Creation of the Measure
Market capitalization denotes the total dollar value of a business' outstanding stocks at the end of a trading period. The measure is created by multiplying the company's outstanding shares with the current price of one share (Pavone, 2019). Sometimes, the ending market capitalization may be referred to as a market cap.
Implication of Ending Market Capitalization
Market capitalization is one of the approaches used to determine the value of a company. It assists managers and potential investors to escape the challenges of ascertaining a company's net worth (Pavone, 2019). Using ending market capitalization, one can estimate the value of a company by extrapolating it from what the market thinks it is worth. This determination can be done by simply multiplying the current market price of a company's stocks with the total number of available shares.
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Company value is a product of many influences, including the risks related to its operation. Jagannathan and Khan (2019) describe that investors should know the factors affecting company value before they make investment decisions. Thus, calculating market capitalization at the end of a trading period gives the correct portrayal of a company's value to the investors. Also, the use of shares to determine company value provides an accurate picture of a company's current state. According to Jagannathan and Khan (2019), once a company starts trading its shares publicly, the demand and supply of its shares affect the price of shares. When demand is high, share price rises because this is a reflection that investors have perceived the company as valuable, low-risk, and worth investing in. Thus, a market cap is a vital financial measure that guides investors to make wise purchasing decisions.
Comparison with CAPSIM
According to the financial measures template for the Andrews team, the company's ending market capitalization continued to increase through the competition rounds. Starting at $46 million in the starting round, the market capitalization figure increased through $66 million, $102 million, $154 million, and $232 million in rounds 2,3,4, and 5, respectively (CAPSIM, 2021). The consistent increase in market capitalization is a direct sign that the company's value increased in each of the rounds.
The consistent increases in the team's market capitalization were noted against decreases in the market capitalization values for other teams. For instance, according to the CAPSIM results for round 6, while the market capitalization value for Andrew’s team was $ 259,036,282, the values for Baldwin, Chester, Digby, Erie, and Ferris were $ 143,737,547, $ 55,941,060, $ 130,371,878, $ 201,496,318 and $ 79,131,187 respectively (CAPSIM, 2021). This trend implies that Andrews' business strategies successfully increased sales and generated profits. These profits increased the company’s value, increased the number of shares, and stimulated high demand for the company's shares.
References
CAPSIM. (2021). Industry C124451_012 selected statistics for round 6 . Retrieved May 16, 2021, from https://ww3.capsim.com/student/portal/index.cfm?template=dashboard.selectedstatistics&simid=C124451_012&round=6&rdtype=2&edition=Capstone
Jagannathan, U. K., & Khan, N. (2019). A study on factors related to market capitalization in Indian manufacturing firms. Indian Journal of Finance , 13 (12), 50. https://doi.org/10.17010/ijf/2019/v13i12/149268
Pavone, P. (2019). Market capitalization and financial variables: Evidence from Italian listed companies. International Journal of Academic Research in Business and Social Sciences , 9 (3). https://doi.org/10.6007/ijarbss/v9-i3/5802
