Market capitalisation

Market capitalisation is the price of the whole equity. It is not what the company is worth — that would include its debts — and it is not what it would cost to acquire, since buyers pay a premium. It is simply what today's price implies if every share changed hands at it.

Because the share price moves every second and the share count moves a few times a year, almost all of the variation is the price. A change in market capitalisation is a change of opinion far more often than a change of substance.

25m shares at $120 each.

1. 125 x 120 = 3,000.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Use it to scale, not to judge. It answers how big, never how cheap.
• For anything involving debt, use enterprise value instead. Two companies with identical market capitalisations can carry very different obligations.
• Beware of comparing it to figures quoted per share without checking which share count each uses.

• It ignores debt and cash entirely.
• A thinly traded stock's price may not survive contact with anyone actually selling that many shares.
• Multiple share classes and unlisted stock make the published figure a partial one at plenty of companies.

Shown among the headline metrics on a stock page and used as the denominator of free cash flow yield in the scorecard's Valuation category. It is computed from the share count on the cover of the latest filing — the shares actually in issue — rather than from a weighted average over a past year, which is a real difference at any company that has issued or bought back stock recently. Where no cover-page count is available the weighted-average diluted figure is used instead, and that substitution is labelled rather than absorbed.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.