Market Capitalization Formula

The Market Capitalization formula calculates the total equity value of the company. It is found by multiplying the company's current market price per share with the total number of outstanding shares.

Market Capitalization formula = Current Market Price per share * Total Number of Outstanding Shares.

To use the Market Cap formula, you need to know two things about the company and its stocks:

• First, we have to know how much the company's current share's selling price is on the stock market. The price is not constant and will vary every day and sometimes several times a day. We can get the value from the money control website.
• Secondly, we need to know the number of shares outstanding in the market. The number of shares will vary from company to company. Some large companies sometimes split their shares to increase the number of shares. Therefore the price of each share decreases due to the increase in the number of shares.

Then we calculate the market cap formula by multiplying the current share price by the number of outstanding shares.

Let's see some simple to advanced examples of the Market cap formula to understand it better.

Example #1

A Company ABC has 20,000,000 shares outstanding and lets us suppose the current share price is $ 12.

Based on the above-given information and the formula of Market Cap, we will be able to calculate ABC Company's market capitalization.

• Market Capitalization Formula = 20,000,000 x $ 12 = $ 12 million.

We must also remember that not all shares are traded in an open market. The shares which are available in the open market are called floats.

Example #2

Let's see an example of Kirloskar Oil Engines Limited to calculate the market cap.

#1 – First, we will find out the company's current stock price from the Money control site.

Source - https://www.moneycontrol.com/

So we see the current price is 179.00 (BSE) as of 29th Jan '19.

• Current Price=179.00

#2 – Secondly, we need to know the number of shares sold on the stock market. We can get that from the company's balance sheet from the Money control site.

We easily calculate the total outstanding shares on the Money control website as they divide the share capital into Equity share capital and preference share. We can find both under the share capital in Money control.

Now we will find out the total outstanding shares of Kirloskar Oil Engines Limited. If the company has issued only equity shares, we can calculate outstanding shares by simply dividing share capital by its face value.

As in the figure below, the share capital is Rs 28.92 Cr as of March '18.

Source- https://www.moneycontrol.com/

The face value can also be taken from the Money control website.

Source - https://www.moneycontrol.com/

The face value is Rs 2.

Therefore we can calculate outstanding shares as

• Outstanding shares = 28.92/2
• = 14.46

Therefore, from the above, we have gathered the following information to calculate the Market Cap.

So, the calculation of the Market Cap will be as follows –

• Market Capitalization Formula = 14.46*192.95

Market Capitalization will be-

• = Rs 2588.3400 Cr

Example #3

Let's see an example of ITC Ltd to calculate the market cap.

#1 – First, we will find out the current stock price of the company from money control (BSE).

Source: https://www.moneycontrol.com/

So we see the current price is Rs 275.95 as of 29th Jan '19.

• Current Price = Rs. 275.95

#2 – Secondly, we need to know the number of shares sold on the stock market. We can get that from the company's balance sheet from the Money control site.

We easily calculate the total outstanding shares on the Money control website as they divide the share capital into Equity share capital and preference share capital. We can find both under the share capital in Money control.

Now we will find out the total outstanding shares of ITC Ltd. If the company has issued only equity shares, we can calculate outstanding shares by simply dividing share capital by its face value.

The share capital is Rs 1,220.43 Cr, as in the fig below as of March'18.

Source- https://www.moneycontrol.com/

The face value can also be taken from the Money control website.

Source: https://www.moneycontrol.com/

Therefore, the face value is Rs 1.

Therefore we can calculate outstanding shares as

• Outstanding shares = 1220.43/1
• = 1220.43

Therefore, from the above, we have gathered the following information to calculate the Market Cap.

So, the calculation of Market Cap will be as follows -

• Market Capitalization Formula= 1220.43*275.95

Market Capitalization will be-

• = Rs 336777.659 Cr.

The market capitalization Formula is the main component when we want to assess a stock because we can calculate the company's value from it. The market capitalization formula gives us the total value of the company.

The market capitalization Formula allows us to compare companies in a similar industry. The market divides the stock into three main categories.

1. Small-Cap - Small-cap stocks are usually start-ups companies currently in the development stage. As for the investors, these usually have small to high-risk investments.
2. Mid Cap - Investments in mid-cap companies are usually less risky than the small-cap ones. They have a tremendous scope of growth and can return a good investment in 3-5 years.
3. Large Cap - Large Cap stocks usually have a safe return as the companies have a good market presence.

Therefore, the market cap formula helps investors understand the returns and risks in the share and helps them choose their stock wisely, which fulfills their criteria of risk and diversification.

We must also remember that the market cap formula only reflects the equity value of a company. The company's enterprise value is a better method as it reflects debt and preferred stock.