Free-float market capitalization is the total value of a company’s shares that are available for trading on the stock market.
Table of Contents
What is Free-float market capitalization
Free-float market capitalization is calculated by taking the total number of outstanding shares of a company and multiplying it by the market price of each share, then adjusting this figure to account for shares that are not available for trading.
How Free Float market capitalization is calculated
For example, let’s consider a company ABC Ltd that has 1,000,000 outstanding shares. Out of these, the promoters of the company hold 200,000 shares, and another 100,000 shares are held by strategic investors who have agreed not to sell their shares for a specified period. This means that the total number of shares available for trading on the stock market is 700,000.
If the current market price of one share of ABC Ltd is Rs. 100, then the total market capitalization of the company would be Rs. 10,00,00,000 (i.e., 1,000,000 shares x Rs. 100). However, the free float market capitalization of the company would be calculated by multiplying the number of shares available for trading (i.e., 700,000) by the market price of one share (i.e., Rs. 100), which gives us Rs. 7,00,00,000.
So, the free float market capitalization of ABC Ltd is Rs. 7,00,00,000, which is the total value of the shares available for trading on the stock market. This figure is used to calculate the weightage of ABC Ltd in the stock market indices, such as the Nifty 50 or BSE Sensex, where it is one of the listed companies.
Example of Free Float market capitalization
See below the Free-float market capitalization of Reliance, highlighted in Green box. It shows 7,72,03,985 Lakhs. This value changes on daily basis as Reliance gets traded in the market.
Read how weightages of the companies are determined in Nifty 50
One thought on “What is Free-Float market Capitalization – complete details,”