educational share trading game

2 trillion dollar company (market capitalisation)

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On 19 August 2020 Apple became the first publicly traded US company to be valued at more that $2 trillion* (story on NPR). But what does that mean?

The $2 trillion in question refers to the market capitalisation of the company, which is one way of measuring a publicly traded company’s value. It’s a pretty simplistic measure to be honest but it does make for some great headlines, partly because unlike some other ways of measuring value it’s really easy to measure.

To calculate the market capitalisation (AKA ‘market cap’) of a company just multiply the number of shares available to the market by the current share price.

Example: A company with 100,000 shares available on the market (known as the ‘shares outstanding’), each of which is worth $10 would have a market cap of $1 million:

100,000 x $10 = $1,000,000

In Apple’s case the share price peaked at $467.77 per share on 19 August 2020 with 4.28 billion* shares outstanding:

4,280,000,000 x $467.77 = $2,002,055,600,000

So that’s what market cap is, a simple measure of what a company is worth according to the stock market. Whether or not it’s a useful measure of a company’s value for investors is a matter for debate. Is an Apple really worth (almost) two Googles? Or 5.8 Nestlés?

Learn more

Read more about market capitalisation on Investopedia.

Check your understanding

The median weekly earnings for a full time employee in the UK reached £585 in April 2019. That's around $770 per week. Roughly how long would it take to earn enough money to buy Apple at today's prices?Earnings figures from the ONS, here.
Market cap is just one way to value a company. Which of the following is NOT a measure of company value?You may find this article on Investopedia useful.
At time of writing, Tesla Inc. had 186.36 million shares outstanding and a share price of $1878.53. What is its market cap?

Notes

* The words ‘trillion’ and ‘billion’ both have two distinct definitions rooted in how the words were historically used in Britain and the US. In line with modern usage (especially in finance) we’re defining billion as 1,000,000,000 (1×109) and trillion as 1,000,000,000,000 (1×1012).

Credits

Featured image: From Pixabay on Pexels, here.

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