program to keep the company running. The stock price tanked.

If Genworth goes bust it's not because the stock price is low - but instead, the low stock price is because investors have already lost confidence in the company to operate.

Hope that helps.

Warren Buffet is a wise man, and here are two of his best lines that could help you answer the question:

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

If a business does well, the stock eventually follows.