If you are new to the stock market then you must have heard the term Market Capitalization many times – which is also commonly known as Market Cap. This is an important data to be seen before investing or trading in any company, which affects the decision of every investor. So today in this post we will know what is Market Cap, how is it calculated and why is it so important?.
What is market cap?
Market cap simply means the total market value. Which is calculated by multiplying the number of total outstanding shares issued by that company by the current running Actual Share Price. This shows the size of the company, with the help of which the investor is able to estimate the future potential and invest keeping in mind the risk and reward.
For example: If at present the price of 1 share of Reliance is ₹ 200 and a total of 10,000 shares are issued by Reliance, then the total market cap of Reliance will be = ₹ 20 lakh (₹ 200 × 10,000)
How is market cap calculated?
It has a simple formula – [Market Capitalization = Current Share Price x Total Outstanding Shares]
[Market Capitalization = Current Share Price x Total Shares Issued by the Company]
Current Share Price – The running price of any company during the open market (9:15 am to 3:30 pm) is called current share price. It keeps on changing on the basis of demand-supply, company growth, financial data and many other factors.
Outstanding Shares – Outstanding Shares means the total authorized shares issued by the company which are available with all types of investors, promoters, officers, employees. This does not include Treasury Shares which have been boughtback by the company.