The Market Report
What Is Market Capitalization?
This metric is how investors measure a company’s size.
Market capitalization is one of the best measures of a company’s size. Also known as market cap, market capitalization is the total market value of a company’s outstanding shares of stock. For example, you may have heard Apple referred to as “the most valuable company in the world.” That’s because Apple currently has the highest market cap of any publicly traded company.
Let’s go over how to calculate this metric and what it means for investors.
Calculating market capitalization
To calculate market capitalization, simply take the total number of a company’s shares outstanding and multiply that figure by the stock’s market price. If a company has 2 million shares outstanding and each share is worth $20, then its market capitalization is $40 million.
A company can issue new shares of stock to increase its market capitalization. Note that a stock split won’t affect a company’s market capitalization, even though it will increase the total shares outstanding. The reason is that when stocks are split, their individual prices are split by the same proportion. If a company has 30 million shares outstanding worth $10 each, after a 2-for-1 split, it will have 60 million shares outstanding worth $5 each. Either way, the product of that company’s shares outstanding multiplied by its stock price will be the same, and so its market cap will not change.
What is a Bull and a Bear Market?
In stock trading and investing there are bulls and bears. It sounds dangerous but it isn’t. You often hear of the market being bullish or bearish. So what is the definition of a bull market and what is a bear market?
A Bull Market
This is when the market is showing confidence. Indicators of confidence are prices going up, market indices like the NASDAQ go up too. Number of shares traded is also high and even the number of companies entering the stock market show that the market is confident.
These are bullish characteristics. If there is a run of bullish days then you may hear the market is a bull market. Technically though a bull market is a rise in value of the market of at least 20%. The huge rise of the Dow and NASDAQ during the tech boom is a good example of a bull market.
A Bear Market
A bear market is the opposite to a bull. If the markets fall by more than 20% then we have entered a bear market. A bear market is a market showing a lack of confidence. Prices hover at the same price then go down, indices fall too and volumes are stagnant. In a bear market people are waiting for the bulls to start driving the prices up again. However, a bear is a very tentative bull or a bull that is asleep.
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