Market Capitalisation

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Market Capitalisation

Perhaps one of the most basic and important concepts to understand if you are risking your money on the sharemarket.

The price of a share does not nessesarily reflect the value that the market has placed on the company you are looking at. The value of a company on the stockmarket is represented by the amount of money invested in shares that are in circulation. So company value is the price of the share multiplied by the number of shares currently in issue.

Example
Company A Share price 50
Number of shares issued 500 million
Market Capitalisation = 250 million

Company B Share price 150
Number of shares issued 10 million
Market Capitalisation = 150 million

So company A has greater value on the stockmarket than company B even though company B has a higher share price.

Related topics
Toplists Market Cap/Turnover
Price to Sales Ratio

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