Aggregate Market Value of Common Stock
- Common stock refers to the most common source of equity financing for most companies. When most people think of purchasing stock, they think of common stock. This is not, however, the only class of stock available to investors. The other main category of stock is known as preferred stock. One important difference between common stock and preferred stock are that preferred stock is given preference over common stock in the event of liquidation, meaning that holders of preferred stock get paid first and common stock holders get paid only if there is enough money leftover afterwords. The other major difference is that holders of common stock are given voting rights within the company for issues such as the composition of the board of directors. Preferred stock does not carry this voting right.
- The aggregate value of the common stock of a particular company can be calculated by simply multiplying the market price of the common stock by the number of outstanding shares. For example, a company with 10 million outstanding shares of common stock that are trading at $30 per share would have an aggregate market value of common stock worth $300 million (10,000,000 x $30).
- The debt-to-equity ratio is a commonly used ratio for investors and market analysts to help determine the financial health of a company. This ratio measures the amount of debt in a company relative to the amount of equity used to finance operations. Because common stock is the most significant proportion of equity financing, it makes up the bulk of the equity side of this ratio. Therefore, the greater the aggregate market value of common stock in a company relative to debt, the healthier the debt-to-equity ratio will be to potential investors.
- Most stock exchanges place lower limits on the aggregate market value of common stock equity that a company can have and still be listed on its stock exchange. For example, the New York Stock Exchange will consider delisting a company if the net tangible assets available to common stock are less than $12 million.