Market Capitalization

Market Capitalization is the value that the stock market places on the firm — stock price times shares outstanding.

One can argue that Market Cap is a better measure than stock price for evaluating the wealth created by Management. For example, suppose two firms, Andrews and Baldwin, have stock prices of $100. If Andrews has a Market Cap of $200 million, and Baldwin $300 million, then Baldwin created more wealth. Baldwin issued stock to fund its growth, and therefore its stock price is diluted by more shareholders. Nevertheless, its ending stock price is the same. We can infer that Baldwin's EPS, dividend, and book value are similar to Andrews. If that is true, Baldwin's profits must be much higher.