Which of the following best describes the calculation of market capitalization?

Which of the following best describes the calculation of market capitalization?

• A. Multiplying total shares by the company's revenue
• B. Multiplying share price by total shares outstanding
• C. Adding total assets and liabilities
• D. Calculating cash flow from operations

Answer: (B)

Market capitalization is defined as the total market value of a company's outstanding shares of stock. To calculate market capitalization, you take the current share price and multiply it by the total number of shares outstanding. This calculation provides a quick estimate of a company's overall value in the stock market, reflecting how much investors are willing to pay for the ownership of the company at that moment. In contrast, other options do not accurately describe market capitalization. Multiplying total shares by revenue does not account for the market value but rather looks at the company's income, which is separate from its market value. Adding total assets and liabilities provides a different financial measure, specifically net worth or book value, which does not relate to market capitalization either. Finally, calculating cash flow from operations is a measure of a company's financial performance rather than its market value. Thus, the correct calculation for market capitalization is specifically derived from the product of share price and total shares outstanding.

Market capitalization is defined as the total market value of a company's outstanding shares of stock. To calculate market capitalization, you take the current share price and multiply it by the total number of shares outstanding. This calculation provides a quick estimate of a company's overall value in the stock market, reflecting how much investors are willing to pay for the ownership of the company at that moment.

In contrast, other options do not accurately describe market capitalization. Multiplying total shares by revenue does not account for the market value but rather looks at the company's income, which is separate from its market value. Adding total assets and liabilities provides a different financial measure, specifically net worth or book value, which does not relate to market capitalization either. Finally, calculating cash flow from operations is a measure of a company's financial performance rather than its market value. Thus, the correct calculation for market capitalization is specifically derived from the product of share price and total shares outstanding.