Google’s share price is currently around $600 while Apple’s is around $400. Since 600>400, that makes Google more valuable, right?
Wrong! The share price is the price of only one single share of the stock of a company. In order to determine a company’s value, the amount of its shares outstanding must also be factored in. Google has 325 million shares outstanding, while Apple has 930 million - almost 3 times that of Google. Multiplying the share price by the number of shares shows that Google is valued at around $200 billion while Apple is valued at approximately $370 billion. These numbers represent the market capitalization (or “market cap”) of the companies.
As you can see, it’s important to consider the aggregate value of a company rather than its individual share price. This is because the amount of shares outstanding varies widely by company, changes frequently, and can be easily manipulated by the company’s Board of Directors (primarily through stock splits).
So now you know how to determine the value of a company’s stock. But simply knowing that Apple is worth more than Google does not mean that one is a better investment than the other. The fun part of investing starts happening when we ask the next question - is the current price reasonable?
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