DON’T ASK ME SHARE PRICE, ASK ME MARKET CAP

           WHY IS MARKET CAP Important?

Market capitalization formula is total numbers of shares outstanding multiplied by current share price. It is the amount at which company sells in the market at any given point of time.

For eg. Share price of:-         

                                         MRF limited: - 62,000

                                         Bajaj Finance limited: - 3,200

What do you derive from the above share prices? Which stock do you think have larger market capitalization?

          People usually see at the stock price and think stock is cheap or expensive but there is no real correlation between the share price and market capitalization in real terms. But actually share price is just a number on which a piece of a company is available.

For eg. Market capitalization of:- 

                                         MRF limited: - 26,000 (Crs.)

                                         Bajaj Finance limited: - 90,000(Crs.)

Market Cap V/s Enterprise Value.

Market capitalization is already explained above. Enterprise value means market capitalization + Debt – Cash.Enterprise value is the real value at which the company sells in the market.

Market Cap V/s Assets

Market   capitalization is already explained above. Asset means all the current and noncurrent assets present with the company i.e on the balance sheet of the company. There is relationship between them.But there are other components like debt, equity etc which cumulatively forms market capitalization.

           If the investor thinks in terms of market capitalization while buying a piece of a company i.e a share then his natural attention will shift from just a stock price to real the real value of the company so that he can compare with other stocks of same sector and also with the revenue and profits of the company he is investing in.

For eg. Mr. Warren Buffett a famous investor says when you buy a farm land you always think that you are buying the entire farmland and not just a piece of it so it is irrational while buying a stock of a company to think of the share price.

Also check out my other blog: https://www.stockblogs.in/2020/07/mr-market-and-his-madness.html

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