Market Capitalisation (Market Cap) is the total market value of a company's outstanding shares.
Formula: Share Price × Total Shares in Issue
Example: 1 billion shares at 250p = £2.5 billion market cap
Treasury shares excluded; figure fluctuates with share price.
Size Classifications
| Category | Market Cap Range | FTSE Index | Typical Characteristics |
|---|---|---|---|
| Large Cap | £5bn+ | FTSE 100 | Highest liquidity, lower volatility |
| Mid Cap | £500m-£5bn | FTSE 250 | Good liquidity, moderate volatility |
| Small Cap | £100m-£500m | FTSE SmallCap | Lower liquidity, higher volatility |
| Micro Cap | £50m-£100m | FTSE AIM/Other | Limited liquidity |
| Nano Cap | <£50m | Often AIM | Very limited liquidity |
Market Cap vs Enterprise Value
| Metric | Calculation | Use Case |
|---|---|---|
| Market Cap | Share Price × Shares | Equity value only |
| Enterprise Value | Market Cap + Net Debt + Minorities | Company valuation across capital structures |
Enterprise Value = Market Cap + Net Debt + Minority Interests + Preference Shares
EV better for comparing companies with different leverage; market cap shows direct equity investor value.
Index Inclusion
Market cap determines:
- FTSE index eligibility (size thresholds)
- Index weighting (larger cap = higher weight)
- Constituent reviews (quarterly rebalancing)
Indices typically use free float adjusted market cap for weighting.
Investment Implications
| Factor | Large Cap | Small/Micro Cap |
|---|---|---|
| Liquidity | High | Low to very low |
| Volatility | Lower | Higher |
| Analyst coverage | Extensive | Limited |
| Risk profile | Lower risk | Higher risk/reward |
What Market Cap Doesn't Show
- Asset value (book value may differ significantly)
- Revenue or profitability (unprofitable companies can have high market caps)
- Debt levels (ignores leverage)
- Future potential (based on current price only)