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How worth and market cap different things ? Isn't market cap reflection of worth ?

lotsofpulp 8y ago
https://www.investopedia.com/terms/m/marketcapitalization.asp https://www.investopedia.com/terms/m/marketcapitalization.as... Below is copy pasted from above website. In any case, share prices fluctuate a lot, due to many factors. And every time, someone writes an article about it, but it never means anything. Misconceptions About Market Caps Although it is used often to describe a company, market cap does not measure the equity value of a company. Only a thorough analysis of a company's fundamentals can do that. It is inadequate to value a company because the market price on which it is based does not necessarily reflect how much a piece of the business is worth. Shares are often over- or undervalued by the market, meaning the market price determines only how much the market is willing to pay for its shares. Although it measures the cost of buying all of a company's shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction. A better method of calculating the price of acquiring a business outright is the enterprise value.
- DanBlake 8y ago
  Hogwash. The worth of a company is what someone will pay for it. Thats literally the definition of the market cap. Trying to say "But these shares are overvalued right now!" means nothing. The value of anything is what someone will pay for it- Just ask the guy walking in the desert what he will pay for a bottle of water.
  - lotsofpulp 8y ago
    If you read the investopedia link, you would see that what you write is not true. Just because some shares are being sold at a certain price does not mean all shares will be sold at that price. >Although it measures the cost of buying all of a company's shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction. A better method of calculating the price of acquiring a business outright is the enterprise value.
  - parrellel 8y ago
    That's the value of the stocks, what does it have to do with the objective value of the company, its assets, its IP, its facilities. Entirely different critter.
  - EliRivers 8y ago
    Thats literally the definition of the market cap. It literally isn't. Market cap is literally the current share price multiplied by the number of shares outstanding. It's literally a different thing.
  - AviationAtom 8y ago
    Did you guys read the part of the article taking about their revenue increases? It isn't just stock price going up. As mentioned too, paying out a dividend means the company has a good revenue stream. Apple's failure to innovate was Microsoft's opportunity to surge ahead.
  - jerf 8y ago
    The worth of the company is what someone will pay for it, although that gets fuzzy when "what someone will pay for it" is rather more than one person or non-governmental entity could raise, but there's no particular reason the market cap is that number. If someone makes a serious offer on a company, i.e., tries to buy all the stock, the stock price usually significantly rises. It has to; to pry the stock out of other people's hands you can't simply offer the market price, or they'd already have sold, so you can't just buy stock at the "market price" (as unaffected by your attempt to buy the company) and end up with all of it. Contrariwise, if someone owns a lot of stock and decides to just dump it all for cash, they won't get the market cap either, because the very act of dumping the stock will cause the price to go down, possibly even crash. So, the "market capitalization" is a "price" that you can neither buy, nor sell, the company for or at... so... it also can't be what "someone will pay for it", or, it isn't a "price" at all.
parrellel 8y ago
Market cap is guessing and network effects - investor hype - so only a reflection of perceived worth.
jacques_chester 8y ago
I think the argument here is about the distinction between book value -- ie owner equity in the accounting sense -- and market value. They are both "true" values in different senses. If anything market value is "supposed" to be an integral of the total lifetime book value. Book value in turn is the integral of transactions up to the current time.
bunderbunder 8y ago
Benjamin Graham's "Mr. Market" allegory [1] is a decent illustration of how seriously we should take fluctuations in market prices. To take another angle on it: Market cap is simply the number of shares outstanding, multiplied by the last price anyone paid for a share. This means that market cap is determined by the tiny minority of people who are actively trading shares in a company. That group may or may not be deciding what the company is worth according to the same criteria that you or I or the vast majority of people who are simply quietly holding on to their shares might want to use. [1]: https://en.wikipedia.org/wiki/Mr._Market https://en.wikipedia.org/wiki/Mr._Market, http://www.berkshirehathaway.com/letters/1987.html http://www.berkshirehathaway.com/letters/1987.html
- addicted 8y ago
  Another way of phrasing that is the market cap is determined by the people who have the information, and resulting conviction, to put their own money on the idea that the company may be worth that much. Further, the reason why the market cap works is because every transaction has a buyer and a seller. The seller believes the price they are getting is above what it should be, while the buyer believes it’s below what it should be. As a result, the actual price is a consensus between people who have very different outlooks on the company, and as such almost necessarily incorporates a lot of different, and likely non overlapping, information.
  - perl4ever 8y ago
    "As a result, the actual price is a consensus between people who have very different outlooks on the company" A better word would be "compromise", since there is no consensus by definition. But another point is that I always think of the price of a stock as deceptively precise. If you measure anything in a scientific sense, there is an associated +/- uncertainty. The value of a company always has an uncertainty and it might be quite large as a percentage of the total size. So when you look at the price going up and down, maybe it's only fluctuating within the zone of uncertainty.
gowld 8y ago
Dividends (MSFT paid much more than AAPL) is one major difference. Is MSFT worth less than AAPL just because MSFT handed out cash to investors instead of keeping that cash in a bank account wrapped in AAPL shares? Would you say AAPL is worth more if it issued a new pile of stock and just sat on the cash? The market cap would grow, but it's pointless to say it's worth grew just because it's a computer business with a bank account bolted onto the side.

https://www.investopedia.com/terms/m/marketcapitalization.asp https://www.investopedia.com/terms/m/marketcapitalization.as... Below is copy pasted from above website. In any case, share prices fluctuate a lot, due to many factors. And every time, someone writes an article about it, but it never means anything. Misconceptions About Market Caps Although it is used often to describe a company, market cap does not measure the equity value of a company. Only a thorough analysis of a company's fundamentals can do that. It is inadequate to value a company because the market price on which it is based does not necessarily reflect how much a piece of the business is worth. Shares are often over- or undervalued by the market, meaning the market price determines only how much the market is willing to pay for its shares. Although it measures the cost of buying all of a company's shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction. A better method of calculating the price of acquiring a business outright is the enterprise value.

