Financial indicators and their ratios are traditionally

Financial indicators and their ratios are traditionally used for the analysis of stocks and bonds. When considering any particular stock, parameters such as price-earnings per share, earnings per share, current liquidity ratio, profit growth and others are all taken into account. The parameter of market capitalization allows you to quickly and easily assess the value. Mcap is an evaluation indicator that allows you to analyze investors' general attitude towards a particular company. Although it is indicated side by side on official websites of companies alongside such parameters as EBITDA or P/E, it is difficult to call it a multiplier due to bias. This is rather a basic indicator for calculating more accurate multipliers, for example, net debt.  

What is mcap in stock market? It reflects the total value of placed shares held by investors and owners of the company. The indicator is used for a superficial assessment of the company's value and analysis of its dynamics over a certain period of time. The formula for mcap is the following: market capitalization = number of common shares * current market price + number of preferred shares * current market price.  

Market capitalization is one of the main indicators that are taken into account when calculating stock indices, among those are the S&P 500, DAX and Nikkei. Capitalization gives an idea of ​​the value of that part of the business that is public. If the rating agencies did not come up with capitalization, it would be done by investors. After all, they need to know what place the company takes among competitors. Moreover, the most significant indicator is experienced market players, not beginners. However, although the latter bear significant risks, they still have more potential for growth. 

The benefits of market capitalization for investors:  

• They can assess the dynamics of capitalization growth at different time intervals based on which they can make an investment decision. 
• Investors can use mcap for the analysis of how the share price and capitalization react to certain fundamental factors; also, determine how much the company's value is sensitive to force majeure or, vice versa, to positive market signals. The higher its sensitivity, the greater risk they deal with; however, it means you can earn on volatility more.  
• Compare the capitalization of companies in one industry, as well as the share price is arguably not advisable. For example, the dynamics of one company's shares, despite its capitalization of, let's say, almost $100 million, may not be the most attractive for investors. 

Disadvantages of the company's assessment of the value of mcap:  

• Existence of a speculative component in the stock price is among the drawbacks. For example, there is traditionally an increase in quotations of securities before the dividends payment and a rollback after the payments. The financial condition of the company remains unchanged, but capitalization changes. 
• Mcap indicator does not take other influential economic factors into account. Investors, who are able to analyze the reporting, compare the market stock value with the debt load and liquid assets of the company. But there are investors who invest money guided by a good dynamics of quotations and someone else's advice. They are the ones who unjustifiably overestimate the market value of securities. 
• Mcap provides for limited evaluation capability. It is possible to make an estimation on market capitalization only on public joint-stock companies since there is basic information on them. 

To conclude, calculating of mcap in comparison with calculating the EBITDA, P/E multipliers or net debt is very simple and unambiguous. But it serves only as a generalized indicator and is prone to making large errors. Professionals would not recommend investing based only on the dynamics of the share value at the time of the decision. You should analyze all indicators and multipliers in combination. 

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