01 / 10
What Is Market Capitalisation?
🏢 📊 💰
Market Capitalisation = Market Value of a Company's Shares
Market capitalisation, often called market cap,
is a simple way of looking at the size of a company based on
the total market value of its shares.
It is calculated using two important numbers:
the company's share price and the number of shares in issue.
In simple words: Market capitalisation helps
investors understand how large a listed company is in the
stock market.
02 / 10
The Market Cap Formula
The calculation is easier than it may first sound.
If a company has 10 million shares and each share is trading
at K5, the market capitalisation would be K50 million.
You only need two numbers to calculate basic market
capitalisation: the share price and the number of shares.
03 / 10
Let's Calculate It
10 Million
Shares in Issue
K5
Share Price
K50 Million
Market Cap
This does not mean the company has K50 million sitting
in its bank account.
It represents the market value of the company's shares
based on the current share price.
04 / 10
Why Does Market Cap Change?
Market capitalisation can change when the market price
of the company's shares changes.
For example, if the company in our previous example has
10 million shares and the share price rises from K5 to K6,
its market capitalisation becomes K60 million.
10 million shares × K6 = K60 million
So a change in share price can change the market
capitalisation.
05 / 10
Market Cap Does Not Mean Cash in the Bank
🏦 ≠ 📊
Market Cap is not the same as cash held by a company.
This is an important point for beginners.
If a company has a market capitalisation of K500 million,
it does not mean that the company has K500 million in its
bank account.
Market capitalisation is calculated from the market price
of the company's shares and the number of shares in issue.
Think of market capitalisation as a measure of the
market value of the company's equity,
not its bank balance.
06 / 10
Comparing Two Companies
Company A
K50 Million
Market Capitalisation
Company B
K500 Million
Market Capitalisation
Based only on market capitalisation, Company B has a larger
market value than Company A.
This can be useful when comparing listed companies.
But market cap alone does not tell you which company is
better or which share will perform better.
Bigger does not automatically mean better.
07 / 10
Why Investors Look at Market Cap
Market capitalisation can help investors understand the
relative size of companies in the market.
- It helps compare the size of listed companies.
- It can help investors understand a company's market value.
- It can be used when grouping companies by size.
- It provides useful context when researching a company.
Market cap is one piece of information. A good investor
should look at other company information as well.
08 / 10
Large, Medium and Small Companies
🏢
Larger Company
🏢
Medium Company
🏢
Smaller Company
Investors sometimes describe companies as large-cap,
mid-cap or small-cap based on their market capitalisation.
These labels are useful for describing company size, but
there is no single worldwide market-cap number that defines
every category.
The meaning of large-cap, mid-cap and small-cap can differ
between different markets.
09 / 10
Market Cap Is Not the Whole Story
Imagine you are comparing two companies.
One has a market capitalisation of K1 billion and another
has K200 million.
You cannot simply say the K1 billion company is a better
investment.
You should also learn about the company's revenue, profit,
debt, cash flow, business model, management, dividends,
industry and future risks.
📊 + 💰 + 🏢 + ⚠️ + 📚
Market Cap + Company Research = Better Understanding
Market capitalisation is a starting point for understanding
company size, not a complete investment decision.
10 / 10
🎓
Lesson Complete!
Well done! You now understand market capitalisation
and why investors use it when studying companies.
Key message:
Market capitalisation helps you understand the size
and market value of a company, but it should never be
used alone to decide whether to invest.
When you look at companies listed on the stock market, you will notice that they are not all the same size. Some companies are much larger than others. One simple way investors compare the size of listed companies is through market capitalisation, often called market cap.
Market capitalisation tells us the total market value of a company’s shares based on the current share price and the number of shares in issue.
The calculation is simple:
Market Capitalisation = Share Price × Shares in Issue
For example, imagine a company has 10 million shares in issue and each share is trading at K5. Its market capitalisation would be K50 million.
If the share price later rises to K6, the market capitalisation would become K60 million, assuming the number of shares remains the same.
But there is an important point beginners should understand: market capitalisation does not mean the company has that amount of cash in its bank account. It is a measure based on the market value of the company’s shares.
Market capitalisation can help you compare the relative size of companies and understand where a company sits within the stock market. Investors sometimes use terms such as large-cap, mid-cap and small-cap when discussing companies of different sizes.
However, market cap should never be the only thing you consider before investing. A company with a large market capitalisation is not automatically a better investment.
In this lesson, you will learn how market capitalisation is calculated, why it changes, how to compare companies using market cap, and why you should combine it with proper company research.
