How Corporation Market Value affects Investors and the Corporation
How are Corporations being Valued?
For companies that aren’t public yet, it is easy to calculate the value of the company as the value is the total number of asset, and income subtracting liabilities and expenses but when a company becomes public, it is a different ball game. The net worth of the company is gotten by multiplying how many shares of a company exist by the how much each shares is worth. Simple you will say, yes it is simple which means if a company and 2 Million shares and each shares is worth $20, then the company will be valued at $40 million which means it has $40 million dollars in capitalization. This is the same for companies like Amazon, Facebook, Google, Microsoft, Alibaba, Apple and many more.
How are Investors in corporation valued?
In 2017, it was said that Jeff Bezos made an average of 107 million daily which made 4$0 Billion in the same year all together (That much, wow!!!). In 2018 also, it was said that Mark Zuckerberg $16 billion in a day in July. Does this means that this investor, entrepreneur and business mogul have this money at hand and just lost this money?
Let me help explain this, these people do not have this billions of dollars in their bank account. Forbes, Bloomberg and other billionaire ranking magazines rate these people based on net worth and not based on raw cash. Their net worth is measured based on how much they have invested in public companies or other private companies where they own percentages. Their net worth is determined by the market capitalization of their company versus how much shares they own in the company. The percentage of shares owned in investments to the market cap of the investments.
Do Company's Market Value Remain the Same?
Just like the cryptocurrency market fluctuate, so does the stock market fluctuate. The market fluctuate depending on a lot of things from supply and demand, company image to the public and investors, new around the company and so on. A bad publicity can bring down the market cap of the company as investors will pull out their funds, while good publicity and image about the company will keep investor and even make the prices go up. A lot of companies uses their extra profit to create good vibes around their companies and also buy back their shares so people will see the company as a good place to invest.
Does market cap or prices reflect how much the company makes?
Simple answer. NO! The market price doesn’t reflect the income of the company, it only gives people an insight to if the company is doing well or not. Also if the company is doing well, then the company can get more money from the outside world and investors to do business. A bad news can drop the price of a company’s market value but it won’t affect income of the company until the company starts to fail. On the other hand, a drop in market cap of a company means a drop in net worth for the investors. The revenue of a company indicate the strength of the company but the market cap is the company’s image.
How does a company’s Market value Affects Investing?
In most cases, this always affects investors. If a company’s shares value and market capitalization is on the high, investors always like to invest in them but when they are low due to some external effect, investors tend to sell their shares. In this case, even if the market shares does not affect the revenue generated in the company, it will affect the company’s valuation. Some investors like Warren Buffet do not look at the market cap first before investing, rather they look at the company’s revenue, expenses, leadership, infrastructure and financial history. Then he gives a value to the company after which he checks the stock market for the company’s market cap which he compares to his own valuation. If the company valuation in the stock market is lower than his valuation, he invests but if the opposite is the case, then he just passes.
How do investors make money outside paper money?
If the company pays dividend, (in which most investors invest in companies that are paying dividend) they make money from that. In 2018, Bill Gates made $44 million as dividend from Microsoft.
