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Discussion Thread: Valuation Factors
Cristhian Torres-Hage
Department of Business, Liberty University
BUSI 530: Managerial Finance
Charles Smith
November 11, 2021
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Discussion Thread: Valuation Factors
The total value of a company’s outstanding stock is known as market capitalization
(market cap) and can be calculated by multiplying the total number of outstanding stocks by the
current price of the stock [ CITATION Bre20 \l 1033 ]. Although this gives you the market
cap/value for the company, it is not a true reflection of the company’s book value. There are
different factors which contribute to the price and perception of the value of a company and
could cause for the market cap to seem overvalued compared to the true value of the company.
Investors traditionally do not purchase stock based on the book or liquidation values but
trade their shares based on the present and future earning power of that company [ CITATION
Bre20 \l 1033 ]. This earning power can be based on the investor believing the company to be in
a good market position or it could come from the belief that the product which the company
offers, or will offer, will generate increased earnings. However, not all of the value that a
company generates comes from its business operations. The value of a company can be directly
impacted by their corporate social responsibility initiatives.
A study of the stock value of listed companies in Hong Kong examined whether the
market would respond positively and differently to environmental, social, governance, and
sustainability initiatives. The study examined the difference between the expected returns,
without the event, and the actual returns and found that the market reacts more positively to
environmental, social, and governance initiatives than sustainability initiatives [ CITATION
Kar17 \l 1033 ]. Examples of environmental initiatives are: how the company handles waste,
pollution, and emissions. Examples of social initiatives are: human rights, fair wages, equal
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Brealey, R. A., Myers, S. C., & Marcus, A. J. (2020). Fundamentals of Corporate Finance. New York:
McGraw-Hill Education.
English Standard Version Bible. (2021). Retrieved from https://www.biblegateway.com/versions/English-
Standard-Version-ESV-Bible/
Kar, L. Y., & Calvin, K. L. (2017, June 14). The Effect of Environmental, Social, Governance and
Sustainability Initiatives on Stock Value – Examining Market Response to Initiatives Undertaken
by Listed Companies. Corporate Social Responsibility and Environmental Management, 606-619.
Retrieved from https://onlinelibrary-wiley-com.ezproxy.liberty.edu/doi/full/10.1002/csr.1431
opportunities, and non-discrimination. Examples of governance initiatives are: gender equality,
diversity and inclusion, equity, and transparency in reporting.
Matthew 5:16 says, “In the same way, let your light shine before others, so that[a] they
may see your good works and give glory to your Father who is in heaven” [ CITATION Eng21 \l
1033 ]. Corporate social responsibility can not only lead to a positive response by the market
leading to a better valuation of the company. It also shines a light on the love and compassion
being extended to the community which the company impacts and brings that glory to God.
References
