Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds

Page 219

secret until products actually begin shipping. Companies with consistent innovative products and processes could see consistent growth in their stock values. Other times a small company with a very promising innovation could see an instant boost in its stock price as investors may view the innovation as a major source of growth for the company. Of course there is plenty of false innovation news too. Investors are always faced with the task of separating real and practical innovations from the phony or trivial ones.
Government Agency Approval — A strong example of this would be FDA (Food and Drug Administration) decisions on new drugs awaiting approvals. By law, a new drug must be FDA approved before it can enter the market. Drug company stocks usually do well when the FDA approves their new drugs. On the other hand, an FDA rejection normally spells trouble, especially if it involves a small company that has pinned all its hopes on a new drug.

Market Capitalization/Valuation

Here is a good question: How is the size of a company determined? In everyday conversations we talk about large or small or medium-sized companies. For example, we all know that GE is a large company. We also may know that a company that our friend just started a month ago is a small one. But what are the criteria used to determine the size of a company?

We can use several yardsticks to come to a conclusion.We may look at a the number of employees at a company, the number of products, or just the number of branches. We can also look at a company’s assets, market share, earnings, or other financial data. Many times companies operating privately (i.e., having no outside shareholders) may keep their numbers private. They are not required to release their financial numbers, so it can be anyone’s guess how big these companies are. …

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