Market capitalization, market capitalization or market value, is an economic measure that indicates the total value of all the shares of a company that are publicly traded. It is the total value of all the shares of a publicly traded company.
The owner of the shares is the owner of the company. If we wanted to buy 100% of a company from you, we would have to pay the value of the market capitalization, which is what the company is worth at market prices.
The price of the shares varies daily in the markets, capitalization is a good way to estimate the net worth of a company, since if we wanted to buy it, it is the price we should pay for it. Those prices are determined according to supply and demand. If the price of a stock decreases 10% in one year, the total value of the company will also decrease 10%.
Listed companies are divided by market capitalization into Small-caps, Mid-caps, and Large-caps. The expressions mini-cap and mega-cap are also used to express the smallest and largest companies, respectively.
The market capitalization expresses the equity value of the company, so the capital structure of the company will be determining in its value, that is, in what proportion it is financed with debt and in what proportion it is financed with its own funds.
How is market capitalization calculated?
It is calculated by multiplying the number of shares you have in circulation by the market price. It can also be the market capitalization of the shares of a company listed on a specific stock market, since there are companies that are listed on several markets. The market capitalization formula is:
Market Capitalization = Number of shares x Market price of a share
With this formula in mind we should not confuse market capitalization with the book value of the company. This book value is what the company is worth according to the books. In contrast, market capitalization fluctuates based on market supply and demand.
Example market capitalization
To illustrate the concept, we are going to calculate the market capitalization of an invented company. We are going to calculate the market capitalization of the shares of the company Bolsalandia as of March 6. For this we need to know the number of shares of the company and the price of the share:
Number of shares in Bolsalandia (March 6): 9,076,853,400
Bolsalandia share price (March 6): € 5.95 / Share
Stock market capitalization of Bolsalandia on March 6 is:
CB = 9,076,853,400 x 5.95 = 54,007 million euros.