How Do You Calculate Market Capitalisation?

Market capitalisation is the current share price multiplied by the number of shares a company has issued. It gives the market value of the company’s shares at that point in time.

$$Market\; capitalisation=share\; price\times number\; of\; shares\; issued$$

A share price is the price of one share. Shares issued are the shares the company has made available to shareholders. For a company whose shares are traded on a stock market, use the current quoted share price and the total number of shares issued, not just the shares bought or sold that day.

Worked example

Suppose a company has issued $50$ million shares and its share price is £2.40\pounds 2.40£2.40. Its market capitalisation is:

50,000,000×£2.40=£120,000,00050{,}000{,}000 \times \pounds 2.40 = \pounds 120{,}000{,}00050,000,000×£2.40=£120,000,000

So its market capitalisation is £120\pounds 120£120 million. You can also calculate using millions: $50$ million shares multiplied by £2.40\pounds 2.40£2.40 per share gives £120\pounds 120£120 million. Writing out the full number of shares gives the same result in pounds. Whichever method you use, label your answer with the correct units.

If the share price changes while the number of shares stays the same, the market capitalisation changes too. This makes it useful for comparing the market value of companies at a particular time, but it is not a fixed value. A higher share price alone does not mean a higher market capitalisation: the number of shares issued matters as well. In an exam, identify both figures before using the formula.

Common mistake

Check the units of the share price before multiplying. If it is quoted as $150$ pence, use £1.50\pounds 1.50£1.50 when you want an answer in pounds. Multiplying the number of shares by $150$ and labelling the result as pounds would make your answer $100$ times too large.

Market capitalisation is the market value of a company’s shares. It is not the same as its annual revenue, profit or the value of its assets.