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Market capitalization refers to a company’s total capital consisting of its total outstanding shares. It is calculated by multiplying total number of outstanding shares by market price of each share.
It is also known as ‘market cap’ of a company.
Formula for calculation of market capitalization:
From the above given definition, following formula can be derived:
Lets suppose, 5 years ago a company named XYZ Limited issued 100,000 equity shares of INR 10 each. At present, the market value of each share is INR 15.
Thus, the market cap of XYZ Limited is = 100,000 × 15 = INR 1,500,000.
This figure is used to measure the total worth of a company.