Market Capitalisation

Term of the Day - 5 January 2024

Today’s Term is “Market Capitalisation”.

Following a private company's transition to the public market and commencement of trading on the stock exchange, the determination of the company’s value hinges on the dynamic interplay between the supply and demand for its shares. In addition to demand and supply factors, there are some other factors that can drive a company’s share price up or down.

An example is when a company gets bad press. This can exert downward pressure on the company’s share price, leading to a fall in the share price. The market capitalisation, often referred to as “market cap”, serves as a reliable estimate of the company's overall value, according to market players, at each point in time.

Calculating Market Cap

The formula for market capitalization is:

Market Cap = Current Share Price x Total Number of Shares Outstanding

Large-cap companies are typically companies boasting a market capitalization surpassing $10 billion. Such companies have a longstanding presence and play pivotal roles in well-established industries.

Mid-cap companies are companies with market capitalizations ranging between $2 billion and $10 billion. These companies are mostly already established and operate within industries poised for rapid growth.

Small-cap companies are characterized by market capitalizations ranging from $300 million to $2 billion. Such companies are typically smaller in size, relatively young, and often specialize in niche markets or emerging industries.