ipl-logo

Market Capitalization Essay

1631 Words7 Pages

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. But what makes people like a particular stock and dislike another stock. That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth that is, its market capitalization (Sorn, 2006).
Market capitalization refers to the value of a company’s outstanding shares; it is a market estimate of a company’s value, based on perceived value, …show more content…

A model based on significant financial factors has been developed for market capitalization. Firm performance has been measured and analyzed using ratio analysis. As such a multiple regression analysis is carried out by establishing relationship between the market capitalization and firm’s financial performance variables like profitability, valuation, cash flow measures and size. In the below figure no. 1 the theoretical framework of financial determinants and market capitalization shown, where dependent variable is market capitalization and independent variables are financial performance.
To find the relationship between financial performance/determinants and market capitalization or share price many researchers has performed study. The results of the studies done earlier shows that financial performance has positive and negative both effect on market capitalization or share price of the firm. Results of some of the relevant studies are done below to identify the gap and prove the …show more content…

In his study result of the Spearman Rank order Correlation disclosed strong positive correlation of EPS with share price. ROA disclosed a weak negative correlation with share price. Choudhary (2011) identified the determinants of firm’s financial performance (both capital market based and accounting based) in Indian context. In his study the data of a sample of 233 companies is used to evaluate the financial performance measured in terms of shareholders’ value, growth and profitability using a set of independent variables during the period ranging from 1996 to 2008. Bhattacharya and Saxena (2009) analyzed the manufacturing firms’ data from the steel and Electrical & Electronics (EE) sectors for the period from 2004-05 to 2006-07. The result showed that the firm’s size affected current profitability: positively in steel sector and negatively in the other. Bank credit was found negatively significant in both the industries. Market share of firms and industry concentration ratio were the other significant determinants of firms’ performance. Firms’ market value was found positively significant for other industries. This signified that high market value of firms reflected their goodwill, knowledge stock and prospective investment opportunities which positively influenced the firms’ performance.

Show More
Related

  • How Did Herbert Hoover Do During The Great Depression

    449 Words  | 2 Pages

    THE GREAT DEPRESSION 1929 was the start of the deepest and darkest time for the United States Stock Market and the people of the United States. The Market crash, the loss of American jobs and homes, lead to one of the hardest downfalls in American history. Along with billions of dollars lost due to bad stock trading, over extending on personal credit and the spending of money that had yet to be produced. The American people never stood a chance and in a matter of 10 days the lives of almost everyone changed. In 1928 Herbert Hoover was elected as president.

    Read More

  • Why Was The American Economy Dbq

    710 Words  | 3 Pages

    People bought stocks with the speculation of benefit to optimistically help support their families, as well as being able to have all home necessities. The fight for a small profit at the least was strong and intense because of the little amount of money there was to spread between businesses and citizens. Americans began to overextend their budgets and purchased more stocks at higher prices than what they were actually worth. William E. Leuchtenburg stated in The Perils of Prosperity that, “With debt no longer being shameful ..... consumers bought goods on installment at a rate faster than their income was expanding” (Doc 6).

    Read More

  • Btec Business Level 3 Unit 5 P4

    1809 Words  | 8 Pages

    P1: Describe customers in four different contexts: A Market: A market is a place where demand and supply operate. Buyers and sellers interact to trade their good and services. (What is a market? , n.d.)

    Read More

  • The Causes Of The Stock Market Crash Of 1929

    1660 Words  | 7 Pages

    In October of 1929, the Dow Jones Industrial Average fell 25% in four days, this is defined as the Stock Market Crash of 1929. Billions of dollars were lost, countless investors were crushed by the amount of money they lost, and a plethora of people were forced into debt. The Stock Market Crash intensified the Great Depression, which was was a time of economic calamity in America in the 1920’s and 1930’s. The Great Depression was caused by the consolidation of overproduction, false prosperity, unemployment, banking crises, and the stock market crash of 1929.

