How company's stock price and market capitalization determined.
                     HOW COMPANY'S 
STOCK PRICE AND 
MARKET 
CAPITALIZATION 
DETERMINED
MARKET 
CAPITALIZATION
 The value of a company, or its overall market 
value, is called its market capitalization, or 
market cap. 
 The market cap of a company may be measured 
by calculating the stock price of the company by 
the amount of outstanding securities. 
Source: www.investopedia.com
STOCK PRICE
 A relative and proportional value of the value 
of a company is the stock price. 
 Therefore at some given moment of time, it 
constitutes just a percentage shift in the 
market cap of a firm. 
Source: www.thestreet.com
MARKET VALUE OF A 
BUSINESS
 Any percentage change in a stock price would lead 
to an equivalent percentage change in the market 
value of a business. 
 This is one of the key reasons that investors are so 
obsessed with stock prices; a decline in the stock 
price of $0.10, for example, will result in a loss of 
$100,000 for a stockholder with one million shares.
Source: www.medium.com
HOW IS SHARE PRICE 
DETERMINED?
 Generally speaking, supply and demand are 
driven by the prices of the stock market. 
 This makes the stock market close to most 
stocks in the economy. 
 A buyer and seller trade money for equity 
ownership when a stock is sold. 
Source: www.wbcsd.com
CURRENT STOCK PRICE
 The new selling price becomes the price at 
which the inventory is bought. 
 This price becomes the current stock price as 
a second share is exchanged, etc.
Source: www.medium.com
FORECASTING STOCK 
PRICE
 Specific quantitative tools and 
formulas exist that can be used to 
forecast the price of the stock of a 
company. 
 They are based on the idea that the 
present price of a stock equals the 
cumulative total of all the possible 
dividend payments, called dividend 
discount models (DDMs).
Source: www.investopedia.com
NUMBER OF SHARES 
AND PRICE
 You need to decide how many shares 
and at what price they will be sold to 
the public. 
 A corporation whose worth is valued 
at $100 million, for instance, may 
choose to sell 10 million shares at $10 
per share.
Source: www.investopedia.com
HOW IS MARKET 
CAPITALIZATION DETERMINED?
 In an event called an initial public 
offering, a company's market cap is 
first created (IPO). 
 A business hires a third party 
(typically an investment bank) to use 
very complicated calculations and 
calculation methods during this 
process to derive the value of a 
company. 
Source: www.fundsinstructor.com
Misconceptions About 
Market Capitalization
 Although it is sometimes used to 
define a company (e.g. large-cap vs. 
small-cap), the market cap does not 
reflect a company's stock valuation. 
 Only a detailed study of the 
fundamentals of a company will do 
that. 
Source: www.investopedia.com
Do Market Capitalization 
Decide the Market Price
 Market capitalization is an insufficient 
way to value a business because it 
does not actually represent how much 
a portion of the business is worth on 
the basis of the market price. 
 Shares are always over or 
undervalued by the consumer; just 
how much the market is able to pay 
for the shares is decided by the 
market price.
Source: www.investopedia.com