What Is Market Capitalization?| Formula and Examples
Market Capitalization refers to the total market value of a company outstanding shares of stock. It is a measurement of value of a company which is equal to the share price time the number of share outstanding (share that have been authorized, issued, and purchased by the investors).
Full Market Cap includes free float shares as well as non-free float shares such as promoter’s shareholding.
How to calculate Market Cap?
Market Capitalization = Market price of share × No. of shares outstanding
Ex; – so if you want to purchase a company like Wipro, you have to buy all the shares of the company and pay the market price for each share.
If Wipro has 10000 shares and price per share is 1000, then you should have Rs. 1,00,00,000 to buy the company.
Market Cap = 1000×10000 = 1,00,00,000
What is a Free float market capitalization?
Free float market cap is takes into consideration only those shares issued by the company that are readily available for trading in the market.
Market Cap is used to calculate the indices such as NIFTY50 and SENSEX,
Say, a free float of 0.50 in BSE will determine that 50% of the shareholding will be considered for free-float market cap.
The free-float factor is inversely related to volatility. A company with a large free float size will be less volatile. On the other hand, a company with a small free float size will be highly volatile.
How to calculate Free float Market Cap?
Free float market value = market price of share × No. of free float shares