Question

Provide a narrative that compares market capitalization, book value, future earnings methods, and other methods mentioned) with each other.​

Answer 1

Market Capitalization: The market capitalization calculation is most important and useful stock valuation formula for investment analysis.

Market Capitalization (market cap) it is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to using sales or total asset figures

For instance, a company has 25 million outstanding shares and the current market price of each share is Rs100. Market capitalization of this company will be 250,00,000 x 100= Rs 250 crore.

There are of three types of Stocks in companies.

1. Large Cap Stock : The stocks with a market cap of Rs 10,000 crore or more are large cap stocks.
2. Mid Cap Stock: Company stocks with a market cap between Rs 2 crore and 10 crore are mid cap stocks and
3. Small Cap Stock: those less than Rs 2 crore market cap are small cap stocks.

Book Value: Companys book value or net worth is the share holders equity in the balance sheet it is also difference betweeen total assets and liabiltites, i.e. surplus of the companys total goods and rights over its total debts with third party

Book value refers to the total amount a company would be worth if it liquidated its assets and paid back all its liabilities. Book value can also represent the value of a particular on the company's assets balance sheet after taking accumulated depreciation into account.

Book value is important such that shareholders will receive that much amount per share if a company is liquidated as on date.

Book value is calculated by taking a company's physical assets (including land, buildings, computers, etc.) and subtracting out intangible assets (such as patents) and liabilities -- including stocks, debts and account payables. The value left after this calculation represents what the company is intrinsically worth.

Book value = total assets - intangible assets - liabilities

Discounted future earnings are a method of valuation used to estimate a firm's worth. The discounted future earnings method uses forecasts for the earnings of a firm and the firm's estimated terminal value at a future date, and discounts these back to the present using an appropriate discount rate. The sum of the discounted future earnings and discounted terminal value equals the estimated value of the firm.