Market Cap | by Wall Street Survivor

Wall Street Survivor

16 Feb 201302:03

Summary

TLDRThe video script from Wall Street Survivor explains market capitalization (market cap) as the total value of a company's shares, calculated by multiplying the outstanding shares by the current market price. It illustrates this with the fictional Lucy's Diner, highlighting how market cap reflects the public's perceived value of a company. The script categorizes companies into small, mid, and large cap based on their market cap size and emphasizes the importance of comparing companies of similar size, as exemplified by the historical valuation of ExxonMobil and Apple.

Takeaways

📈 Market Capitalization (Market Cap) is the total value of a company's shares and is used to gauge a company's size and value.
🧮 To calculate Market Cap, multiply a company's outstanding shares by its current market price per share.
💡 Market Cap reflects the public's perceived value of a company, as the market price is set by investor demand.
🍽️ The example of Lucy's Diner, a fictional company, illustrates how to calculate Market Cap with 100,000 shares outstanding at $50 each, totaling $5 million.
🏢 Companies are categorized by Market Cap size: small cap (under $2 billion), mid cap (between $2 billion and $10 billion), and large cap (over $10 billion).
⚖️ Market Cap is a useful tool for comparing companies, whether for qualitative, quantitative, technical, or fundamental analysis.
📊 Companies should be compared against similar-sized peers to make meaningful assessments of their market value.
🏆 Historically, ExxonMobil was considered the most valuable company for most of the 2000s, but Apple has recently surpassed it.
🔮 The future of which company will be the most valuable is uncertain and up to market dynamics and investor sentiment.
🌐 Wall Street Survivor encourages trading for free on their platform to engage with the stock market and potentially understand market cap implications.
🎶 The script concludes with a musical note, suggesting a light-hearted or promotional tone to the presentation.

Q & A

What is market capitalization (market cap)?
-Market capitalization, or market cap, is the total value of a company's shares. It is calculated by multiplying a company's outstanding shares by its current market price.
Why is market cap important to investors?
-Market cap is important to investors as it helps determine a company's size and value, reflecting the public's perceived value of the company.
How is Lucy's Diner's market cap calculated in the script example?
-Lucy's Diner's market cap is calculated by multiplying its 100,000 outstanding shares by its current market price of $50, resulting in a market cap of $5 million.
What does the market cap indicate about a company's size?
-Market cap indicates the size of a company. Companies with a value of less than $2 billion are considered small cap, those with a value between $2 and $10 billion are mid cap, and those with a value greater than $10 billion are large cap.
How can market cap be used to compare companies?
-Market cap is used to compare companies by allowing investors to evaluate and compare companies of similar size, which can be useful for both qualitative and quantitative analysis.
Why is it suggested to compare companies of similar market cap size?
-Comparing companies of similar market cap size provides a more accurate and relevant comparison, as it accounts for differences in company scale and market presence.
What are some examples of large cap companies mentioned in the script?
-The script mentions ExxonMobil and Apple as examples of large cap companies, with Apple having recently overtaken ExxonMobil in terms of market value.
How has the script used the term 'most valuable company' in the context of market cap?
-The term 'most valuable company' in the script refers to the company with the highest market cap, which has historically been ExxonMobil but has recently been overtaken by Apple.
What is the significance of the market price in determining market cap?
-The market price is significant in determining market cap because it is the price at which investors are currently willing to buy or sell a company's shares, and it directly affects the total value of the company's shares.
How does the script suggest one can trade for free at Wall Street Survivor?
-The script suggests that one can trade for free at Wall Street Survivor by visiting their website, although the specific process or platform for free trading is not detailed in the transcript.
What is the role of the public's perception in determining a company's market cap?
-The public's perception plays a crucial role in determining a company's market cap as it influences the market price of the company's shares, which is a key factor in calculating the market cap.

Outlines

00:00

📈 Understanding Market Capitalization

This paragraph introduces the concept of market capitalization, a key metric used by investors to gauge a company's size and value. Market cap is calculated by multiplying a company's outstanding shares by its current market price, reflecting the public's perceived value. The script uses Lucy's Diner, a fictional company, as an example to illustrate how market cap is determined and its significance in classifying companies into small, mid, and large cap categories. It also emphasizes the importance of comparing companies of similar market cap sizes for a more meaningful analysis.

