U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
 
Old 08-04-2018, 03:55 PM
 
Location: (six-cent-dix-sept)
3,975 posts, read 1,943,310 times
Reputation: 2440

Advertisements

i understand that market capitalization is the value of unsold shares; but, wouldnt the value of sold shares be more significant.
- moreover -
wouldnt the value of annual revenue or profit be the most significant indicator of how valuable a corporation is ?
Reply With Quote Quick reply to this message

 
Old 08-04-2018, 04:36 PM
 
64,687 posts, read 66,183,819 times
Reputation: 43107
Market capitalization is the value based on outstanding shares not unsold shares . It is based on greed ,fear and the perception of the future performance of the company.
Reply With Quote Quick reply to this message
 
Old 08-05-2018, 11:29 AM
 
635 posts, read 558,061 times
Reputation: 520
Sold shares is measured in the volume of a stock on any given day. It's significant, but not as significant as market cap. The bigger the market cap, the higher the volume.

All of the shares in "market cap" are available for sale if they person who owns them decides to sell. Some for all intensive purposes will never be sold, others traded back and forth frequently. Depends on who's holding them and what their motivation is.
Reply With Quote Quick reply to this message
 
Old 08-05-2018, 12:54 PM
 
Location: Vallejo
13,442 posts, read 15,055,220 times
Reputation: 11925
Quote:
Originally Posted by stanley-88888888 View Post
i understand that market capitalization is the value of unsold shares; but, wouldnt the value of sold shares be more significant.
- moreover -
wouldnt the value of annual revenue or profit be the most significant indicator of how valuable a corporation is ?
Well, as others have said that's not market capitalization.

Market capitalization is a better indicator as it is direct measurement of the valuation of a company. It's the aggregation of every investor's (and we're really talking about institutions here more than the individual) opinion on the value of a company. Some value it more and buy, others value it less and sell. Market capitalization is just the aggregation of all those opinions.

It certainly takes profit into consideration. Price:earnings ratios are a very important metric that all of those investor's take into consideration, but it's just one consideration. Take, for example, Tesla. Tesla is famous for burning through piles of cash. It almost never makes any profit at all and even when it does, it's a very modest profit. You could look at that and say the valuation of Tesla is mass insanity. There's no way a company that has spent the last year burning through 500-600 million a quarter could possibly be worth $50 billion. It's just a funeral pyre of cash, after all, so how could it possibly be worth much of anything beyond whatever you could get for just selling off what assets, if it even has assets in excess of debt. That isn't even likely considering Tesla owes somewhere around $10 billion.

But then look at another example, Amazon. It started out modest. An unprofitable online book store that went public and spent four years doing really nothing much of note. Amazon may now routinely returns a profit, but it returns a modest profit. If you just look at P/E ratios, Amazon routinely comes in with P/E ratios that are 10x that of Walmart. Looking at just profits, there's no way Amazon is worth what it is worth. But then you look at expansion. Walmart is an established company. It routinely, year after year, grows its revenue by 20-30% and it's been doing that for a very long time. Walmart does not. Today Amazon makes as much profit in a quarter as it did in the first 14 years. Walmart is an established, and mostly stagnant, company. Amazon is not. Amazon's market cap is based much more on the fact that people are willing to buy the stock at prices that reflect that kind of growth will continue.

Sometimes that backfires. Take Broadcast.com. A little internet radio company that never made a profit and had a revenue of less than $7 million in 1998 that went public at $18/share and shot to over $60 in less than a day before being bought by Yahoo at a valuation of $5.7 billion in 1999. Yikes. Three years later Yahoo shut down its little experiment. Yahoo itself has gone and joined AOL as a subsidiary of Verizon.

Last edited by Malloric; 08-05-2018 at 01:08 PM..
Reply With Quote Quick reply to this message
 
Old 08-05-2018, 01:16 PM
 
983 posts, read 3,485,304 times
Reputation: 357
market cap = present value of all future profits
Reply With Quote Quick reply to this message
 
Old 08-05-2018, 01:31 PM
 
64,687 posts, read 66,183,819 times
Reputation: 43107
Quote:
Originally Posted by acegolfer View Post
market cap = present value of all future profits
not really , because fear and greed play a very big roll too
Reply With Quote Quick reply to this message
 
Old 08-05-2018, 03:48 PM
 
Location: (six-cent-dix-sept)
3,975 posts, read 1,943,310 times
Reputation: 2440
thanks for the corrections.

i misunderstood that unsold shares != outstanding shares.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:


Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics
Similar Threads
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2018, Advameg, Inc.

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top