Today let's understand what role does market capitalization has in stocks market. | Arshnoor Singh

Today let's understand what role does market capitalization has in stocks market. Market capitalization or market cap is the aggregate market value of a company represented in a dollar amount. Since it represents the market value of a company, it is computed based on the current market price (CMP) of its shares and the total number of outstanding shares.

Market cap is also used to compare and categorize the size of companies among investors and analysts. Market cap is used to increase size of corporations and understand their aggregate market value. Market cap are categorized as large, mid or small cap. Blue-chip companies are often large- or mega-cap stocks.

Market cap is calculated by multiplying a company's outstanding shares by the current market price of one share. Since a company has a given number of outstanding shares, multiplying X with the per-share price represents the total dollar value of the company.

Market Cap=Price Per Share × Shares Outstanding For example, if company ABC trades at $30 per share and had one million outstanding shares, its market capitalization would be ($30 x 1 million shares) = $30 million. What is Outstanding Shares?

Outstanding shares are the total amount of shares currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.