February 8, 2025

Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

The outline of the article:

  • What is the essence of capitalization?
  • Why can stock prices decline?
  • Quotesstocks affect supply and demand
  • Bad news about the company in the media
  • Rating Impact
  • The pursuit of progress
  • Company reputation and law
  • Risks associated with changes in legislation
  • Inflation Risks
  • Erroneous forecasts
  • findings
  • An indicator that reflects the total costof all shares of the company - this is capitalization. Based on this figure, one can judge the scale of the business and the value of its products on the stock market in terms of securities.

    The higher the company's capitalization, the more stableits position in the market, the greater the demand for its products, and therefore for its shares. All experienced traders and investors are primarily interested in this indicator. If it starts to fall, then the main question that worries security holders is the reasons for the fall. Everyone wants to understand whether it is worth getting involved with the shares of a particular company.

    Therefore, it makes sense to understand why capitalization may fall and how this affects the value of shares.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization
    What is the essence of capitalization?

    This objective market indicator helps you understand how much it would cost to purchase absolutely all of the company's shares at the current price.

    The mathematical formula for the calculation is as follows:

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

    For example, the company has issued 100 thousand shares at $ 10 each at the moment. We multiply and get a market capitalization of $ 1 million.

    This applies only to ordinary shares. This does not include preferred stocks and bonds. At the same time, you understand that when the value of shares increases or decreases, then capitalization also changes accordingly.

    It follows that traders andinvestors will be primarily interested in companies with higher capitalization. Although shares of companies with average and low performance also have their advantages - they can be purchased at very reasonable prices and count on growth prospects.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization
    Why can stock prices decline?

  • Stock quotes affect supply and demand.
  • They depend on the subjective ideas of financial analysts or investors about the real prices of companies, on forecasts and prospects for the growth of their capitalization.

    For any product, the price is at any timeto change. And this directly affects the course of any business and its success. From the point of view of an enterprise that sells goods, growth is good. But for those who buy - it’s bad.

    But even if the company carries out activities thattrade is not connected in any way, it can also affect it. Judge for yourself - when the next rise in price of many goods occurs, the population slides into austerity. People are less likely to use the services of any companies, as the overall purchasing power of citizens decreases. And if it decreases in general, then this affects the whole economy as a whole.

    What else can affect the growth or decline of capitalization?

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Bad news about the company in the media
  • The price of goods or services of a company maydecline after negative publications and reports. The accident at the Fukushima nuclear power plant in 2011 provoked a fall in the shares of the uranium industry and US utilities that consume their energy. Imagine the scale of this bad news alone, which has affected several industries at once. And when there is a lot of such news, the economies of different countries fail, which leads to global crises.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Rating Impact
  • Each company has its own credit rating, thenthere is an economic assessment by experts. The amount of interest that companies pay for raising funds depends on their place in the ranking. The prices of shares of enterprises that are traded on stock exchanges affect the rating (rating) that analysts assign to them. And the level of confidence of traders and investors in a particular company depends on how the quotes fluctuate.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • The pursuit of progress
  • These days it is difficult to find companies thatmore than a hundred years on the market. The reason is that many companies' production technologies and sales methods become outdated too quickly. Competition is growing. And there is always a risk that other manufacturers are able to present to the market similar products of improved quality at lower prices.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Company reputation and law
  • The legislation of too many countries is soimperfect that you can always find a discrepancy between the aspects of the activities of companies and the norms of the law. Experienced employees of the inspection bodies or auditors will easily find errors in the reporting (well, if unintentional), not paid taxes on time, or even a banal theft of funds by management. Such exposure will cause serious or even irreparable damage to the reputation of the enterprise. Because of this, the value of stocks can also fall, if not worse - depending on the scale of the disaster, the company may cease to exist at all.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Risks associated with changes in legislation
  • Traders and investors have watched more than oncethe picture when authorities apply restrictive measures to individual corporations or entire industries in the form of antitrust laws, new regulations or something else. Therefore, there are companies and even states in which investors are not interested in investing money.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Inflation Risks
  • They often go hand in hand with changeinterest rates. If a business needs financing and takes out a loan from a bank, which then increases the interest rate, then the entrepreneur faces certain difficulties. His business costs are rising, and it is becoming increasingly difficult for him to stay afloat.

    And when interest rates rise due to rising inflation, it is even more difficult for a company to attract additional financing in the face of a decrease in the overall purchasing power of money.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

  • Erroneous forecasts
  • Economic forecasts are a rather shaky thing.Since economic expectations are still built by people, even highly competent ones, there is still a risk that the assumptions may turn out to be inaccurate. Namely, they are taken as a basis when building a business model. Moreover, any inaccuracy can affect not only the company itself, but also its suppliers and contractors.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization
    findings

    Any business involves risks. Therefore, there are no companies and shares that do not experience price declines.

    In addition, there are additional factors:

  • when the company's profit decreases, it reduces the price of shares and investor interest in them
  • when financial market participants follow the crowd.For some objective reasons, they think that the value of shares of a particular company will fall and gradually move the price down, even if in fact the value is still holding. This affects the behavior of the market as a whole. Because of this, the price really begins to decline without any reason.
  • New companies often suffer from this. When they appear on the market, there is a stir because everyone is waiting for some kind of innovation and often the price of stocks becomes unreasonably high. And when the hype falls, the understanding comes that the overpriced is not supported by anything. Accordingly, quotes and capitalization are falling.

    Therefore, when choosing a stock, we recommend that you find outas much as possible about this or that company, carefully examine all the information that may affect the capitalization rate and only then make a decision on the purchase of securities.

     Today Full statistics will be available after the publication gains more than 100 views. 8 reasons for the drop in company capitalization

    If you doubt that you can handle a task like this on your own, you can join us by signing up for a free course that covers this issue, among others.

    And if you are already an experienced investor, share in the comments what criteria you use when choosing shares of certain companies.