Market capitalization

The market capitalization ( English market capitalization , in short English market cap ; also market capitalization or stock market value ) is the arithmetical total value of the shares in circulation of a listed company .

General

The compound consists of the defining word “market”, with which the stock market or, in general, the stock exchange are meant, and the basic word “capitalization”. The latter is intended to express that with the valuation a transformation of future market developments takes place at the valuation point. The economic key figure of market capitalization plays an important role in stock analysis , chart analysis and market analysis . It is also an important factor in classifying stocks in a specific stock market segment. Conversely, a permanent reduction in market capitalization can lead to exclusion from a stock exchange segment. Market capitalization is also used for index weighting of individual stocks in a stock market index ; Usually not the entire market capitalization based on all issued shares is used, but only the free float market capitalization . For this purpose, only the shares in free float are taken into account; the shares held by major shareholders are not taken into account.

detection

The market capitalization is calculated from the number of shares in circulation and the share price on a specific date : ${\ displaystyle mc}$ ${\ displaystyle ns}$ ${\ displaystyle k}$

{\ displaystyle mc = ns \ cdot k}

.

While the number of shares in circulation remains constant over a longer period of time, the share price varies daily, so that the market capitalization usually changes daily due to the share price. If the share price rises, the market capitalization increases and vice versa. The following example can clarify the determination in absolute numbers:

   Anzahl der emittierten Aktien:           1.100.000 Stück  
   - Anzahl der selbst gehaltenen Aktien:     100.000 Stück 
   = Streubesitz:                           1.000.000 Stück  
   Aktueller Börsenkurs je Aktie:                    50 EUR  
   = Marktkapitalisierung (Streubesitz):     50.000.000 EUR

Own shares must be deducted from the number of shares issued ( share capital ) because they are not traded on the stock exchange. The remaining free float is multiplied by the share price and results in the market capitalization.

The price-earnings ratio can also be calculated as the quotient from the market capitalization and the profit of a company: ${\ displaystyle KGV}$ ${\ displaystyle G}$

{\ displaystyle KGV = {\ frac {\ text {mc}} {\ text {G}}}}

.

Robert J. Shiller refined the P / E ratio by using the average of the inflation-adjusted corporate profits of the last ten years ( English Cyclically Adjusted Price-to-Earnings Ratio , CAPE) in order to smooth out strongly fluctuating profits and random profits. Empirical research has shown that stocks with a low P / E ratio achieve a higher dividend yield than stocks with a high P / E ratio.

economic aspects

Market capitalization is a benchmark for assessing trading volume and market liquidity , because increasing market capitalization is often associated with higher stock turnover. The market breadth tends to exist with a high market capitalization, market tightness tends to be with a lower one. Standard stocks usually have a higher market capitalization than small caps . A low market capitalization suggests a low free float and limits the possible trading volume. It can be an indication of company acquisitions or hostile takeovers .

The market price is not the price that is paid for the whole company, but the marginal price for the last share traded. In addition, the price of control (also called control premium or package surcharge) (i.e. the ability of a major shareholder to make or block business decisions) is usually not included in market capitalization. As a rule, market capitalization therefore does not correspond to the sum of money that would be necessary to acquire a company. Rather, the company valuation procedures are used to determine the company value , in which further information is incorporated. The market capitalization then only serves to check the plausibility of the valuation result.

Market capitalization reflects the maximum possible trading volume of a share on a specific trading day . If you compare it with the actual stock exchange turnover, the result is the trading share of this share in its total maximum possible trading volume. The sum of all market capitalizations of all listed companies results in the total market capitalization of an exchange, which allows conclusions to be drawn about the ability of an exchange to mobilize capital and to diversify risk . In addition, total market capitalization is a measure of the company size of stock exchanges.

Web links / literature

Wiktionary: market capitalization - explanations of meanings, word origins, synonyms, translations

Literature on market capitalization in the catalog of the German National Library

Individual evidence

↑ Peter Wolff, Internet Monitoring , 2005, p. 15
^ Robert J. Shiller, Irrational Exuberance , 2005, p. 186
↑ Klaus Spremann / Patrick Scheurle, Financial Analysis , 2010, p. 44
↑ Ewald Aschauer / Victor Purtscher, Introduction to Company Valuation (Austria Edition) , 2014, p. 100 , ISBN 9783709405734

↑ Michael Tojner / Werner Krendl, The economic significance of the capital market , in: Bank archive: Journal for the entire banking and stock exchange vol. 49, 2001, p. 708

[1] Peter Wolff, Internet Monitoring , 2005, p. 15

[2] Robert J. Shiller, Irrational Exuberance , 2005, p. 186

[3] Klaus Spremann / Patrick Scheurle, Financial Analysis , 2010, p. 44

[4] Ewald Aschauer / Victor Purtscher, Introduction to Company Valuation (Austria Edition) , 2014, p. 100 , ISBN 9783709405734

[5] Michael Tojner / Werner Krendl, The economic significance of the capital market , in: Bank archive: Journal for the entire banking and stock exchange vol. 49, 2001, p. 708