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Quotes: Fi, fie, fo, fum 6197 Views
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Find out the meaning behind "fi, fie, fo, fum."
Transcript
- 00:00
finance a la shmoop. what is market capitalization versus equity
- 00:07
capitalization? alright let's start with the math. hair extensions for dogs Inc
- 00:12
has 20 million shares outstanding in trades publicly at 30 bucks a share. [store front shown]
- 00:17
the stock market is paying that 30 bucks a share for the company so it is the
- 00:22
market the stock market that is setting the price on the whole company. that is
Full Transcript
- 00:27
for 30 bucks you get 120 millionth of a company, that has 30 million dollars in
- 00:33
earnings no debt and 200 million dollars in cash. well all of it together
- 00:37
comprises the total value of the company so that's the market capitalization. got
- 00:43
it? shares outstanding time stock price. equity capitalization looks at cash and [equation]
- 00:47
debt and sometimes other easily sellable assets. it has on the balance sheet but
- 00:52
keep things simple here just imagine that hair extensions for dogs Inc has a
- 00:56
six hundred million dollar market cap, right 20 million times 30 bucks ,no debt
- 01:00
and it has 200 million dollars of cash sitting in its Wells Fargo account. well
- 01:04
the market cap is 600 million but the equity cap is 400 million. why? well if
- 01:11
the company wanted it could dividend out the 200 million dollars have cashed at
- 01:16
it had tomorrow, or use it to buy back its own stock. or well whatever else it [dogs sit at table with bags of cash]
- 01:20
wants maybe throw a huge party so the equity cap is 400 million dollars and
- 01:25
this is an important number, because with a company earning 30 million this year
- 01:29
and say 40 million next year. on that 600 million number well it trades it 20
- 01:34
times this year's earnings and 15 times next year's but that's its market cap.
- 01:39
its trading about where the overall stock market is trading give or take. not
- 01:43
that cheap not that expensive kind of ho-hum .but if you back out the cash the [newspaper article shown]
- 01:48
equity or earnings power of the company at just four hundred million dollars is
- 01:53
trading at only 13 times this year's earnings in just ten times next year's
- 01:57
earnings. cheap really cheap relative to its growth rate .so maybe this company is
- 02:02
as screaming buy an investor should really pay attention in the stocks cheap
- 02:06
here buy buy buy. well the key takeaway is that the equity
- 02:09
of a company in this sense is all about the earnings power that the company gets
- 02:12
from it's operations ,not about its balance
- 02:16
sheet. so as long as those poodle hair extensions keep flying off the shelves [dogs with long hair]
- 02:20
while things will be gravy as far as you're concerned.
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