MASTERCLASS Investment – Market Capitalisation – What is it and what does it tell you?

Masterclass MASTERCLASS Investment - Market Capitalisation – What is it and what does it tell you?– What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

Investment – Market Capitalisation – What is it and what does it tell you?

Today we look at Market Capitalisation which is also known as Market Value.

What is it? – Market Capitalisation is a measure or indication of the value and size in dollars of a company, and we calculate it by –

Market Capitalisation = number of either the outstanding shares or the floating (public) shares x the current price per share.

Outstanding shares include all the stock held by shareholders, while floating shares are those outstanding shares that actually are available to trade, ie “publicly” available.

Note: This means the capital value changes as the share price changes.

What it tells you – is a basic measure of a company – a way of determining a value of the company.

As example, a company with 100 million shares with a current market value of $22 a share would have a market capitalization of $2.2 billion.

Market capitalization, or market cap, is one of the criteria investors can use to choose a portfolio of stocks of certain sized companies  – often categorized as small-, mid-, and large-cap. Generally, large-cap stocks are considered the least volatile, and small caps the most volatile.

Market capitalization is sometimes used interchangeably with Market Value, in explaining, for example, how a particular index is weighted or where a company stands in comparison to other companies.

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