    Read More

  • Income Inequality In The 1920s Essay

    657 Words  | 3 Pages

    In 1929, the stock market crashed and billions of people lost their money, even the rich men and women. The

    Read More

  • Why Is Herbert Hoover A Bad President

    1069 Words  | 5 Pages

    Herbert Hoover’s Presidency Herbert Hoover, the thirty-first president of the United States was very disappointing according to many people. Hoover had a significant impact on World War 1. For example, during World War 1, he organized a peace army that saved 350 million lives from starvation and disease. This is one of the many reasons why people chose Hoover to become the president. Herbert Hoover had a disappointing presidency because he did not overcome the Great Depression and the Stock Market Crash during his presidency.

    Read More

  • What Are The Underlying Causes Of The Great Depression

    585 Words  | 3 Pages

    Unrestrained speculation and margin buying were the two big things in the Stock Market. Speculators bought stocks with money they borrowed. They would used those stocks as collateral to buy more stock. So if that person could not repay the loan, they would forfeit their stocks. Margin buying was a way of attracting the less wealthy to buy stocks.

    Read More

  • What Caused The Great Depression Research Paper

    780 Words  | 4 Pages

    There began to be a gradual decline in prices and the stock market ruptured. On October 24, 1929, the infamous “Black Thursday” took place, where stock holders went on a panic selling spree. Things then went from bad to worse, stock prices went down 33 percent. People stopped purchasing goods and business investments decreased after the crash. In the fall of 1930, the first of four major waves

    Read More

  • How The Great Depression Shaped America

    923 Words  | 4 Pages

    As stock prices continued to rise, the market became very popular. Eventually the stock prices started to fall during September through early October,

    Read More

  • Similarities And Differences Between The Single Index Model And Capital Asset Pricing Model

    1217 Words  | 5 Pages

    Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

    Read More

  • How Did People Influence The Great Gatsby

    1107 Words  | 5 Pages

    The stock market crash of 1929 was needed as like a jump start for the nation. With the stock market crash of 1929, it sent the U.S. into the greatest depression it has ever known and people didn 't know what to do or how to fix it. Fitzgerald couldn 't predict the stock market crash but in his book the Great Gatsby, he does write about how, “that society was living in excess and without curbing its appetite somewhat, ruin was just around the corner.” Before the crash the only people that benefited were the wealthy and officials and the high ups, before the crash the market rose by 108 percent and wages grew, but this all came to a big grinding halt when the stock market crashed. The Nation went up and came crumbling down, this destroyed the economy and the view of people as they did not know how to fix it or change it.

    Read More

  • Capital Finance Case Study: Bankruptcy

    1309 Words  | 6 Pages

    Bankruptcy is a time of turmoil and uncertainty in any company, in addition to employees leaving and a loss of confidence from vendors and customers, management is restricted in their ability to make decisions and navigate the company. Because of the heightened uncertainty, many investors abandon the company, greatly reducing the value of the company, making the process even more difficult. However, savvy investors can generate large returns by entering the company at the right time as it begins to rebuild, so long as they can determine which companies will fail, and which will recover. H Partners is currently engaged in this process with Six Flags, having already gathered substantial returns on Six Flags’ senior debt, H Partners is determining

    Read More

  • Tesco Accounting Report

    1656 Words  | 7 Pages

    However, financial performance subsists with different levels of organisation, which is concerned with measuring financial performance of organisation. These measures are categorised into four that includes profitability, gearing, liquidity or working capital, and investor ratios. However, the financial plan of organisation is associated with operating plan since financial plan involves revenue and expenses for the activities that are linked with each objective. Hence, the main reason, in monitoring financial plan is to audit the committee (Hasan, 2011).

    Read More

  • Single Index Model And Capital Asset Pricing Model

    1129 Words  | 5 Pages

    Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

    Read More

  • Essay On Making Mistakes

    744 Words  | 3 Pages

    The stock exchange slammed, banks dispossessed, organizations bankrupted and cash devalued. This affected the people of America to a great extent. So these mistakes are to be acted upon soon before it causes much more trouble. By making this mistake, people learned the valuable experience of managing money wisely and buying stocks

    Read More

More about Market Capitalization Essay

Open Document