Calculating Market Cap
A common misconception is that the higher the stock price, the larger the company. Stock price, however, may misrepresent a company’s actual worth. If we look at two fairly large companies, IBM and Microsoft, on February 15, 2013 stock prices were $199.98 and $28.05 respectively. Although IBM’s stock price was higher, we can see that MSFT’s market cap of $234.6 billion was actually larger than IBM’s $225.1 billion. If we compared the two companies by solely looking at their stock prices, we would not be comparing their true values, which are affected by the number of outstanding shares each company has.

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