What is ‘Market Capitalization’?
Defined: Market capitalization is the sum of the value of a company concerning the current price of its shares and the total amount of outstanding stock. This is determined by multiplying the market price of the company’s shares by the number of shares outstanding.
Description Market capitalization can be one of the most crucial aspects that aid investors in identifying the potential returns and risks associated with the shares. It also assists investors in deciding on the stocks which meet their diversification and risk criteria.
For example, a company has outstanding shares of 20 million, and the market price for each share is 100 rupees. Market capitalization for this company would be 200,00,000. 100 = Rs 200 crore.
The stocks of companies come in three kinds. The stocks with an estimated market value of 10000 crores or greater are called large caps. Companies with a market cap of two crores to 10 crores are mid-cap stocks. Stocks that have less than a two crore in market cap are small-cap stocks.
The stock market is brimming with hundreds of terms and concepts. One interesting and beneficial word can be Market Capitalization, also known as market Cap that is a significant term for investors and traders. In this article, you will discover:
What exactly is market Capitalization and its significance as well as significance.
Market Capitalization vs. Market Value
The formula for Market Capitalization and how to determine market capitalization
The Small-Cap, Mid Cap & Large Cap definitions with examples
Important information to remember Large Cap, Mid Cap, and Small-Cap Stocks
What is Market Capitalization: Its Meaning and Significance:
“Market Capitalization can be described as the amalgamation of two words, capitalization, and market.”
Capitalization means the conversion of assets or income into capital. The market is where the trade of goods and services occurs. Therefore, combining these two terms can create a definition of market capitalization. The term “market capitalization” means the value or total worth of a company to traders and investors. To simplify it, we can say that market capitalization is a way to determine the present value of a business, which is determined via the virtual consensus of shareholders.
Market capitalization or market cap is a crucial factor. Market capitalization or market cap holds importance because it informs traders and investors of the worth of a stock and therefore aids them in deciding whether to purchase an investment or not. It’s an excellent method to determine the size or size of a business; however, it’s not an essential indication to purchase a share of stock since, at times, traders buy stocks and shares according to the demand and supply factors which is why they don’t consider any market cap of a company.
Market Capitalization Vs. Market Value:
While many shareholders and people believe that market capitalization and value are identical, in general, this could be true. Still, in the real sense, there is a slight distinction between market capitalization and market value. Market capitalization only represents the equity value of a company, while market value takes into account several other aspects to show a business’s financial worth. When determining the market value of a company, or shares, there are several variables to consider, including price to earnings and sales, among others. Market capitalization is based on outstanding shares and the price at which shares are traded on the stock.
Market Capitalization Formula & How to Calculate Market Capitalization:
Market Capitalization Formula:
Market Cap = number of shares issued multiplied by the market price at which an individual share of stock
Market Cap = No. of shares * CMP (in Indian Rupees)
How do you determine the market capitalization:
For instance, we could easily calculate the current market capitalization value for Tata Motors by simply multiplying the price of Tata Motors shares and the number of shares in circulation.
Market Capitalization of Tata Motors = Rs335.3 (CMP) * 3169676471 (Shares Issued)
Market Capitalization of Tata Motors = Rs1,062,792,520,726
Market Capitalization of Tata Motors = Rs1,06,279 Crores (Approx.)
Note: The market capitalization of Tata Motors is greater than Rs20,000 Crores , it is one of the large-capitalization stocks.
Market Capitalization Types and Definition
Stocks are generally classified into three kinds:
Mid Cap Stocks
Large Cap Stocks, as the title suggests, are stocks that have a large market capitalization. This means that they are the ones that have a large number of shares, have high revenues and sales numbers, and have been in business for a long time, if not decades.
Typically, in India, any firm with a market capitalization of more than 20,000 crores is considered to be a stock with a large capitalization. Most large-cap stocks in the BSE-100 are between 20,000 crores and 35,000 Crores. Companies such as SBI, TCS, and Infosys are excellent examples of large-cap stocks.
Generally, stocks with a large cap are characterized by the following characteristics :
Have a market capitalization that exceeds 120,000 crores
It is safe to invest. Also, numerous blue-chip companies are eligible for the large-cap stock category.
Are leaders in their industry and sector
These stocks are liquid and thus are often traded on exchanges.
They have been in operation for a long time.
Most companies have good corporate governance; consequently, many resources are available for these stocks and companies in the public domain.
Mid-Cap Stocks Stocks with a mid-cap are stocks in the middle of growth. They are therefore safer than smaller caps to invest in. However, they do come with dangers that aren’t present in larger-cap stocks. Mid-cap stocks can provide high returns for investors over the next three years of operation.
Generally speaking, in India, when a company has a market capitalization of greater than 5,000 crores but less than Rs 20,000 crores, then it is classified as mid-cap stock. Companies like Abbott India Limited, Adani Power, Amara Raja Batteries, etc. are
The characteristics of Mid-cap stock are:
Have market capitalization that is in the range of 5,000- 5,000 crores or around Rs 20,000 crores
They are secure to invest in. They are compared to small caps, but they can be risky compared to large-cap stocks.
The stocks vary on all of the important parameters such as revenues, sales, as well as other characteristics associated with small caps as well as the characteristics of big-cap stocks.
Small-Cap stocks: Small Cap stocks are stocks that do not fall into the Mid-cap stocks or big-cap stocks. Many consider small-cap stocks to be dangerous as well as future multi-baggers. Both are incorrect since both are not necessary characteristics of any small-cap stock.
Some examples of small-cap stocks are 5Paisa capital Limited, ABG Shipyard Limited, Adhunik Metaliks Limited, etc.
A few characteristics of stocks with a small capitalization are:
Are capitalizations of the market less than Rs 5,000 crores
There are times when stocks can be risky to invest in from a long-term perspective
Information about these companies is not widely available
Might have compliance and corporate governance concerns
It takes a long time to be a large-cap or mid-cap stock. It is usually over ten years.
Important information regarding Large Cap and Mid Cap and the Small Cap stocks:
Each stock goes through the three mentioned above, i.e., small-cap, mid-cap, and large-cap stocks.
It can take years for small-cap stocks to turn into large-cap stocks.
The market capitalization of stocks could change over a certain time. The change could be positive or negative, depending on the market capitalization element of CMP.
Please visit the Knowledge Center section for more informative articles about investing, trading, and market information.