Market Capitalisation

Market capitalisation is the total value of all shares of a listed company at the current share price. It is calculated by multiplying the number of shares by the share price. It shows how much the company's equity is worth in the market. The distinction from enterprise value matters: market capitalisation captures only equity, while enterprise value additionally includes net debt and other debt-like items. Two companies with the same market capitalisation can therefore be very different in size if one is heavily indebted.

Total market capitalisation should also be distinguished from the free float adjusted figure, which counts only freely tradable shares and governs index weighting. In practice the metric mainly serves to place a company by size, for example in the usual segments from very large to small caps, and thereby determines which investors are permitted to buy the stock at all. In takeover situations it is the starting point for calculating the premium, since the offer price is regularly related to the unaffected price before the intention became known.

Note that the metric extrapolates the price of the most recently traded shares across the entire share count: with a low free float or thin trading, that price is not the amount at which all shares could actually be sold. It should also be noted that different share classes must be included, because preference and ordinary shares can be listed separately and trade at different prices. The figure must then be built from both. Treasury shares, which are normally excluded, and outstanding options and convertibles, which create additional shares on a fully diluted basis, also need consideration. For takeovers the shareholder structure is also relevant, because a high proportion held by anchor shareholders pushes the amount actually acquirable well below the arithmetic figure.