Corporate Metrics and Valuation

Corporate metrics refer to the numbers used to track the status of business. This can include the profits earned, the overall value of a company, customer loyalty, gross margin, and operating productivity. It may seem difficult to manage all these numbers, but it is a job that needs to be done to fully measure how well a company is doing.

Market Capitalization

The value assigned to a company based on market prices refers to market capitalization. For this number to be calculated, research analysts need to take the number of outstanding shares and multiply it by the total share price for each one. One hundred total shares for a company, at $10 per share, would mean a market capitalization of $1000. $20 per share, with 120 total shares, would be $2400. This is one of the easiest metrics to determine.

Market capitalization includes four different categories, regarding the amount of capitalization they have. This include:

Micro Cap Companies

Small Cap Companies

Mid-Cap Companies

Large Cap Companies

Micro Cap

A micro cap includes anything under $300 million. Companies that have share amounts equaling this market capitalization number fall under this category.

Small Cap

Anything that falls between $300 million and $2 billion is a small cap. It is one step above the micro cap option. Many small to medium sized businesses fall under this category.

Mid Cap

The mid-cap range is between $2 billion and $10 billion. This is a common amount for large corporations to see.

Large Cap

Anything reaching over $10 billion is considered a large market capitalization amount. Many of the biggest businesses fall under this cap.

These caps do not always mean the company is worth that much. It simply refers to the stock prices increasing at a fast pace. This can fluctuate greatly.

famous quote about the stock market

Price-to-Earnings Ratio

Dividing the price of one share by the total profit per share will find the price-to-earnings ratio. Many times, this is seen listed as the P/E. This is a substantial value for investors to be aware of when making their decisions.

Price-to-Book Ratio

The book value is the same as the cash value. Dividing the price of one share by the cash value per share finds this ratio. It is also referred to at times as the market-to-book ratio. It is usually seen listed as the P/B. It is a good evaluation of companies because it helps determine if investors are paying the right price for the shares they are buying into.

This type of ratio is ideal mainly for companies with many assets. Those without them, such as businesses that a service rather than a good, are not as easy to define by these ratios and numbers.

Based on these rates, companies can determine a forecast or overlook of what the next year might look like. This helps investors determine which companies are best to invest in based on their potential earnings and share prices. These numbers help evaluate how a stock will perform. Buying into the shares of a company helps these ratios improve. It makes it worthwhile to both the investor and the business.

Price-to-Sales

Another metric used to assess stock values is price-to-sales. The market cap is divided by the total revenue to get this number. An alternative method is to divide the stock price for one share by the total revenue for each share. Either option points to the total price of sales and what stocks are worth.

Gross Margin

The company’s gross margin is another metric to utilize. This number is calculated by first taking the total sales revenue and subtracting the cost of goods. After this is found, the final amount needs to be divided by the total sales. The number is put into percentage form. A higher percentage indicates that a company retains more per dollar. This is essentially the profit amount received.

Customer Loyalty

While measuring customer loyalty may seem strange, it does help point investors in the right direction. With a low customer loyalty rate, even the highest sales numbers are sure to dwindle. Measuring this can help stockholders see if their investments should be long term, based on the regular purchases made by returning customers.

There are three ways to measure customer loyalty:

Customer surveys – Each customer can answer how likely they are to return, whether or not they would recommend the company to others, and similar questions that determine if they overall enjoy the service they receive

Feedback at Purchase – Customers, sometimes provides feedback about the quality of their service, or their time at the company, while they are making a purchase. This information should be recorded and used to a company’s advantage.

Purchase Analysis – The type of purchases customers make can help make a determination regarding whether they would be a returning customer or not. For example, many stores offer name brand and store brand items. Customers buying the brand from the store are more likely to return to get those same or similar items in the future.

Performance Metrics

Performance metrics are another thing used by companies. This is often done internally to determine the performance of employees and how well they are working. These metrics can also help shareholders determine the strength of the company overall, and how well it is doing. It is a good measure of employee efforts and ensuring they are staying on task. Call centers use these metrics to determine the number of calls answered, average call time, the amount of wait time, and how many calls have been abandoned.

Corporate metrics help to evaluate a company. They measure prices, sales, stocks, overall company value, customer loyalty, and even performance. All of these measurements are used to determine just how well a business is doing. Many of these measurements are disclosed to the public and help investors determine where they should invest their efforts. Researching this data puts many investors ahead of the rest that is unfamiliar with the numbers

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