Today’s topic is market capitalization and enterprise value. Market capitalization (market-cap) is the market value of a publicly traded company’s outstanding shares. It is calculated by multiplying number of shares outstanding by the current share price.
Enterprise value adds the outstanding debt to the market cap. Why is it important? Because it can show the difference in valuation between competitors in an industry, it can show the value between the equity and debt of acompany; it can absolute value or over-valuation of a company itself.
Public companies are divided according to market capitalization: large cap ($10 billion or more), mid-cap ($2 billion to $10 billion), small-cap ($300 million to $2billion) and micro-cap (less than $300 million).
A diversified portfolio may consist of various market-cap companies or index funds. The portfolio management implications are important. There are also metrics and ratios among and between these different market sectors which can uncover both opportunities and risks for the investor like you.
Is share price an indicator of much? $1 vs $100BRK vs FB share price; watch the video for my explanation. Of course this is an important topic for you and it requires more than a oneminute video and a website. For more financial insight, enter your info and let’s stay in touch.