Learn about Market Capitalisation with iMinds Money's insightful fast knowledge series.
Market capitalisation, or simply market cap, is the total tradable value of a public company, equal to the number of shares outstanding times share price. It is therefore an indicator of public opinion on the total future value or net worth of a business. This also means market capitalisation will fluctuate over time and even within the space of a day. Short-term changes, though, are more dependent upon share prices as the number of shares outstanding tends to be more stable with time.
The market cap is a measure of equity; that is, the ownership of a business. It is not, however, the only or necessarily even the most accurate measure. The equity value of a company adds unexercised stock options and convertible notes to market capitalisation. In contrast, Enterprise value also includes debt, cash and other interests held by the business, which may provide a more accurate measure of a company's value. Furthermore, though market values are typically considered the most accurate, there are also some issues with this measure. Shares that are traded at low volumes may be undervalued as fears of a lack of liquidity could result in lower demand and hence lower share prices.
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