Market capitalisation

Market capitalisation

Investors use market capitalisation as a key metric when making investment decisions. Companies with high market capitalisation are usually well-established and have a large market share. They are often less risky and offer more stability than smaller companies. Market capitalisation is calculated by multiplying a company’s share price by the number of shares outstanding.  

What is market capitalisation? 

Market capitalisation, often known as market cap, describes a company’s current share value and the overall number of outstanding shares concerning its market worth. It is among the most important qualities of a firm and aids potential investors in recognizing the issues involved in purchasing the company’s shares.  

Simply put, market capitalisation provides insights into a company’s size and valuation. 

The market capitalisation is computed by dividing the total number of outstanding stock shares by the price per share at the time. All shares, open to the general public and prohibited shares available to be held by particular groups, are included in the number of outstanding shares. 

How is market capitalisation calculated? 

There are two ways that market capitalisation can be calculated:  

  • By using the market value of the company’s outstanding shares 

The most common way to calculate market capitalisation is by using the market value of the company’s outstanding shares. This method is simple to use and is the most accurate representation of the company’s value. 

  • By using the market value of the company’s assets 

The other way to calculate market capitalisation is by using the market value of the company’s assets. This is less accurate than the first method, but it can be useful in certain situations. 

Categories of market capitalisation 

Market capitalisation

There are generally three categories of market capitalisation: large-cap, mid-cap, and small-cap. Large-cap companies have a market cap of over 10 billion USD, while mid-cap companies have a market cap of 2-10 billion USD. Small-cap companies have a market cap of under 2 billion USD. 

Investors typically allocate a larger percentage of their portfolio to large-cap stocks, as they are considered more stable and less risky than small-cap stocks. Mid-cap stocks are considered a good balance between risk and reward and are popular with many investors. Small-cap stocks are generally more volatile and riskier but can offer the potential for higher returns. 

What impacts a company’s market capitalisation? 

Many factors can impact a company’s market capitalisation. Some of the most common include the size of the company, the growth potential of the company, the profitability of the company, and the overall health of the economy.  

Generally, companies with large market capitalisations are considered more stable and less risky than those with smaller market caps. This is because they have a larger base of shareholders and more resources to weather tough economic times.  

Additionally, companies with strong growth potential are often rewarded with a higher market capitalisation, as investors are willing to pay more for shares that are expected to increase in value.  

Profitability is also key in determining market cap, as investors seek companies generating consistent profits. Lastly, the economy’s overall health can impact market cap, as investors may be more or less willing to invest in stocks depending on economic conditions. 

Importance of market capitalisation 

Market capitalisation is one of the most important indicators of a company’s health and growth potential. It measures the company’s outstanding shares multiplied by the market price per share. A company with a higher market capitalisation is typically seen as more valuable and has a higher growth potential than a company with a lower market capitalisation. 

Here are a few key reasons why market capitalisation is so important.  

  • First, it is a good indicator of a company’s size. This is important because investors often prefer to invest in larger companies that are more established and have a proven track record.  
  • Second, it is a good indicator of a company’s financial health. A company with a higher market capitalisation is typically seen as more financially stable and has a lower risk of defaulting on its debt obligations. 
  • Lastly, it is a good indicator of a company’s growth potential. A company with a higher market capitalisation typically has a higher growth potential than a company with a lower market capitalisation. This is because a company with a higher market capitalisation is typically seen as more valuable and has higher growth potential. 

What are changes in market capitalisation? 

The changes in market capitalisation result from the ever-changing supply and demand for a company’s stock. When more people want to buy a stock, the stock price increases, and the company’s market capitalisation increases. When fewer people want to buy a stock, the stock price decreases, and the company’s market capitalisation decreases.  

A company’s market capitalisation is constantly changing and is affected by various factors, including the overall market conditions, financial performance, and investor sentiment. 

What is market capitalisation and investment strategy? 

Market capitalisation is a key metric used by investors to evaluate companies. Many investors follow a market capitalisation-weighted investment strategy, which involves investing in companies in proportion to their market capitalisation. This strategy is based on the idea that companies with a larger market capitalisation are more likely to generate higher returns. 

What is diluted market capitalisation? 

When all of a project’s tokens have been distributed for circulation, the market capitalisation of the project is said to have been “diluted.” Essentially, it is a forecast of a project’s eventual market capitalisation. 

What are the misconceptions about market capitalisation? 

Several misconceptions about market capitalisation can lead investors to make poor investment decisions. The most common misconception is that market capitalisation measures a company’s profitability or future potential. While market capitalisation is certainly related to a company’s financial performance, it is not necessarily a good indicator of profitability or future growth. 

What is market capitalisation ranking? 

Market capitalisation ranking is a way of measuring how much a company is worth by looking at the total value of its shares. This value is then compared to other companies in the same industry to see where it stands in size. The largest companies in the world are typically ranked at the top of the list, while smaller companies are ranked towards the bottom. 

    Read the Latest Market Journal

    Back in Business: The Return of IPOs & Top Traded Counters in March 2024

    Published on Apr 17, 2024 142 

    Start trading on POEMS! Open a free account here! At a glance: Major indices continue...

    Weekly Updates 15/4/24 – 19/4/24

    Published on Apr 15, 2024 43 

    This weekly update is designed to help you stay informed and relate economic and company...

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 132 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 79 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 106 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 188 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 97 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 135 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you

    IMPORTANT INFORMATION

    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  

     

    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com