Market Capitalization is the value of the company as of any particular date based on the current market price and this keeps fluctuating based on the market price of the share.
My query is, is this the real value or intrinsic value of company or should we consider the book value multiplied by the number of outstanding shares as the true value.
When short squeeze happened on gamestop shares, the market capitalisation shot up just because few investors or speculators or whosoever started buying and pushed the company value up. How can a investor then base his decision on market cap.
Is my thinking correct or am I wrong.
I think while trying to figure out the intrinsic value of a company, both data (mcap and book value) should be taken into consideration. Mcap gives you the hint if a company has already grown enough or is there any potential left and after that you can do your research in which book value will be helpful. but again this method is not cast in stone so you can’t generalize this because investing is art coupled with science. so there is not any hard and fast rule of figuring out the true value of a company. it varies from person to person
What exactly do you mean by the “real value” or the “true value” of a company? Could you explain this?
How much is a company worth based on its assets less liabilities as of today.
As per Investopedia, it looks like book value matches this requirement:
The book value of a company is the net difference between that company’s total assets and total liabilities, where book value reflects the total value of a company’s assets that shareholders of that company would receive if the company were to be liquidated.