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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

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