Market Capitalization Formula How To Calculate Market Cap

What is the Market Capitalization Formula?

The Market Capitalization formula calculates the total equity value of the company. It is found by multiplying the company’s current market price per share with the total number of outstanding shares.

Market Capitalization formula = Current Market Price per share * Total Number of Outstanding Shares.

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To use the Market CapMarket CapMarket capitalization is the market value of a company’s outstanding shares. It is computed as the product of the total number of outstanding shares and the price of each share.read more formula, you need to know two things about the company and its stocks:

First, we have to know how much the company’s current share’s selling price is on the stock market. The price is not constant and will vary every day and sometimes several times a day. We can get the value from the money control website.Secondly, we need to know the number of shares outstanding in the marketShares Outstanding In The MarketOutstanding shares are the stocks available with the company’s shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner’s equity in the liability side of the company’s balance sheet.read more. The number of shares will vary from company to company. Some large companies sometimes split their sharesSplit Their SharesStock splits refer to the process whereby a company increases its number of shares, reducing the per-share price of the stocks. read more to increase the number of shares. Therefore the price of each share decreases due to the increase in the number of shares.

Then we calculate the market cap formula by multiplying the current share price by the number of outstanding shares.

Examples of Market Capitalization Formula (with Excel Template)

Let’s see some simple to advanced examples of the Market cap formula to understand it better.

Example #1

A Company ABC has 20,000,000 shares outstanding and lets us suppose the current share price is $ 12.

Based on the above-given information and the formula of Market Cap, we will be able to calculate ABC Company’s market capitalization.

Market Capitalization Formula = 20,000,000 x $ 12 = $ 12 million.

We must also remember that not all shares are traded in an open market. The shares which are available in the open market are called floats.

Example #2

Let’s see an example of Kirloskar Oil Engines Limited to calculate the market cap.

#1 – First, we will find out the company’s current stock price from the Money control site.

Source – https://www.moneycontrol.com/

So we see the current price is 179.00 (BSE) as of 29th Jan ’19.

Current Price=179.00

#2 – Secondly, we need to know the number of shares sold on the stock market. We can get that from the company’s balance sheet from the Money control site.

We easily calculate the total outstanding shares on the Money control website as they divide the share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company’s initial public offerings, common shares or preference stocks to the public. It appears as the owner’s or shareholders’ equity on the corporate balance sheet’s liability side.read more into Equity share capital and preference sharePreference ShareA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more. We can find both under the share capital in Money control.

Now we will find out the total outstanding shares of Kirloskar Oil Engines Limited. If the company has issued only equity shares, we can calculate outstanding shares by simply dividing share capital by its face value.

As in the figure below, the share capital is Rs 28.92 Cr as of March ’18.

Source- https://www.moneycontrol.com/

The face value can also be taken from the Money control website.

The face value is Rs 2.

Therefore we can calculate outstanding shares as

Outstanding shares = 28.92/2= 14.46

Therefore, from the above, we have gathered the following information to calculate the Market Cap.

So, the calculation of the Market Cap will be as follows –

Market Capitalization Formula = 14.46*192.95

Market Capitalization will be-

= Rs 2588.3400 Cr

Example #3

Let’s see an example of ITC Ltd to calculate the market cap.

#1 – First, we will find out the current stock price of the company from money control (BSE).

Source: https://www.moneycontrol.com/

So we see the current price is Rs 275.95 as of 29th Jan ’19.

Current Price = Rs. 275.95

We easily calculate the total outstanding shares on the Money control website as they divide the share capital into Equity share capital and preference share capital. We can find both under the share capital in Money control.

Now we will find out the total outstanding shares of ITC Ltd. If the company has issued only equity shares, we can calculate outstanding shares by simply dividing share capital by its face value.

The share capital is Rs 1,220.43 Cr, as in the fig below as of March’18.

Therefore, the face value is Rs 1.

Outstanding shares = 1220.43/1= 1220.43

So, the calculation of Market Cap will be as follows –

Market Capitalization Formula= 1220.43*275.95
= Rs 336777.659 Cr.

Relevance and Use

The market capitalization Formula is the main component when we want to assess a stock because we can calculate the company’s value from it. The market capitalization formula gives us the total value of the company.

The market capitalization Formula allows us to compare companies in a similar industry. The market divides the stock into three main categories.

Small-Cap– Small-cap stocksSmall-cap StocksSmall cap stocks are offered by relatively small companies that are publicly listed. A small cap company has a low market capitalization ranging between $300 million to $2 billion. Small cap investors have a high-risk, high-reward approach.read more are usually start-ups companies currently in the development stage. As for the investors, these usually have small to high-risk investmentsHigh-risk InvestmentsA high-risk investment is an investment where the degree of risk is high, and there is a huge possibility that an investor may lose a substantial/all the amount invested. Such investments shall be made by investors who have a high-risk appetite since the chances of underperformance are higher than the usual.read more.Mid Cap– Investments in mid-capMid-capMid-Cap stocks are the stocks of the companies having medium market capitalization. Their capital lies between that of large and small cap companies and valuation of the entire share holdings of these companies range between $2 billion to $8 billion.read more companies are usually less risky than the small-cap ones. They have a tremendous scope of growth and can return a good investment in 3-5 years.Large Cap– Large CapLarge CapLarge-cap stocks refer to stocks of large companies with value, also known as the market capitalization of 10 billion dollars or more, and these stocks are less risky than others and are stable. They also pay a good dividend and return, and it is the safest option to invest.read more stocks usually have a safe return as the companies have a good market presence.

Therefore, the market cap formula helps investors understand the returns and risks in the share and helps them choose their stock wisely, which fulfills their criteria of risk and diversification.

We must also remember that the market cap formula only reflects the equity value of a companyEquity Value Of A CompanyEquity Value, also known as market capitalization, is the sum-total of the values the shareholders have made available for the business and can be calculated by multiplying the market value per share by the total number of shares outstanding.read more. The company’s enterprise value is a better method as it reflects debt and preferred stock.

What is the Market Capitalization Formula?#

Examples of Market Capitalization Formula (with Excel Template)#

Example #1#

Example #2#

Example #3#

Relevance and Use#

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