This article is continued from our previous post: Largest companies in Philippines by market capitalization.
If you look up San Miguel Corporation (SMC) on Wikipedia, you’ll see that SMC Total Assets is stated as P1.8 trillion in 2020. Converted to USD, P1.8t/50 = $36 billion. Note from the previous chart that SMC estimated market cap value is $5.7B.
Does this mean SMC stock is undervalued by over $30B? Short answer: No.
Lets have a look at it.
Total Assets is all items of values and resources a company owns. Property, buildings, factories, equipment, inventory, cash, patent rights and so on are the assets. The assets generate income for the company. SMC values its total assets at $36B.
As SMC is listed on the stock exchange, the “Market” (financial institutions, investors, accountants, bankers, the general public) has looked at it, its total assets, future expected incomes, its liabilities, operation costs.. and having considered everything, right now at this moment will pay $5.7B to buy the company. And they do. Thousands of company shares are bought and sold daily on the stock exchange at the estimated market value of $5.7B and not $36B.
Tesla
Quick google search shows Tesla has a market capitalization of around $580 billion, and total assets of $52 billion. Does it mean the company is overvalued by over $520B? There is no short answer here. Tesla’s different.
The point here is the Market, having considered everything, although Tesla’s assets (everything of value the company owns) is just $52B, the market is willing to pay $580B to buy the company. And they do. Millions TSLA shares are traded daily on the stock market at price value of over $580B and not 52.
TLDR
Total assets is all the stuff a company owns.
Market capitalization is how much the market will pay to buy the company.
Photo credit: NICE GUYS