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Learning Goal: Students will evaluate corporate financial statements.
Learning Goal: Students will evaluate corporate financial statements.
Book Value vs. Market Capitalization
Book Value vs. Market Capitalization
Book Value
How the accountants value assets (assets-liabilities).
Equity = Book Value (the stuff you actually own)
Equity / Shares = Book Value Per Share
Market Capitalization
How investors value the company.
Share Price * Shares = Market Capitalization
The difference between accounting value of assets and what the market says they are worth. This is the intangibles of the company that investors value.
Types of Capitalization
Types of Capitalization
Mega cap - $200 billion and greater.
They are the largest publicly traded companies such as Exxon (NYSE:XOM). Not many companies will fit in this category, and those that do are typically the leaders of their industries.
Big/large cap - $10 billion to $200 billion.
Mid cap - $2 billion to $10 billion
This group of companies is considered to be more volatile than the large- and mega-cap companies. Growth stocks represent a significant portion of the mid caps. Some of the companies might not be industry leaders, but they are well on their way to becoming one.
Small cap - $300 million to $2 billion.
These are typically newer companies that can explode. Although their track records won't be as lengthy as those of the mid to mega caps, small caps do present the possibility of greater capital appreciation - but at the cost of greater risk.
Micro cap - $50 million to $300 million.
Most of these are penny stocks. The upward potential of these companies is similar to the downside potential, so they do not offer the safest investment, and a great deal of research should be done before entering into such a position.
Nano cap - Below $50 million.
These companies are the most risky, and the potential for gain is often relatively small.
Lesson Information
Lesson Information
Vocabulary
Additional Reading
Student Activity
Determine the value book value per share and the market value per share of your company being researched.
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