Key Terms
Market capitalisation
The total value the market places on a company, calculated by multiplying its share price by the number of shares in issue.
By the Investfora Research Desk
Market capitalisation is a company's share price multiplied by the number of shares in issue. It is the value the market currently places on the whole company: the cost, in principle, of buying every share at today's price. Because one of its two ingredients is the share price, it changes whenever the price changes — minute by minute on a trading day — without the company itself doing anything at all. A firm's capitalisation can halve or double while its factories, staff and order book remain exactly as they were.
A worked example
A hypothetical company has 50 million shares in issue and its shares trade at four pounds. Its market capitalisation is 50 million times four pounds, or 200 million pounds. If the share price drifts down to three pounds fifty, the capitalisation becomes 175 million pounds — 25 million pounds lower, though nothing inside the company has changed.
Market capitalisation is not the price at which the whole company could actually be bought, since an offer for every share would itself move the price. Nor does it say anything about debt, profit or the value of the company's assets. It records what the market is paying for shares today, and no more.