The Capital Market Line is a complex concept, but put simply, it is a calculation meant to give the investor/analyst a range of potential returns for a portfolio, based on the risk free rate and the standard deviation of the portfolio. The Capital Market Line is a part of the capital asset pricing model (CAPM) that solves for expected return at various levels of risk. It takes into consideration a portfolio’s risk assets and the risk-free rate. Continue reading...
Market Capitalization refers to the total ‘market-size’ of a company, calculated by the number of shares outstanding multiplied by the stock price. Investors should take care not to consider a company’s market capitalization as an accurate reflection of the company’s actual size by assets. Companies with very large market capitalizations can still operate with net losses, Twitter being an example. Continue reading...
As of 2014, global GDP was $77 trillion. The total market capitalization of all world stock markets is approximately $70 trillion, and about a fourth of that amount is the U.S. market. The U.S. economy is the largest by GDP, which for 'fiscal year' (FY) 2016 was approximately $19 trillion. The total value of notional derivatives fell to $18.1 trillion. How Many Dollars do We Have in Circulation? What is Currency in Circulation? Continue reading...
Market capitalization is a measure of a company’s size, in terms of the value of its total outstanding shares. Most readers have probably heard of large-cap, mid-cap, and small-cap stocks. These classifications are based on the market capitalization of a company, which is defined as the number of a company's outstanding shares multiplied by the price of one share. For example, if company ABC issued 1,000 shares and it is trading at $10/share, then the market capitalization of company ABC is 1,000 x 10 = $10,000. The largest company by market capitalization as of the time of this writing is Apple Inc. Its market capitalization exceeds $750 billion. Continue reading...
The capitalization ratio measures a company’s leverage, or the amount of long-term debt it holds relative to long-term debt + shareholder equity. Essentially, it is a measure of how capitalized a company is to support operations and growth. Continue reading...
Paid-up capital is the money (‘capital’) collected by a company from issuing shares of their stock. In other words, its money raised from issuing and selling stock. Paid-in capital is not money borrowed, but rather money invested in the company by shareholders. A company will generally issue shares of stock with a par value and an offer price, and paid-up capital represents the difference between total dollars invested and par value of the shares. Continue reading...
One way of classifying mutual funds is by the market capitalizations of the companies they invest in. Mutual funds can invest in stocks and bonds of foreign corporations, or corporations in the biotechnology industry, or with any other objective they may have. But one way to manage it is by size—to capture market exposure for companies of different sizes. The size of a company is defined by the amount of market capitalization it has, which is the number of shares outstanding multiplied by the share price. Some indexes and funds will adjust market cap rankings to give weight to “free float,” which is the amount of market capitalization that is freely trading, and is not held by other companies, governments, or founding families. Continue reading...
A market maker is a broker-dealer firm or a registered individual that will hold a certain number of shares of a security in order to facilitate trading. There could be as many as 50 market makers for one particular security, and they compete for customer order flows by displaying buy and sell quotations for a guaranteed number of shares. The market maker spread refers to the difference between the amount a market maker is willing to pay for a security and the amount that the other party is willing to sell it. Continue reading...
Indexes track markets in different ways, and Weighted Average Market Capitalization is a method which gives market cap, or the cumulative value of outstanding shares for a company, greater weight. Market Capitalization is the sum total value of all outstanding shares and is one way to judge the size of a company or at least its size in the market. Indexes such as the S&P 500 are Cap-Weighted indexes, which means they give greater emphasis the to the largest companies, and the dramatic price movements of only a few of the largest companies would mean that the index would swing disproportionately for large-cap companies. Continue reading...
Capital Accumulation is the act of acquiring more assets which will generate more profits or other benefits to the company or economy. Capital accumulation is sometimes discussed in relation to rumors that a company is preparing to acquire another company. This could be the case for one or two reasons. One would be that the company has actually been buying up shares in the target company for some time. Continue reading...
