Market capitalisation, sometimes called market cap, is a measure of a publicly traded company's total value. It is calculated by taking the current market price of a company's stock and multiplying it by the number of outstanding shares. In a nutshell, it's the total value of a business according to the stock market at a given point in time.

Types of Market Capitalisation

Market capitalisation is classified into multiple categories based on the aggregate value of a company's outstanding shares.

Large-Cap (Large Capitalisation): Businesses that have a market value in crores are often reputable, stable, and have a lengthy track record. In India, they are defined as companies having a market cap of more than Rs. 20,000 crores. They are often considered less volatile than smaller companies. Example: Reliance Industries

Mid-Cap (Mid Capitalisation): Mid-cap companies have a market capitalisation between Rs. 5,000 crores and Rs. 20,000 crores. They are often seen as having moderate growth potential and moderate risk. Example: Metropolis Healthcare

Small-Cap (Small Capitalisation): Small-cap companies have a market capitalisation of less than Rs. 5,000 crores. They are typically younger companies with growth potential but may also carry higher risk. Example: Bajaj Consumer Care

Micro-Cap (Micro Capitalisation): Micro-cap companies are the smallest publicly traded companies with market capitalisations often between Rs. 100 crores and Rs. 500 crores. These stocks can be highly volatile and speculative. 

Why Is Market Capitalisation Important?

Market capitalisation is useful in determining the size of a firm by looking at its stock price. It gives investors an instant impression of a company's size in the market, indicating whether it is a major participant or not.

Market capitalisation is a useful measure that helps investors make decisions. It makes it easier for investors to match their risk tolerance and financial goals with their portfolios, enabling a well-rounded and knowledgeable approach to investing.

Formula 

The formula for calculating market capitalisation is:

Market Cap = Current Stock Price × Total Outstanding Shares

Example

Let us understand market capitalisation with an example. You want to find the market capitalisation of "X Ltd.". The market value of a share of X Ltd. is Rs. 1,000, and the company has one lakh outstanding shares of stock.

Based on the formula:

Market Cap = Current Stock Price × Total Outstanding Shares

Market Cap = Rs. 1,000 × 1,00,000 

Market Cap = Rs. 10,00,00,000

India Ltd.'s market capitalisation is Rs. 10,00,00,000.

In essence, market capitalisation is a key metric that reflects the value and perception of a company in the market.