The term “Market Capitalization” is often referred to as ‘Market Cap’. It indicates the aggregate valuation of stocks. Market cap guides investors to make a quick decision about companies’ size and values. Investors can have a quick idea about the company’s valuation from this without going into too many details about a company’s balance sheet, equity, debt, etc. So, what is the meaning of market capitalization is a quite vital concept for an investor.
The Formula of Market Capitalization
The formula of market capitalization is quite simple. It is calculated by multiplying the current market price of 1 share by the total number of outstanding shares.
The market price of 1 share (multiply by) the number of shares in the issue.
Categories of Market Capitalization
Market cap is generally classified into three categories, large-cap, mid-cap, and small-cap. Companies with more than 75,000 cr. market cap belongs to Large-cap. Example of large-cap companies is the State Bank of India, Reliance Industries, Coal India, etc. Companies with 13,000 to 75,000 cr market cap belong to Mid-cap and last, of all companies with less than 13,000 cr are Small-cap companies. A chart is listed below to find what is the meaning of different categories of Market Capitalization:
In the market, there are the top 100 companies with a valuation of more than 75 cr. Large-cap companies lead the market and they form the major stock indices. As the companies run the market for a long time, they have a very strong presence in the market. But there is a twist here. Investing in large-cap companies doesn’t always bring a huge return in a short time span. Over the long run, there is some possibility of an increase in share value. As they have less room to grow, it needs time to grow and make a huge profit in a short period of time.
In mid-cap, there are the top 101 to 250 companies. with a valuation of 13,000 to 75,000 cr. market cap. The growth rate is higher than large-cap companies but there are negative aspects too. So, Mid-cap companies carry a higher risk than large-cap because they are not as established as large-cap. the possibility of a huge return is higher than the top 100 large caps. Jubilant FoodWorks is one such mid-cap company.
In small-cap, the limit of market capitalization is less than 13,000 cr. Beyond the top 250 companies, all belong to small-cap. As the companies are much younger in age, they carry the highest risk in the matter of investment. However, with this negative point, there is a positive one too. As there is very much possibility of expanding, there is a huge possibility of the maximum return in a short period of time.
Market Capitalization FAQ
Market capitalization in short also known as market cap. In simple words, it is the total value of a company’s share. Investors can get an idea about the size of the company by seeing its market capitalization. The market cap can be divided into three sections.
If we broadly divide the market caps, we will get three different categories of it.
Small-Cap: Companies with less than 13000 Cr value.
Mid Cap: Companies’ value between 13000-75000 Cr.
Large Cap: Companies with more than 75000 Cr.
Market capitalization only reflects the equity value of a company. So, it does not necessarily reflect its actual market value. In other words, the market cap represents a single measure of a company’s net worth. So, both cannot be the same.
Basically, market capitalization reflects a company’s value and level in the market. Large-cap companies carry less risk for their less aggressive growth. So, from a risk perspective, high market capitalization is good enough to deal with. Here, risk and profit go through the same stages, both come slowly here.
Market capitalization or cap is the value of a company. You can determine a company’s market cap by multiplying the market price of a share by the total number of shares. As there are three caps under it, large, mid, and small. One can easily compare different companies in it.
Market cap is important for the assessment of companies. One can easily compare the companies with market cap. And choose shares to invest as per their risk-taking capabilities. Like, Large caps have low risk and low growth ability.
Some Misconceptions about Market Capitalization
There is some misconception regarding market capitalization. Some investors think that the higher the share price, the bigger the company. This conception is absolutely wrong. In order to discuss the topic, we put a chart of the top 18 companies belonging to large-cap.
So, this chart consists of the top 18 companies from the large-cap. Here look at the 4th company from the above ITC. Its last share price was 280.25 and its market cap is 342,025.36. On the other hand 7th company, Maruti Suzuki’s last share price was 8,710.60, and its market cap is 263,129.86. Therefore, it is clear that one cannot decide companies score and valuation by its share price.
In conclusion, here are some brief points of market capitalization as follows:
- It indicates the aggregated value of a company
- Each and every company in the market belongs to these 3 categories. Large-cap, Mid-cap, and Small-cap
- One cannot decide a company’s rank and value by the share price.
So, finally, It can be said that market cap is a guide or indicator for investors. The meaning of market capitalization is the overall valuation of a company. So the market cap is definitely one of the most vital concepts that beginners should learn.