Mutual funds that invest heavily in companies that are small, but not micro-size, can be described as small cap funds. A small capitalization mutual fund primarily invests in small companies. Small companies are usually defined as companies with market capitalization of under $2 billion. The companies in this category are larger than those in the “micro” and “nano” cap categories. A mutual fund investing in small cap companies will generally experience higher price volatility than both mid cap and large cap mutual funds. Over time, small cap companies as a group have tended to outperform the broader market, so the higher risk is associated with higher return. Continue reading...
Outstanding shares refers to all of the shares of company held in total, which includes all ownership - retail investors, institutional, the company’s officers, insiders, and so on. Outstanding shares are listed on the balance sheet under “Capital Stock,” and are used in calculating market capitalization, earnings per share, and other critical per share calculations. The amount of outstanding shares can fluctuate over time on the basis of corporate actions, such as share buybacks (reduces overall count) or new share issuance (increases overall count). Continue reading...
A blue-chip stock generally refers to a publicly traded company that is very well-established and is in the top tier of market capitalization, usually in the tens of billions. There is no formal definition for what makes a company a blue-chip stock, but the general category includes some of the biggest and most household names available to trade. Companies like Johnson & Johnson, Walmart, Visa, Dow Chemical, and so on, that have been around for decades and have market capitalizations in the tens of billions. (click on the link for each company to see their current stock price) Continue reading...
Capital structure gives a framework for a company’s makeup and how it finances its operations, because it includes long and short-term debt plus common and preferred equity. Capital structure is a mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. Often times, investors will want to look at a company’s debt-to-equity ratio as a telltale of what their capital structure is. The higher the debt-to-equity ratio, the more that particular company is borrowing to finance operations versus using cash flow or assets on hand. Continue reading...
Working capital is computed by subtracting a business’s current liabilities from its current assets. Current means that the assets and liabilities exist within the current year. The appropriate amount of working capital will vary from business to business. Some businesses have a need for a large amount of working capital, and some can maintain a healthy balance sheet with relatively little working capital. Whatever the situation is for a particular business, the approximate calculation for the amount of working capital that they have to use is arrived at by subtracting current liabilities from current assets. Continue reading...
The Capital Account in a company is where paid-in capital, retained earnings, and treasury stock is accounted for. In macroeconomics, the Capital Account shows the national net change in ownership of assets. In accounting and bookkeeping, the Capital Account tracks the amount of Capital on hand at a company, which is the sum of the paid-in capital, the retained earnings, and the value of the treasury stock. Paid-in capital is the money collected from investors during an IPO or other stock issue. Continue reading...
Large Cap mutual funds primarily invest in companies with the highest market capitalizations. Large capitalization mutual funds, also called “large cap funds,” invest primarily in large companies with market capitalization of over $10 billion. Some examples include Microsoft, General Electric, Google, and other well-known companies. Some large cap mutual funds invest in all of the companies in an index (therefore closely following the performance of that index), and some pick and choose which large companies to select in an attempt to outperform the index. For more information about indices, see “What is Index Investing?” Continue reading...
When creating an index, it must be decided what criteria will affect the value of the index, and in the case of a price-weighted index, the only consideration is the price of shares. A price-weighted index is created by adding up the individual price per share of the companies included in the index and dividing by the number of companies. Essentially what you've done is arrived at the average price per share of the companies included in the index. Continue reading...
The FTSE 100 Index - also known as the Financial Times Stock Exchange or the “Footsie” - tracks the performance of the largest 100 stocks by market capitalization traded on the London Stock Exchange. Since many of these companies are multinationals, however, the FTSE 100 does not provide the best gauge for how the UK economy is performing. The FTSE 225 is a better barometer for the UK. The FTSE 100, however, much like the S&P 500 provides a good general gauge for how stocks are performing globally. Continue reading...
All-cap mutual funds invest in companies of all sizes. All-capitalization mutual funds invest in companies without a bias towards the capitalization of the company. In every mutual fund’s prospectus, the stated objective of the fund will be outlined, as well as the agreed-upon asset allocation guidelines. Deviation from these parameters can put fund managers in hot water with regulatory groups like the SEC. Continue reading...