Market Capitalization (Market Cap) is the most recent market value of a company’s outstanding shares. The Market Cap is equal to the current share price multiplied by the number of shares outstanding.
The investing community often uses market capitalization value to rank companies and compare their relative sizes in a particular industry or sector. To determine a company’s market cap, simply take its current market share price and multiply the figure by the total number of shares outstanding.
Calculation of Market Cap
One of the major factors while evaluating a stock is on the basis of the market capitalization in India. Before going into the finer nuances, knowing the formula for this evaluation method can provide clarity to investors.
Market cap = number of outstanding shares x market value of each share
MC= Market Capital,
N= Number of outstanding shares,
P= Closing price of each share of the concerned company.
An example; if a company has 10,000 shares, each with a closing price of Rs.200; the total MC of the company would be computed as follows.
MC = N X P
= 10,000 X Rs.200
= Rs.2, 00,000
The total value of this company comes at Rs.20 lakh.
Large Cap – Listed companies with high market capitalization ranking between 1 and 100 on the stock exchange are called large-cap companies. Common examples of such companies include Reliance, Infosys, HDFC Bank, TCS, and Hindustan Unilever among others.
Mid Cap – Listed companies with moderate market capitalization, ranking between 101 and 250 on the stock exchange are called mid-cap companies. Common examples include Jindal Steel & Power, Hindustan Petroleum Corporation Limited (HPCL), MRF, Godrej Properties, and Adani Power among others.
Small Cap – Companies with market capitalization at 251 and above on the stock exchange are those that are called small-cap companies. Examples include Tanla Platforms, Bajaj Electricals, Indiabulls Housing Finance, Central Bank of India, and Happiest Minds Technologies among others.
Micro Cap – They are the penny stocks that are relatively young. The micro-cap companies’ potential for growth and decline are of similar nature. They are not considered to be the safest investment. Hence, they require lots of research before investment.
Changes in Market Capitalization
The market capitalization of companies changes when:
There is a drastic change in the market value of the shares
The company opts for share buybacks, rights issues, bonus shares, and so on
There are convertible warrants which convert to equity at a pre-defined date