pilot141
Professional Cynic
- Joined
- Nov 26, 2001
- Posts
- 274
Market capitalization has nothing to do with how much or how little cash a company has on hand. It has everything to do with how much investors believe the company is worth.
Market cap is simply the price of the stock multiplied by the number of outstanding shares. The price of the stock takes into account many factors, one of which is actual assets. However, the stock price is affected by many other variables, including expected future profits (or lack of same), earnings forecasts, expected growth, and also some plain gut feelings.
This explains why AMR has tons of cash on hand but still has a depressed stock price: the losses are expected to continue for months, and this is reflected in the stock price.
I could also ask you to explain how some dot-com companies that had never shown a profit and were burning through millions of dollars a month could have market caps of several billion dollars, but I'm too nice to do that!
Market cap is simply the price of the stock multiplied by the number of outstanding shares. The price of the stock takes into account many factors, one of which is actual assets. However, the stock price is affected by many other variables, including expected future profits (or lack of same), earnings forecasts, expected growth, and also some plain gut feelings.
This explains why AMR has tons of cash on hand but still has a depressed stock price: the losses are expected to continue for months, and this is reflected in the stock price.
I could also ask you to explain how some dot-com companies that had never shown a profit and were burning through millions of dollars a month could have market caps of several billion dollars, but I'm too nice to do that!