Market capitalization

Market capitalization

What is ‘Market Capitalization’ ?

Market Capitalization refers to value of a company’s outstanding shares. In other words this is the product of outstanding shares and current market price.  Commonly referred as “Market cap”.  The investor community refers this value to determine a company’s size.  Although it is the most importantly used terminology in fundamental stock analysis.

It is also used to rank the market size. Sum of market cap of all the publicly traded companies is the market capitalization of the market.

Classification of Market Capitalization

  1. Large-cap :- Companies having market cap more than 20,000 Crores. These companies are well established.  Investors borne less risk compared with Mid and Small-cap companies.  Information regarding these companies is readily available in news papers, magazines and T.V channels. In other words visibility is more. Therefore these are best investment for beginners.   Example :-  SBI, TCS, Yes bank, Infosys,  Wipro,  Sun pharma, HCL technologies.
  2. Mid-cap :- Companies with market cap between 5000 Crores to 20,000 Crores.  This companies are in between large-cap and small-cap companies in the market spectrum.  Mid-cap companies are small compare to Large-cap companies in terms of production, employees and market cap. Availability of information is moderate.  However these companies can give potentially higher growth between 3 – 5 years.    Example :-  Biocon, Bluedart, Crisil, Divislab,  Exide industries, IDBI, IPCA lab.
  3. Small-cap :- Companies having market capitalization less than 300 Crores.  Mid-cap companies are under established companies. Availability of information is very less. Moreover these stocks are High-risk and High-reward.   Example :- Atul,  CERA, ENIL, IFBIND, BEML, BEPL.

Formula

Market cap = Total number of outstanding shares * current market price of one share.

 

Example

Consider a company XYZ  having 1000 outstanding shares with the current market price of ₹10.

Therefore Market cap=1000*₹10

₹10,000

Market cap of XYZ=₹10,000

Therefore company XYZ fall under small cap company.