What is market capitalisation?
Short answer
Market capitalisation is the total market value of a company’s outstanding shares: the share price multiplied by the number of shares. It is the standard way to describe how large a listed company is.
The formula
Multiply the current share price by the number of shares outstanding. Illustrative example: 2 billion shares at a price of 50 gives a market cap of 100 billion.
Market cap moves every time the share price moves. It is the price the market currently puts on the equity, not an audited figure of what the company owns.
Market cap = share price x shares outstandingSize bands
Investors group companies as large-cap, mid-cap and small-cap, but the cut-offs vary by market and by index provider. In India, the mutual fund categorisation that SEBI introduced treats the 100 largest companies by market cap as large-caps, those ranked 101 to 250 as mid-caps and the rest as small-caps, and updates the lists periodically.
Market cap, free float and enterprise value
Many indices weight companies by free-float market cap, which counts only shares available to the public and excludes stakes held by promoters, governments or founders. Enterprise value adds debt and subtracts cash to approximate the value of the whole business rather than just the equity.
Market cap is not the same as revenue, profit or book value, and a high market cap does not by itself indicate a good or safe investment.