Stock market capitalization

Stock market capitalization, market capitalization or stock market value is an economic measure that indicates the total value of all shares of a publicly traded company. 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, we should 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 value of a company, since if we wanted to buy it it is the price we should pay for it. These prices are determined according to supply and demand. If the price of a share decreases by 10% in one year, the total value of the company will also decrease by 10%.

The size of publicly traded companies is divided according to market capitalization in  Small-caps (Small capitalization) , Mid-caps (Medium capitalization) and Large-caps (Large capitalization). 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 decisive in its value, that is, in what proportion it is financed with debtand in what proportion it is financed with own funds.

How is the market capitalization calculated?

It is calculated by multiplying the number of shares 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, given that there are companies that are listed on several markets. The formula for market capitalization is:

Stock Market Capitalization = Number of shares x Market price of one share

With this formula in mind we should not confuse market capitalization with the company’s book value. This book value is what the company is worth according to the accounting books. In contrast, stock market capitalization fluctuates based on market supply and demand.

Stock market capitalization example

To illustrate the concept, we will calculate the market capitalization of an invented company. We will 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 of Bolsalandia (March 6): 9,076,853,400 Stock
price of Bolsalandia (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.

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