Hi Santamaria, just checking that you know the concept of number...

Hi Santamaria, just checking that you know the concept of number of shares on issue. It's very important to look at the number of shares on issue, not just the share price. So, for example a company may have a share price of $1 per share but only have 50 million shares on issue - it's market capitalisation will therefore be $50 million (50 million shares x $1 per share). Another company may have a share price of $0.05 per share (5 cents per share) and have 3 billion shares on issue - it's market cap will be $150 million ($0.05 x 3 billion shares).

So, using this example, inexperienced investors may consider that the second co is cheap (only AUD 0.05 per share), whilst the first co is expensive ($1 per share).

Assuming that the two co's held similar assets, this conclusion would be totally misguided. The first co is actually much cheaper than the second co - its total value (market capitalisation) on the market is only one third of the value (market capitalisation) of the second co, even though its share price is much higher ($1/share vrs $0.05/share).

Therefore, it's critical to consider no of shares on issue when comparing investments and calculating market caps.