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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: nommedeguerre who wrote (10124)	8/15/1998 8:25:00 AM
From: Reginald Middleton	Read Replies (1) \| Respond to of 74651

<Thanks for the response on market caps; what I meant by illusionary numbers was just the fact that they are calculated based on the number of traded shares which varies too much between companies to be an accurate comparator of anything. I agree with what you said in your post, though.> A company's market capitalization is the sum of all the funds investors have invested in a company through vehicles that are publicly traded. Therefore, company such as GM or tech stocks such as IBM can have 70 billion dollar market capitalization, yet only 40 billion in publicly traded equities (some of which have different voting rights and therefore releative values, others being preferred, etc.), due to capitalization through bonds, warrants etc. Attempting to measure market capitalization through publicly traded common equity only means you are actually ignoring the larger, more liquid market (that of bonds) as well as several other markets that both fund the company and are sensitive to the public's perception of that company's value. That is why bankers usually go through relatively complex calculations to ascertain the capitalization of companies they are about to consummate a deal on. It is also why those (good) consultants that value companies of through such pains to calculate the cost of capital through analisys of the capital structure fo the company. There are very few purely common equity financed companies, and Microsoft is not one of them. Although this comment is mostly an academic exercise, it is meant to serve as a heads up to some of the commonly held, yet misleading notions floating around SI.