Chester is a made-up company that represents any company in the cryptocurrency market. Chester Corporation (CWT) is the name of the cryptocurrency that represents the overall market.
Just like any other company, Chester has a market cap that is determined by the price of the stock and the number of stocks that are available.
Cryptocurrencies do not have stocks, however. A more accurate term would be currency pairs, as most cryptocurrencies only have a coin and a value pair with fiat currency.
The most common cryptocurrency coin pairs are with the USD, so this will be used in examples. There are also less common pairs like BTC/EUR and ETH/CAD, though. These will also be mentioned.
To find out how much the cryptocurrency market as a whole is worth, take the total value of all coins and divide by the total number of coins available. This will give you the average price per coin.
Calculate the current share price of Chester Corporation
To calculate the current share price, you first need to find the average share price over a period of time. For example, you could take the average share price over the past month, week, day, or hour.
In this case, we will take the average share price over a week and use that as the current share price. At the end of last week, Chester’s shares were trading for $22.50 each. That makes the current market cap $2,250,000.00.
Since we are assuming that the price goes up 10%, then you take $2,250,000.00 and multiply it by 1.1 to get your new market cap: $2,520,500.00.
Calculate the expected earnings per share
The next step is to calculate the expected earnings per share. For this, you need to look at the average estimated earnings over the next few years.
Typically, investors expect companies to earn slightly more each year. This is because inflation tends to increase costs for businesses, so they need to raise prices to offset that.
To find the expected earnings per share, take the average estimated EPS for the next few years and divide that by the current number of shares outstanding. This will give you the expected EPS per share growth.
For example, if there are 1 million shares outstanding and the company is expected to earn $3 per share in each of the next three years, then the expected EPS growth would be $3 * 1 million / 3 = $1.00 expected EPS per share growth .
Calculate the expected price-earnings ratio
Chester Corporation (CCX) is expected to report its earnings next week. Based on the current stock price, investors are expecting lower than average earnings for the next quarter.
Consensus estimates are a -2.9% decline in earnings per share for the coming quarter. This is based on the average estimate of all estimates provided by financial analysts.
The price-earnings ratio, also known as the P/E ratio, is one of the most widely used metrics for valuing a stock. It is simply the stock price divided by the company’s earnings per share.
Analysts use this ratio to forecast the potential growth of a company’s earnings over time. A lower P/E ratio indicates that investors are willing to pay a lower amount for each dollar of future earnings. A higher P/E ratio indicates that investors are willing to pay a higher amount for each dollar of future earnings.
Calculate the expected growth rate for the company
Calculating the expected growth rate for a company is also known as calculating the future expected earnings growth rate. This is typically calculated via the use of analysts’ estimates, consensus analyst estimates, or via the use of financial statements.
Analysts typically publish annual and quarterly estimated earnings per share growth rates for companies. Companies usually also have a long-term target earnings per share growth rate, which can be used as well.
Consensus analyst estimates are the average estimated growth rates provided by analysts reporting to finance sites like Yahoo! Finance and Nasdaq.com.
Financial statements can be analyzed to find clues on expected growth, such as investments in assets that will grow profits down the road, or cost-cutting measures that will increase profits in the short term.
For example, if Chester Corp. has an expected annual earnings per share growth rate of 6% for the next year according to analysts, then 1-year expected EPS growth = 6%.
Assume a 10% increase in share price
Chester Corporation (CHES) is a small-cap company that manufactures and sells electronic devices. The company has a market capitalization of $2.26 billion and a price per share of $9.74 as of March 5, 2018.
If the price per share of Chester rose 10%, the market capitalization would increase to $2.31 billion. This would be an increase of about $65 million in total market value.
As mentioned earlier, the notion of a 1% rise in share price is commonly quoted as being worth approximately one dollar in equity value. Therefore, one dollar could be expected to rise in value by one penny in the next week based on this hypothetical 10% rise in share price.
Given this information, the hypothetical 10% rise in share price would be worth approximately one dollar in increased equity value per share.
Find the new market capitalization
Now that you know how to find the current market capitalization, let’s look at how to find the new market capitalization.
If the current price of a stock is $50/share and it rises 10%, the new price will be $55/share. To find the new market capitalization, you take the new number of shares multiplied by the new price per share.
5 billion (new number of shares) x $55 (new price per share) = $275 billion (new market cap)
So if Chester Corp stocks rose 10%, its new market cap would be $275 billion!
Note: It is very rare for a company’s stock to rise or fall by a specific percentage. This example was given in context of how to use this formula in general and not an indication that this will happen to Chester Corp.
Find the new share price
The next thing to do is to find the new share price. To do this, you have to consider what percentage increase you want for the share price.
If you wanted to increase the share price by 10%, then you would take the current market cap and add 10% of that number. Then, you would divide that total by the current number of shares and multiply it by the new number of shares.
So, if Chester Corp.’s current market cap was $1 billion and you wanted to increase the share price by 10%, then the new share price would be $1.1 billion / 1,000 = $11 per share.
Remember, though, that there are 1,000 shares per every 1 million dollars in market cap so you have to adjust the number of shares by that ratio.
Find the new earnings per share
As mentioned before, earnings per share is one of the main components when calculating a company’s value. How many dollars per share a company earns determines how much it is worth.
So, if Chester Corp. reported $1.00 in earnings per share and the stock was currently trading at $10.00 per share, then its market capitalization would be $10.00 ($1.00 earnings per share x 10 shares).
If the price of the stock rose to $11.00 per share, then the market capitalization would also rise to $11.00 ($1.00 earnings per share x 11 shares). This is because the number of shares multiplied by the current price equals the current market cap.
Leave a Reply