Mindmap

Keywords

💡Market Capitalization (Market Cap)

Market Capitalization, or market cap, is defined as the total value of a company's shares. It is a key metric used by investors to determine a company's size and overall value. In the video, market cap is calculated by multiplying a company's outstanding shares by its current market price, which reflects the public's perceived value of the company. For instance, Lucy's Diner, a fictional company in the script, has a market cap of five million dollars, calculated by 100,000 shares outstanding times a market price of $50.

💡Outstanding Shares

Outstanding shares refer to the total number of shares of a company that are held by all its shareholders, including institutional investors and company insiders. In the context of the video, Lucy's Diner has 100,000 outstanding shares, which are used in the calculation of the company's market cap.

💡Current Market Price

The current market price is the price at which a company's shares are trading on the stock exchange at a given time. It is determined by the interaction of supply and demand in the market and is a critical factor in calculating market cap. In the script, Lucy's Diner's shares are trading at $50, which is the price used to determine its market value.

💡Investors

Investors are individuals or entities that purchase shares of a company with the expectation of generating profits, either through capital appreciation or dividends. The video emphasizes that market cap is determined by investors' perception of a company's value, as they buy and sell shares based on this perception.

💡Public's Perceived Value

Public's perceived value refers to the overall estimation of a company's worth by the general public, particularly the investors. The video script explains that market cap is essentially the public's perceived value of a company, as it is influenced by how much investors are willing to pay for the company's shares.

💡Small Cap

Small cap is a term used to describe companies with a market capitalization of less than two billion dollars. The video script categorizes companies based on their market cap size and explains that small cap companies are generally considered to be smaller in size compared to mid cap and large cap companies.

💡Mid Cap

Mid cap companies are those with a market capitalization between two and ten billion dollars. The script uses this term to illustrate the categorization of companies by size, with mid cap companies being larger than small cap but smaller than large cap companies.

💡Large Cap

Large cap refers to companies with a market capitalization greater than ten billion dollars. In the video, large cap companies are presented as the largest in terms of market value, with Apple being mentioned as an example that has recently overtaken ExxonMobil as the most valuable company.

💡Comparative Analysis

Comparative analysis in the context of the video involves comparing companies based on various criteria such as market cap, to understand their relative sizes and values. The script suggests that market cap is most useful when comparing stocks of similar companies to assess their standing in the market.

💡Qualitative and Quantitative Analysis

Qualitative and quantitative analysis are two approaches used to evaluate stocks. Qualitative analysis focuses on subjective factors like a company's management quality, while quantitative analysis relies on numerical data. The video script implies that market cap can be used in both types of analysis when comparing companies.

💡Technical and Fundamental Analysis

Technical analysis and fundamental analysis are methods used to study and predict the market value of stocks. Technical analysis is based on historical price patterns, while fundamental analysis considers a company's financial health and performance. The script mentions that market cap is a tool that can be used in both types of analysis for comparing companies.

Highlights

Market capitalization (market cap) is the total value of a company's shares.

Investors use market cap to determine a company's size and value.

Market cap is calculated by multiplying a company's outstanding shares by its current market price.

Market price is determined by investors, making market cap a reflection of the public's perceived value.

Lucy's Diner is used as an example of a fictional company to illustrate market cap calculation.

Lucy's Diner has 100,000 outstanding shares, trading at $50, giving it a market cap of $5 million.

Market cap helps in understanding a company's value in the open market.

Companies are categorized by market cap size into small cap, mid cap, and large cap.

Small cap companies have a value of less than $2 billion, mid cap between $2 and $10 billion, and large cap over $10 billion.

Market cap is useful for comparing stocks of similar size for qualitative or quantitative analysis.

ExxonMobil and Apple are mentioned as examples of companies with high market cap values.

Apple has recently overtaken ExxonMobil as the most valuable company.

Market cap comparison is essential for investors to determine future value potential.

Wall Street Survivor encourages trading for free on their platform.

The video transcript is from Wall Street Survivor's educational content on market cap.

The importance of market cap in evaluating a company's public perception and financial standing is emphasized.

The transcript provides a clear explanation of how market cap is calculated and its significance in stock evaluation.