Investment Jargon: Market Capiltalisation

Market Capiltalisation

The total value of a company on the stock market, usually abbreviated to “market cap”. This is the number of shares issued by the company multiplied by the price per share. For example if a company has a million shares each worth £10 then its market capitalisation would be £10 million. Market capitalisation is affected by the share price, so if the share price increased to £20 the market cap would increase to £20 million. People talk about “large cap” and “small cap” companies and there are usually stock indices which focus on stocks grouped by their market cap.

For example in the UK we have the FTSE 100, which is the largest 100 companies by market cap listed on the London Stock Exchange, the FTSE 250, which is the next 250 largest and the FTSE SmallCap which is the 351th to 619th largest companies by market cap. Companies with a smaller market cap tend to be more expensive to trade i.e. they have a bigger bid-offer spread and they have lower liquidity. Most stock indices are weighted by market cap, so larger companies make up more of an index than small companies.