DanBlake 8y ago
Hogwash. The worth of a company is what someone will pay for it. Thats literally the definition of the market cap. Trying to say "But these shares are overvalued right now!" means nothing. The value of anything is what someone will pay for it- Just ask the guy walking in the desert what he will pay for a bottle of water.
- lotsofpulp 8y ago
  If you read the investopedia link, you would see that what you write is not true. Just because some shares are being sold at a certain price does not mean all shares will be sold at that price. >Although it measures the cost of buying all of a company's shares, the market cap does not determine the amount the company would cost to acquire in a merger transaction. A better method of calculating the price of acquiring a business outright is the enterprise value.
- parrellel 8y ago
  That's the value of the stocks, what does it have to do with the objective value of the company, its assets, its IP, its facilities. Entirely different critter.
- EliRivers 8y ago
  Thats literally the definition of the market cap. It literally isn't. Market cap is literally the current share price multiplied by the number of shares outstanding. It's literally a different thing.
- AviationAtom 8y ago
  Did you guys read the part of the article taking about their revenue increases? It isn't just stock price going up. As mentioned too, paying out a dividend means the company has a good revenue stream. Apple's failure to innovate was Microsoft's opportunity to surge ahead.
- jerf 8y ago
  The worth of the company is what someone will pay for it, although that gets fuzzy when "what someone will pay for it" is rather more than one person or non-governmental entity could raise, but there's no particular reason the market cap is that number. If someone makes a serious offer on a company, i.e., tries to buy all the stock, the stock price usually significantly rises. It has to; to pry the stock out of other people's hands you can't simply offer the market price, or they'd already have sold, so you can't just buy stock at the "market price" (as unaffected by your attempt to buy the company) and end up with all of it. Contrariwise, if someone owns a lot of stock and decides to just dump it all for cash, they won't get the market cap either, because the very act of dumping the stock will cause the price to go down, possibly even crash. So, the "market capitalization" is a "price" that you can neither buy, nor sell, the company for or at... so... it also can't be what "someone will pay for it", or, it isn't a "price" at all.

parrellel 8y ago

Market cap is guessing and network effects - investor hype - so only a reflection of perceived worth.

jacques_chester 8y ago

I think the argument here is about the distinction between book value -- ie owner equity in the accounting sense -- and market value. They are both "true" values in different senses. If anything market value is "supposed" to be an integral of the total lifetime book value. Book value in turn is the integral of transactions up to the current time.

bunderbunder 8y ago

Benjamin Graham's "Mr. Market" allegory [1] is a decent illustration of how seriously we should take fluctuations in market prices. To take another angle on it: Market cap is simply the number of shares outstanding, multiplied by the last price anyone paid for a share. This means that market cap is determined by the tiny minority of people who are actively trading shares in a company. That group may or may not be deciding what the company is worth according to the same criteria that you or I or the vast majority of people who are simply quietly holding on to their shares might want to use. [1]: https://en.wikipedia.org/wiki/Mr._Market https://en.wikipedia.org/wiki/Mr._Market, http://www.berkshirehathaway.com/letters/1987.html http://www.berkshirehathaway.com/letters/1987.html

addicted 8y ago
Another way of phrasing that is the market cap is determined by the people who have the information, and resulting conviction, to put their own money on the idea that the company may be worth that much. Further, the reason why the market cap works is because every transaction has a buyer and a seller. The seller believes the price they are getting is above what it should be, while the buyer believes it’s below what it should be. As a result, the actual price is a consensus between people who have very different outlooks on the company, and as such almost necessarily incorporates a lot of different, and likely non overlapping, information.
- perl4ever 8y ago
  "As a result, the actual price is a consensus between people who have very different outlooks on the company" A better word would be "compromise", since there is no consensus by definition. But another point is that I always think of the price of a stock as deceptively precise. If you measure anything in a scientific sense, there is an associated +/- uncertainty. The value of a company always has an uncertainty and it might be quite large as a percentage of the total size. So when you look at the price going up and down, maybe it's only fluctuating within the zone of uncertainty.

gowld 8y ago

Dividends (MSFT paid much more than AAPL) is one major difference. Is MSFT worth less than AAPL just because MSFT handed out cash to investors instead of keeping that cash in a bank account wrapped in AAPL shares? Would you say AAPL is worth more if it issued a new pile of stock and just sat on the cash? The market cap would grow, but it's pointless to say it's worth grew just because it's a computer business with a bank account bolted onto the side.