Next video:
Loading the player...

A company’s worth, or its total value, is the same as its market capitalization. Market capitalization is stock price multiplied by number of outstanding shares.

If ABC Company’s stock is priced at $5, and it has 10 million outstanding shares, its worth is $50 million. Another company may have $10 stock, but if it only has 1 million outstanding shares, its total value is much smaller than ABC’s.

Any percentage change in stock price will result in an equal percentage change in a company’s value. That’s why investors worry so much about stock prices. A 10-cent drop in a $5 stock doesn’t sound like much, but can result in a $100,000 loss for shareholders with 1 million shares.

Stock prices are calculated when a company goes public. When a business makes an initial public offering, it first pays an investment bank to find its value using complex valuation techniques. The results determine how many shares will be offered, and at what price. If a company’s value is estimated at $100 million, it may issue 10 million shares at $10 per share.

  1. No results found.
Related Articles
  1. Investing

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  2. Investing

    Getting Acquainted With Treasury Stock

    When publicly traded businesses decided to buy back some of their outstanding shares, it becomes treasury stock. Treasury stock confers no voting rights or dividends, but helps boost shareholder ...
  3. Managing Wealth

    Issued Share Capital vs. Subscribed Share Capital

    Subscribed share capital is very different from issued share capital, which is the actual issued stock.
  4. Investing

    Why Do Companies Care About Their Stock Prices?

    Find out how a company's stock price reflects its value to internal and external shareholders.
  5. Investing

    Investment Valuation Ratios

    Learn about per share data, price/book value ratio, price/cash flow ratio, price/earnings ratio, price/sales ratio, dividend yield and the enterprise multiple.
  6. Investing

    Getting The Real Earnings

    EPS helps investors analyze earnings in relation to changes in new-share capital.
Hot Definitions
  1. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  2. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  3. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  4. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Candlestick

    A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick ...
Trading Center