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?
Check your understanding
* 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).