Skip to main content

What is Market Capitalisation?


Market Capitalisation: It refers to the total value of a company determine with the help of outstanding shares of a company and current market price of a share. It is also known as market cap. It is different from real value of a company. With the help of market capitalisation companies are divided into groups like small cap, large cap and medium cap company. In market capitalisation, it does not mean that if company having low market price of shares has small capitalisation. The small cap company has higher risk and less assets in comparison to mid cap or large cap company. The medium cap or mid cap company has less risk in comparison to small cap company. And the last group is large cap in which the company have large number of assets and low risk of default. The market capitalisation is use for public company. It helps to measure the size of a company. Market capitalisations of some companies are:
Company name
Market capitalisation in Rs. crore
Tata Consultancy Services
836,352.25
Reliance
797,502.56
Hindustan Unilever Limited
347,999.79
Oil and Natural Gas Corporation
227,469.09
 This data is taken from moneycontrol.com on 28 sep 2018

Formula:
Market capitalisation= Outstanding shares of a company*Current market price of share

Example: Company A outstanding shares are 200 and the market price of the share is Rs. 1500 per share. Find out the market capitalisation.
Solution:
Market capitalisation= Outstanding shares of a company*Current market price of share
= 200*1500
= Rs.3, 00,000

Example: Find out the market capitalisation of company A and B whose market prices of shares are Rs. 200 and Rs. 160 respectively. And the outstanding shares are 82 and 120 respectively.
Solution:
Market capitalisation= Outstanding shares of a company*Current market price of share
Company A:
= 82*200
= Rs.16, 400
Company B:
= 120*160
= Rs.19, 200
It shows that Company B’s shares, market price is less than Company A’s share but still the market capitalisation of company B is larger than Company A.

Example:  Company C is an IT company and to raise the capital for business activity with the help of issuing 250 shares. The total value of a company is Rs.9, 45,800. Find out the market value of share.
Solution:
Current market price of share = Market capitalisation / Outstanding shares of a company
= 9, 45, 800/250
= Rs.3, 783.2
The current market price of Company C is Rs. 3, 783.2.

Example: Find out the market capitalisation of following companies and which company has larger size in market.
·         Company XY current market price is Rs. 70 per share and the outstanding shares are 10, 000.
·         Company AB outstanding shares are 8000 and the market price is Rs.100
·         Number of shares of Company PQ are 1200 and the market price of 1 share is Rs. 98.
Solution: Company XY:
= 70*10, 000
= Rs. 7, 00,000
Company AB:
= 100*8, 000
= Rs. 8, 00,000
Company PQ:
= 98*1200
= Rs. 1, 17,600

Company AB has largest market capitalisation with Rs. 8, 00,000 in comparison to Company XY and Company PQ.




Comments

  1. Phani KumarJune 22, 2020 3:50 pm

    Hey, thanks for the information. your posts are informative and useful. I am regularly following your posts.
    ICICI Bank
    Maruti Suzuki

    ReplyDelete

Post a Comment

Popular posts from this blog

How to calculate Cost of Preference Share Capital?

Cost of Preference Share Capital:  An amount paid by company as dividend to preference shareholder is known as Cost of Preference Share Capital. Preference share is a small unit of a company’s capital which bears fixed rate of dividend and holder of it gets dividend when company earn profit. Dividend payable is not a tax deductible amount. So, there is no tax adjustments required for comparing with cost of debt. Formula for Cost of Preference Share: Irredeemable Preference Share Redeemable Preference Share K p  = Dp/NP K p  = D p +((RV-NP)/n )/ (RV+NP)/2 Where, K p  = Cost of Preference Share D p  = Dividend on preference share NP = Net proceeds from issue of preference share (Issue price – Flotation cost) RV = Redemption Value N = Period of preference share Example:  A company issues 20,000 irredeemable preference share at 8% whose face value is Rs.50 each at 4% discount. Find out the Cost of Preference Share Capital.
87 comments
Read more

What is the difference between Cheque book and Pass book?

 Cheque book is issued by bank in customers / account holder request. With the help of this book account holder can withdraw cash from his/her account. Bank does not charge any fee to issued cheque book to its customer. But afterward bank charges some amount for using bank facility like cheque book, Debit card etc.So, Automatic some definite amount deducted from customer bank account. Pass book is  also issued by bank to its customer. It helps to record all the bank related activity according to date that is withdrawal and deposit. It is recorded by bank but the book is kept by customer to know the current balance of  his /her account.  Point of difference Pass book Cheque book What is the meaning of pass book and cheque book? Passbook is a book in which all withdrawal and deposit against customer account is recorded.   Cheque book is a book of cheques which are used to withdrawal the money to bank account.
Post a Comment
Read more

How to calculate interest on Hire Purchase System?

Interest on hire purchase:  Interest is calculated on Cash value of goods not in instalment value which includes cash value of goods and interest amount. It is calculated on yearly, quarterly and yearly basis. Interest is not calculated on down payment which is paid at delivery of goods. Depreciation is also charged on the hire purchase goods at the end of financial year. The method applies for depreciation is based on the contract between the parties.   Example:  Company V purchased a machine of Rs.70, 000 and paid Rs.5, 000 as down payment. The interest charged @6% and 8% depreciation annually. The instalment value for each year is Rs. 10,000. Find out the interest amount for 5 years. Solution: Interest calculated on Rs. Interest Instalment Cash Value 65, 000 65, 000*0.06 = 3, 900 12, 500 8, 600 56, 400 56, 400*0.06 = 3, 384 12, 500 9, 116 47, 284 47, 284*0.06 = 2, 837 12, 500 9, 6
3 comments
Read more