Final answer:
Market capitalization reflects the current market value of a public company's shares without discounting future cash flows. It doesn't provide information on employee benefits but accounts for known future earnings as reflected in the stock price. The present discounted value is a key concept for evaluating investments.
Step-by-step explanation:
Market capitalization, or 'market cap', refers to the total value of a company's outstanding shares of stock. When a public company establishes its market cap, the following points are generally true:
- It is the value of the business as it exists at the present time, reflecting the current market value of its shares.
- It does not discount the estimated future net cash flows of the business, as market cap focuses on the present value rather than future speculation.
- Market capitalization does not provide information about the employee benefits offered by the company.
- It accounts for future earnings and all future prospects that are known today, but only in so far as they are reflected in the current stock price.
Companies can fund their operations and growth through various means. Issuing stock allows them to raise capital without incurring debt obligations, while issuing bonds or borrowing does create such obligations. Venture capitalists, with more at stake and better information, can influence the direction and success of a company differently than regular shareholders.
When evaluating investments like stocks or bonds, the concept of present discounted value is used to determine what an investor is willing to pay now for a stream of future benefits. This tool is essential in finance and other areas such as government and environmental policy-making.