Market Capitalization

We keep hearing the term "Market Capitalization" , also called Market-Cap , what really is this and how do we categories companies based on Market-Cap

Mathematically , Market Cap is the Price of a Single Share of the company multiplied by Total Number of shares issued by the company

                      ( Price of Single share ) x (Total Number of Share ) 

Well , in business sense , this can be constructed as , the price a person needs to pay , if he would like to buy the entire company or it can be constructed as the the price the market thinks in all its infinite wisdom , what the whole company is worth

Based on the total price that is reached , companies are classified as

• Large Cap
• Mid Cap
• Small Cap 

Any company with valuation in excess of Rs.1000 crore is labelled Large Cap and Any company with valuation of less than Rs.500 crore is labelled Small Cap , and all companies in between Rs.1000 - Rs.500 crores as the Mid Cap.


The Market Capitalization could also be used to see if a company has been undervalued. This could be done by something called "Replacement Cost Analysis". Suppose it would cost far greater to build a company of certain nature and scale compared to the  market cap of an existing similar company , then it is considered as under valued company and possible a candidate for further study with intend of investing

Image : FreeDigitalPhotos.net,Photographer: dan