How to of Market Capitalization

What is Market Capitalization and how the companies are classified based on this.

This article is related with the 'Market Capitalization' or commonly uttered as 'Market Cap'. This is one of the common indicators which is studied by the investors for a particular company's analysis. This is used to determine the size of a company - how big or small is the particular company.

Market Cap - How is it determined?

Market Cap is defined as follows

Market Capitalization = Number of issued shares by the company X Current market price of the share

Since the market price of the shares changed continuously so market cap also changed regularly.

Let us exemplify this. Let's say the company ABC Ltd is having 20,000 shares and the current share price is 100 rs. So the Market Cap of ABC Ltd is (20000*100) 2,000,000 RS.

How to interpret the Market Cap?

If you want to invest in a particular company, you should look into the present market cap of the company. It will tell you how is the size of the company. Based on the market cap, the companies are classified into three categories - Large Cap, Mid Cap and Small Cap.

Large Cap
Large cap company is having the highest market capitalization. There is no definite limit of market Cap for a company to be considered as a Large Cap. Generally it is considered that a company with m cap more than Rs. 25 crore is called Large Cap.

The Large Cap companies are safe. They are included in SENSEX and NIFTY and these shares are also called blue chip companies. Investment with these companies are considered to be safer one.

Mid Cap
Mid cap company is having the mid range market capitalization. Generally between 15-25 crore mcap is considered for a company to be considered as mid cap. The risk associated with the mid cap investment is the moderate one. And they have potential for the rapid growth.

Small Cap
Mid cap company is having the lowest range market capitalization. The minimum market capitalization for small cap is Rs. 5 crore. They are the highest risk category. But they have the highest potential for the future growth.

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Guest Author: PROF.G.K.BHOI27 Nov 2014

I am totally new person about share market. I want to study and invest minimum. Please guide me.

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