What Is Market Capitalisation: Meaning, Types & How It’s Calculated

Key Takeaways
 

• Just like the total value of a particular thing, a company also has a total value known as market capitalisation.
   
• Market means where you can buy and sell, and on the other hand, captialsiation means the total amount of money.
   
• You can calculate market capitalisation manually by its easy formula.

Market capitalisation is the total value of a company in the share market. It is calculated by multiplying the current share price by the total number of shares in the market.

Think of it this way: imagine a shop sells one chocolate bar for ₹10, and it has a total of 1,000 bars. The total value of the shop's chocolate stock is ₹ 10,000. Similarly, if a company has shares listed on the market, and each share has a price, the total value of the company is calculated in the same way.

Here’s a simple table:
 

Market capitalisation helps investors understand how big or small a company is in the stock market. Large-cap companies are generally stable, while small-cap companies may offer high growth but come with more risk.

How to Calculate Market Capitalisation?

Market capitalisation tells us how much a public company is worth on the stock market. The formula is simple:

Market Cap = Share Price × Total Number of Shares

Think of it like this:

You’re at a book fair. Each book stall represents a company, and the books are shares. Some stalls sell expensive books but have very few copies. Others sell cheaper books but have thousands in stock. The total value of each stall depends on both the price and quantity of books.

Here’s how it looks:
 

So, don’t be fooled by just the price. A high-priced share doesn’t always mean that a big company volume matters too.

Bonus: The biggest companies whose market cap is always high are Microsoft, Apple, and Nvidia.

Read More – Small Cap vs. Large Cap Mutual Funds in 2025: Where Should New Indian Investors Bet?

Market Cap and Company Size 

Companies are grouped by size based on their market capitalisation. This helps investors understand the level of risk and potential return when investing. Let’s explore the main categories.

1. Large-Cap Companies

These are well-established businesses with a market cap of over $10 billion. They usually belong to stable industries and offer regular dividends. They may not grow rapidly, but they offer steady performance.
Examples: Apple, Microsoft, Reliance Industries.

2. Mid-Cap Companies

Mid-cap firms have a market cap between $2 billion and $10 billion. These companies are growing and expanding their reach. They carry more risk than large caps but offer better growth potential.
Examples: Zomato, Tata Elxsi, Page Industries.

3. Small-Cap Companies

Small caps have a market cap between $250 million and $2 billion. These companies are younger or serve niche markets. They can grow quickly, but also face more risk.
Examples: Nazara Technologies, Ujjivan Small Finance Bank.

4. Micro-Cap Companies

These firms have a market cap below $250 million. They are often start-ups or very small businesses and are considered the riskiest investments.

Here’s a quick comparison:
 

This breakdown helps investors choose companies based on their risk tolerance and goals.

Market Cap and Digital Currency 

When it comes to digital currencies like Bitcoin, market capitalisation works a little differently. 

Just like companies, cryptocurrencies also have a market cap. But instead of shares, we look at coins or tokens. The basic formula is:

Market Cap = Current Price of One Coin × Number of Coins Issued

Let’s say 19.8 million Bitcoins have already been released, and each one is selling for $24,000.
So, the market cap is: $24,000 × 19.8 million = $475.2 billion

But wait, Bitcoin can have up to 21 million coins in total. So analysts also use another method called Diluted Market Cap to see what the value could be if all coins were in circulation.

That formula is: Diluted Market Cap = Current Price × Total Authorised Coins
$24,000 × 21 million = $504 billion

This helps investors see the full picture and plan better. It shows that if more coins are released, the market cap might rise, but the value of each coin could fall due to more supply.

How Market Capitalisation Affects Your Investment 

Let’s understand market capitalisation with a real-life style story and some numbers.

Imagine Ravi wants to invest ₹10,000 in the stock market. He has two options:

• Company A is a large-cap company, very big and safe.
• Company B is a small-cap company, much smaller but growing fast.
   

He checks their details:
 

Ravi learns:

• Company A grows slowly but is stable. His ₹10,000 is safer here.
• Company B may grow fast, but it can also fall suddenly. His ₹10,000 might double or drop.

So, Ravi thinks:
“If I want less risk, I’ll go with Company A. But if I want big growth and I’m okay with some risk, Company B may be better.”

Market Capitalisation vs Shareholders’ Equity

Let’s imagine a company is like a toy shop. You can know how much people think the shop is worth (market capitalisation), and you can also know how much the shop owns (shareholders’ equity). These two are different, but both are important.

Also Read - What is the PE Ratio in the Share Market?

Aspect: Market Capitalisation
 

• Represents the valuation assigned by the market to a company, reflecting collective investor sentiment regarding the company’s worth.
   
• Is influenced by fluctuations in share price and market perception, which may be subject to volatility and speculative factors.
   
• Serves as a primary criterion for categorising companies by size, facilitating comparative investment analysis.
   
• Does not constitute an accounting measure of debt or assets; rather, it is a market-derived metric calculated by multiplying the current share price by the total outstanding shares.
   

Aspect: Shareholders’ Equity
 

• Denotes the residual interest in the company’s assets after deducting all liabilities, representing the company’s net worth as recorded in its financial statements.
   
• Remains grounded in verifiable financial data, encompassing tangible and intangible assets less any outstanding obligations.
   
• Functions as a fundamental indicator of the company’s financial health, stability, and capacity to sustain operations.
   
• Constitutes an accounting figure encompassing all assets minus liabilities, thus reflecting the true economic value attributable to shareholders.

If you want to know what the crowd thinks about a company, look at the market cap.

If you want to know what the company really owns, check shareholders’ equity.

Bonus tip:- You can become a billionaire by having a significant ownership stake in a company with the highest market capitalisation.

Conclusion

Market capitalisation shows the total value of a company in the stock market. It helps investors understand a company’s size, risk level, and growth potential. By using market cap along with key financial ratios, investors can make smarter and more confident investment choices.

FAQs

What does market capitalisation mean?
Market capitalisation refers to the aggregate market value of a company’s outstanding equity shares, reflecting the total valuation assigned by the stock market to the company.

How do we calculate market capitalisation?
Market capitalisation is computed by multiplying the prevailing market price of a single share by the total number of issued and outstanding shares.

Is high market capitalization good?
A high market capitalisation generally signifies a well-established and financially robust corporation, though it does not inherently ensure sustained profitability or future growth.

Is a $10 billion market cap good?
A market capitalisation of $10 billion typically classifies the entity as a large-cap company, indicative of significant market presence and operational stability.

What company has the highest market cap?
Presently, Apple Inc. commands the highest market capitalisation globally, underscoring its dominance in the technology sector.

How to know if a stock is a large-cap?
A stock is categorised as large-cap if the company’s market valuation exceeds the approximate threshold of $10 billion, reflecting substantial size and market influence.

What are small-cap stocks?
Small-cap stocks pertain to equities of companies whose market capitalisation ranges between $300 million and $2 billion, often associated with higher growth potential but increased risk.

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