Market capitalization

Stock market capitalization in 2012 amounted to 45% of GDP in Russia. In developed countries, this indicator is significantly higher (in parentheses are data on GDP , converted into euros at the purchasing power parity rate):

• US : € 10.7 trillion euros (108% of GDP)
• European Union : € 6.0 trillion euros (59% of GDP) [10.98 trillion. at 108% of GDP]
• Japan : € 2.4 trillion euros (75% of GDP) [3.46 trillion. at 108% of GDP]

The value of market capitalization and its growth are often characteristics of the success of a joint stock company. The term capitalization is sometimes used as a synonym for market capitalization, but sometimes it implies the sum of the values ​​of market capitalization and long-term debt obligations .

Market capitalization does not necessarily reflect the real state of affairs in a joint-stock company, since the price of shares depends on expectations of future profits and on speculation . For example, in the late 1990s, the market capitalization of many Dotcom companies reached billions of dollars , despite the fact that these companies not only made no profit , but often had no sales at all.

In other words, market capitalization is the price at which the market evaluates a company based on recent stock transactions. ^[one]

In accordance with the Modigliani-Miller hypothesis, financing from loans and borrowed funds does not have any effect on the company's value for the market.

The largest company by market capitalization is Apple - as of August 2, 2018, the company's market capitalization amounted to $ 1 trillion, which is the largest indicator in the world ^[2] . Microsoft has a historical record of the 20th century - in 1999, capitalization reached $ 616.3 billion (taking into account inflation , today it is about $ 875.8 billion).

Undercapitalization Rules

Capitalization (Capitalization) - an assessment of the value of the enterprise, land, securities and other property, by calculating the reduced amount of expected income , taken for the entire period of its intended use.

Capitalization may be insufficient , sufficient or excessive depending on the ratio between the economic capital of the company and the capital of the company that actually exists at the current time.

Excessive capitalization often causes dissatisfaction of investors , as there is an inefficient use of cash resources: the company's available funds are not invested , do not bring it additional income, but are capitalized.

"Insufficient capitalization" or "thin" ("thin" capitalization) most often occurs in situations where financing of the company is carried out at the expense of borrowed funds. The economic doctrine calls insufficient capitalization "the desire to reduce the tax base by artificially increasing debt servicing costs ..." (Burns L., Krever R. "Taxation of Income from Business and Investment". 1998).

Company capitalization (methods)

Split rate capitalization capitalization — Two different interest or discount rates are used to estimate projected cash flows for the same asset.

Capitalization of income. Capitalization of profit (from the English. Capitalization of earnings ) - the calculation of the present value of net profit , which is expected to be received in the future.

Straight line capitalization (from the English. Straight line capitalization ) - a method of calculating the capitalization ratio for real estate by adding to the interest rate the rate of direct capital return.

Direct overall capitalization (from the English Direct overall capitalization ) - the method is based on dividing the net operating income by the coefficient obtained as a result of the analysis of comparable objects and comparing the income from these objects with their selling prices.

• Capitalization

• Capitalization // Economic Dictionary.