Valuation

Market capitalization is a function of the price of a firm's stock and may not accurately reflect intrinsic value due to varying future expectations held by investors. It is common for a firm's market capitalization to exceed
“book value” or shareholders' equity because market prices tend to increase at a quicker rate than earnings accumulate (due to increased stock value attributed to expected future earnings growth compared to current earnings). In the late 1990's the shares of Internet-related companies were highly valued by the market, and tiny companies with few sales (but high growth potential) generated market capitalization in the billions.

Copyright © 2005-2010 Market-Cap.com. Permission is granted to copy, distribute and/or modify this document under the terms of the GNU Free Documentation License, Version 1.2 or any later version published by the Free Software Foundation; with no Invariant Sections, no Front-Cover Texts, and no Back-Cover Texts. A copy of the license is included in the section entitled “GNU Free Documentation License”.