iMinds - Market Capitalisation

Learn about Market Capitalisation with iMinds Moneys insightful fast knowledge series.

Market capitalisation, or simply market cap, is the total tradable value of a public company, equal to the number of shares outstanding times share price. It is therefore an indicator of public opinion on the total future value or net worth of a business. This also means market capitalisation will fluctuate over time and even within the space of a day. Short-term changes, though, are more dependent upon share prices as the number of shares outstanding tends to be more stable with time.

The market cap is a measure of equity; that is, the ownership of a business. It is not, however, the only or necessarily even the most accurate measure. The equity value of a company adds unexercised stock options and convertible notes to market capitalisation. In contrast, Enterprise value also includes debt, cash and other interests held by the business, which may provide a more accurate measure of a companys value. Furthermore, though market values are typically considered the most accurate, there are also some issues with this measure. Shares that are traded at low volumes may be undervalued as fears of a lack of liquidity could result in lower demand and hence lower share prices.

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