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Stocks 401: Understanding Value

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1.
What form of capital does market capitalization not include?
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Debt. Because of this limitation, some investors turn to enterprise value, which does include debt, among other factors.
2.
What are the two parts to the value of a business?
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The current value of the business's assets and liabilities, and the value of the business's expected future profits. Investors take both into account when valuing a company.
3.
Stock valuation ratios compare a company's market value with what?
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Any of the above. Valuation ratios compare market value with any of several figures about the company's finances.
4.
After finding a great business, determining the company's valuation is _______.
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Fundamental. Valuing a stock is a fundamental component of the investing process. Even the greatest company in the world might not be an attractive investment if the stock is priced too high.
5.
Acme Company's shares trade at $15 and the firm has a total of 20 million shares outstanding. What is Acme's market capitalization?
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$300 million. Acme's market capitalization is $300 million. Recall that market capitalization is calculated by multiplying a company's share price by its number of shares outstanding.