Market capitalisation

Market capitalisation is calculated by multiplying the number of shares a company has issued by the price of one share. Because the share price changes throughout the trading day, so does the market capitalisation. It measures what the market is currently willing to pay for the whole of the company's equity, not what the company owns or earns. Index providers often use a variant called free-float market capitalisation, which counts only shares genuinely available to trade and excludes large blocks held by founders, governments or other strategic owners.

Market capitalisation is the usual way of sorting companies into large-cap, mid-cap and small-cap groups, although the boundaries differ between index providers and shift over time. It also decides how much weight each company carries in most major indices, so the biggest companies have the greatest influence on index returns. A common mistake is to judge a company's size by its share price alone: a share priced at 500 may belong to a smaller company than one priced at 20, depending on how many shares each has issued. Market capitalisation also ignores debt, which is why analysts use enterprise value for some comparisons.