Market capitalization is the total valuation of a company based on its current share price and the total number of shares outstanding. It is calculated by multiplying the current market price of the company's stock with the total outstanding shares of the company. The market capitalization of any stock is one of its most important characteristics which helps the investor to determine the returns and risk in the stock.
The also helps investors select stocks that meet their risk and diversification criteria.
Calculating Market Capitalization
For example, if a company has 5 crore outstanding shares and the current market price of each share is Rs 100, then the market capitalization of this company will be 500,00,000 x 100 = Rs 500 crore. The size of the market capitalization of a share can give an investor an idea of what kind of returns one can get by investing in a share and how much risk there will be in investing.
Why is Market Capitalization important?
There is a common belief that the higher the price of a share, the bigger the company. Whereas the price of a share may misrepresent the real value of that company. If we look at two big companies, today i.e. on 16 October 2017, the share price of Reliance is Rs 870 and the share price of Maruti Suzuki is Rs 7870, but the market capitalization of Reliance is Rs 566,406 crore and the market capitalization of Maruti Suzuki is Rs 237,738 crore. Is.
If you compare them only by looking at the market price of shares, then you will find Maruti Suzuki to be a bigger company, but when you look at the market capitalization, you will find that Reliance is a bigger company.
Market capitalization calculation
Example-
If a company has 5
Impact on share price
From a security perspective, a company's size and market value influence each other. If all other things are equal, large-cap stocks are considered safer than small-cap stocks. However, small-cap stocks have more potential for growth.
Although it is important to look at the market capitalization before investing in any stock, do not take decisions based solely on the market capitalization. The value of market capitalization is just one way to know the actual market value of a company. As an investor, you need to pay attention to many other factors that can help you determine whether a company's stock is a good investment or not.
Large and small-cap companies
Classification of companies in different caps also helps investors to understand what is the return potential in the company's shares and what is the potential for risk. Historically, large-cap companies have been less risky but offer slower growth, while small-cap companies have the potential for higher growth but also have more risk. Along with this, an investor can also diversify his investment by investing in companies with different sizes of market capitalization.
Market capitalization important things
1. Before buying a share, experts recommend looking at its market capitalization (M-Cap). This affects the share price.
2. Market capitalization shows the value of a company's outstanding shares. The market capitalization of the company keeps increasing and decreasing with the buying and selling of shares. Outstanding shares means all the shares that the company has issued.
3. It is calculated by multiplying the current market price of the share with the total outstanding shares (shares issued in the market) of the company. Let us assume that a company has 2 crore outstanding shares. The market price of one share is Rs 100. In this way, the market capitalization of the company will be Rs 200 crore.
4. It is also a scale to measure liquidity. This is the value of the company's shares that can be redeemed at any time.
5. Large-cap shares represent the largest companies listed on the exchange in terms of market cap. The risk of investment in these is relatively less. It is a different matter that their returns also increase slowly. At the same time, due to the low market cap, the risk in the small cap is very high. There is more volatility in these shares.
