Info 1: capitalization definition
Info 2: how capitalization works
Info 3: capitalization vs equity
Info 4: example of capitalization
Opening information:
Capitalization means head or chief or main value of the something. So now let’s have a look at what is a capitalization, how capitalization works in the public market.
And what is the difference between capitalization and equity, finally one clear and brief example of capitalization.
Info 1: capitalization definition
Mr. Patan is a small food stall business owner, but he is the one who would be the executive of the whole operation of the business. Where he is not the only person who is the owner of a food stall business in his city.
This stall business would have three owners, where Patan owns 50 percent of the business and the other two own 25 percent of the company.
This means that the food stall business had 1 million shares outstanding with half a Million Patan owning it and the other two-quarters of half a million would be owned by the other two persons.
Moreover, to raise extra money for the Patan business, he invites another one-fourth business owners by selling the Patan half of the holding Ownership.
The quarter of the Ownership sold for the price of 12 dollars with 250k shares. Because each share price is 12 dollars with a total market value of 1 million shares worth 12 million dollars.
Here the 12 million dollars is what is called the market capitalization of the patan food stall business. So many of the business’s outstanding shares multiplied by the market price of one share is what is illustrated as market capitalization.
Now let’s dive into how capitalization works in the public market among all the Corporations and Stock Investors.
Info 2: how capitalization works
Capitalization doesn’t represent any of the specific objects or things, instead, they are a concept that shows the worth of market value of the one or whole business.
Any of the values are determined by multiplying the whole issued outstanding shares with the market price, which is considered as a capitalization of the market or in short form as market cap.
If the value doesn’t multiply with the market price, they are dividends by the equity of the business which are not considered market capitalization although they are named as book value.
At the same time if the value that would be identified by the business through multiplied by the outstanding shares with the book value of the business, then such things are called business capitalization not market capitalization.
Capitalization is involved in the public market in a more complex manner, in all the market activities, and with different aspects. Most of the investing websites miss this matter wrongly.
Suppose the capital needs to be identifiable by the whole stock market, then adding all the public business market capital together would help to find the market capitalization of the stock market.
Therefore capitalization didn’t demonstrate any specific business calculation or things, however, its function is to show what would be the value of main assets based on where the capitalization would be used.
Moreover, this capitalization value of price would be changeable at any time as much as possible, for the market capitalization if the market price changes every minute, then such market capitalization value of price would be changeable according to the market price every day.
However, the stock or public Investors who hold multiple amounts of Securities with loss and profits would be able to notify the capitalization of the investment account by subtracting all the losing and loss positions with profits position in the public market.
Most people confuse capitalization and equity, so let’s jump into the key difference in it anyway.
Info 3: capitalization vs equity
The difference between capitalization and equity is, that capitalization is the one which is referred to the main value of the asset based on where the capitalization takes place.
On the other side, equity is the owner’s money which introduces the value of money to the Particular business alone. To make you more clear about the capitalization let’s look into one brief example below.
Info 4: example of capitalization
Say the company U is the one that had issued the 23 million outstanding shares and the shares are trading now at 100 dollars on the stock exchange with a total market value of 2.3 billion dollars.
Company U had 140 million dollars in assets and 80 million dollars in liabilities, once the liabilities of debts are paid out using all assets, the remaining amount is 60 million dollars.
Here the 2.3 billion dollars is a market capitalization and 60 million dollars is the equity of the company U.