What is Market Capitalization (Easy to understand)

In simple Words “Market Capitalization is the trust of people hold for the product or the company”,

I like to share one of my experience at the beginning of the article just to explain the term in a practical way.

One day my mother asked me to bring the Colgate toothpaste from the market, I entered the nearest grocery store available near my house, and ask the shopkeeper for the paste.

he quickly grabs a Colgate toothpaste and handed over to me.

The twist is:

I didn’t ask them to give me Colgate toothpaste, so

Why

Also Read: Importance-of-debt-to-assets-ratio 

because of the mindset.

Still Unclear:

Here the detail explanation –

When I ask the shopkeeper for the paste, he correlates the meaning of paste from “Colgate Toothpaste” not by himself, just because of the demand of the people toward the product, there is a trust floating in the market towards the product which doesn’t need an introduction,

and that was developed outside the market in the heart of the people.

Market Capitalization in Financial terms

Market Capitalization referred to the value of Share trading multiply with the outstanding shares, The Investor uses this capitalization to predict the company size in the market among the other company in the same sector.

In simple words Market capitalization also reveals the capturing of the market share of the particular product/service by the company.

Market capitalization also used to rank the company in the equity market.

Also Read: What is Dividend Adjusted PEG Ratio

Definition of Market Capitalization

The market capitalization of the company is the cost for you for purchasing the whole shares outstanding in the market at the market Price.

Let’s take an example – A company XYZ has 1,20,00,000 shares outstanding with the market price of ₹ 20 If you wanted to buy every single share of the company you have to spend around ₹ 24 Cr.  That amount was the Market Capitalization of the company.

Every Company is running to capture the market cap of the product higher and higher, that will directly impact on the profit margins of the company.

The companies frequently change their product as per demand and variety just to keep the consumer stick as glue.

Also Read: What is Return on Capital Employed

Is Market Cap is a good segment for company valuation?

Market Cap is the segment through which investor analysis the size and value of the company which is calculated by outstanding shares with the market price.

Market Capitalization is companies in India less than ₹ 2 Crore are treated as small-cap companies, Companies having the market cap above  ₹ 10 Crore are said to be mid-cap companies.

₹ 10,000 Crore plus companies are Large Cap companies.

Every Export or Investor always recommend pouring your investment in Large Cap companies.

Also Read: Shares Fundamental Analysis (Complete Guide)

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