How to calculate stock market capitalization and why it is important

Market capitalization means total market value of the company. This means it’s the amount that you have to pay if you want to buy all the shares of the company at the present price. It’s an indicator of public opinion on company’s net worth.

Its measured as the total value street assigns to a company by multiplying current stock price by the total number of shares outstanding.

Market capitalization of companies changes constantly based on the ups and downs of the stock price. It’s also referred to as “Market Cap”.

Do not get it confused with the book value of the company, it’s different. Book value is measured from the company’s balance sheet. Its calculated to know company’s actual net worth as per books.

Here is the formula to calculate market cap;

Number of shares outstanding * current price per share

If a company has 10 million shares outstanding with a current price per share of Rs 200, then market cap will be calculated to Rs 2 billion. This means anyone can buy that company for Rs 2 billion if all the shareholders are willing to sell their shares.

How stock is divided based on its market capitalization

Based on company’s market capitalization, stock can fall into following three categories;

  • Large cap,
  • Mid cap, and
  • Small cap

Large cap

Stock companies with market cap of Rs 10,000 crore or more are classified as large cap. These companies are stable, less risky to invest as size is very big, and can handle any economic downturn.

Size of the company makes them more likely to withstand slowdown without going out of business altogether. Conservative investors prefer large cap as they pay dividends.

Due to this reason, many investors turn to large cap stocks

Mid cap and small cap

Stock with a market capital of Rs 2,000 crore to Rs 10,000 crore is considered as mid cap and below Rs 2,000 crore are known as small cap.

These are small companies and most of them would have listed recently in stock exchanges. Many investors take interest in these companies as they have plenty of opportunities to grow their business.

Large companies may not grow as fast as small companies. However, these companies are more likely to go out of business in economic downturn.

Growth of these companies will be stable in the expansion phase of business cycle if interest rate is not high and capital is cheap. History shows that small companies outperform large caps during the expansion phase of business cycle.

In USA, companies with market capitalization of $ 10 billion or more is considered as large cap. Mid cap companies are businesses with market capitalization of  $2 billion to $10 billion. Similarly small cap companies are those with a market capitalization of $300 million to $2 billion.

Here are the top 70 companies listed on BSE based on their market cap as on 13.05.2019.

Security NameClose PriceMarket Capitalization (Cr.)
TATA CONSULTANCY SERVICES LTD.       2,131    7,99,671
RELIANCE INDUSTRIES LTD.       1,231    7,80,225
HDFC Bank Ltd       2,289    6,23,872
HINDUSTAN UNILEVER LTD.       1,702    3,68,379
ITC LTD.          290    3,55,316
HOUSING DEVELOPMENT FINANCE CORP.LTD.       1,952    3,35,973
INFOSYS LTD.          720    3,14,585
STATE BANK OF INDIA          307    2,73,762
KOTAK MAHINDRA BANK LTD.       1,390    2,65,319
ICICI BANK LTD.          376    2,42,567
OIL AND NATURAL GAS CORPORATION LTD.          164    2,10,593
MARUTI SUZUKI INDIA LTD.       6,525    1,97,116
AXIS BANK LTD.          732    1,88,393
LARSEN & TOUBRO LTD.       1,317    1,84,768
WIPRO LTD.          289    1,74,550
Bajaj Finance Limited       2,929    1,69,250
BHARTI AIRTEL LTD.          319    1,63,448
COAL INDIA LTD.          242    1,50,281
HCL TECHNOLOGIES LTD.       1,083    1,46,858
INDIAN OIL CORPORATION LTD.          143    1,38,733
ASIAN PAINTS LTD.       1,333    1,27,851
NTPC LTD.          124    1,22,346
ULTRATECH CEMENT LTD.       4,342    1,19,258
BAJAJ FINSERV LTD.       7,347    1,16,908
HINDUSTAN ZINC LTD.          257    1,08,717
Titan Company Limited       1,144    1,01,541
NESTLE INDIA LTD.    10,317        99,468
POWER GRID CORPORATION OF INDIA LTD.          182        95,450
SUN PHARMACEUTICAL INDUSTRIES LTD.          397        95,215
BAJAJ AUTO LTD.       2,972        86,013
INDUSIND BANK LTD.       1,395        84,077
HDFC Life Insurance Company Ltd          403        81,220
TECH MAHINDRA LTD.          815        78,555
Avenue Supermarts Ltd       1,253        78,223
BHARAT PETROLEUM CORPORATION LTD.          355        77,008
MAHINDRA & MAHINDRA LTD.          619        76,904
ADANI PORTS AND SPECIAL ECONOMIC ZONE LTD.          364        75,414
GAIL (INDIA) LTD.          332        74,835
JSW STEEL LTD.          277        66,969
Bandhan Bank Ltd          553        66,020
SHREE CEMENT LTD.    18,816        65,551
GODREJ CONSUMER PRODUCTS LTD.          638        65,224
BRITANNIA INDUSTRIES LTD.       2,678        64,362
DABUR INDIA LTD.          363        64,143
SBI Life Insurance Company Ltd          623        62,340
InterGlobe Aviation Ltd       1,555        59,777
PIDILITE INDUSTRIES LTD.       1,153        58,545
Vedanta Limited          154        57,338
GRASIM INDUSTRIES LTD.          838        55,107
TATA STEEL LTD.          472        54,041
TATA MOTORS LTD.          180        52,044
EICHER MOTORS LTD.    18,766        51,199
BOSCH LTD.    17,164        50,623
HERO MOTOCORP LTD.       2,510        50,129
BHARTI INFRATEL LTD.          266        49,153
ICICI Lombard General Insurance Company Ltd       1,077        48,911
UPL Limited          952        48,489
ICICI Prudential Life Insurance Company Ltd          337        48,350
DR.REDDY’S LABORATORIES LTD.       2,805        46,564
HAVELLS INDIA LTD.          732        45,791
MARICO LTD.          351        45,264
CIPLA LTD.          544        43,854
HINDALCO INDUSTRIES LTD.          192        43,194
DIVI’S LABORATORIES LTD.       1,623        43,095
AUROBINDO PHARMA LTD.          717        42,028
AMBUJA CEMENTS LTD.          210        41,738
Vodafone Idea Ltd             14        41,523
General Insurance Corporation of India          229        40,158
HINDUSTAN PETROLEUM CORPORATION LTD.          263        40,038
PIRAMAL ENTERPRISES LTD.2117.2539171.81

Source

Above lists are not recommendation of stocks or even doesn’t guarantee that these are safe investments. We suggest you to consult a good financial advisor before taking your investment decisions.

There are several other ways to value a company from investing point of view. Here are certain financial tools to help you;