Market Capitalization

 

  

Although it's quite a simple subject, Still it's immensely interesting and significant. This is the initial stage of any stock's fundamental analysis.   

It divides the stocks into distinct categories according to the market capitalization of the companies. 

So, Let’s go, 

What is Market Capitalization? 

We will use a single, really straightforward example to illustrate the idea of market capitalization. 

However, keep in mind that we commonly refer to this Market Capitalization as "Market Cap."  

Returning to our example section...

Suppose we have 10 Mangoes in a box...

The cost of one Mango is Rs.10

Then what is cost of complete Mango box containing 10 Mangoes?

10 [Mangoes in box] * Rs.10 [Cost of one Mango] = Rs.100 [Cost of complete box]

Here Rs. 100 [Cost of complete box] , we can related this with Market Cap.

Now we will try to understand Market cap with respect Stock Market reference.

If we have 10 outstanding shares of company X in the market for trading and current stock price is Rs.10 

then,

Company "X" Market Cap = 10 Outstanding shares * Rs.10 [Price of one share] = Rs.100.

So, the Market Cap of Company X is Rs.100.

Basically, Market Cap = No of Outstanding shares * CMP of one share.

So, Market cap is the measurement of company size on a particular day w.r.t CMP with Outstanding shares.

Now example with different scenario’s,

If Company A having 1 Cr outstanding shares in stock market available for trading and CMP on day 1 is Rs.10 then the Market cap of company on day 1 is Rs.10 Cr.

But on second day if the CMP changes to Rs.20 then the Market cap of company on second day will be Rs.20 Cr.

Next on third day if the CMP changes to Rs.15 then the Market cap of company on third day will become Rs.15 Cr.

The market capitalization of the firm may fluctuate or change as a result of pricing variations. 

 

Depending on the variations in market capitalization, organizations can be categorized as

1. Large Cap

2. Mid Cap

3. Small Cap

Now a days further more classifications came into pictures like, if company having very large market cap, then it is classified as Giants and very small market cap then is it classified as micro-cap company.

Furthermore, please understand that companies in large cap have large qty of outstanding shares and have large market cap and some company have less no’s of outstanding shares also can come under large cap category.

For example,

Company B have 1000 Cr outstanding shares and CMP is Rs.1000, then the Market cap is 10,00,000 Cr.

Company C have 10 Cr outstanding shares and CMP is Rs.1,00,000, then again, the Market cap is 10,00,000 Cr.

Both companies have the same market cap but Company B have more outstanding shares and Company C have high CMP per share.

It is therefore quite possible that the Market Cap category might shift to one with a large quantity of outstanding shares at a fair price or one with a high CMP per share and a small quantity of outstanding shares.

Market capitalization provides an overview of a company's financial health.

 

Compared to mid and small cap companies, large cap companies are more stable and less impacted by the ups and downs of the market. 

As contrast to mid and small size organizations, they also have a sizable reserve cash for company development if opportunities come as well as for managing operations through difficult times.

So, Friends Market Capitalization is an easy for us to understand yet crucial characteristic that should be taken into account when choosing any company for our investing purposes.

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Disclaimer: This post is not considered a recommendation to buy, sell, or invest in any company; it is just intended for educational purposes. Do your research and due diligence before making any investment, and talk to your financial advisor.