What is Market Capitalisation? Why is Market Capitalisation Important? | INDmoney Classroom #13
What does market cap tell you?
Market Cap shows us the total value of the company and is calculated by multiplying the total number of shares with the market price of the share of the company.
Why is market capitalisation so important?
Market capitalisation helps investors gauge the size of the company thus helping them in making an investment decision.
Does market cap determine the share price?
No. We can determine the market cap on the basis of the company's share price but not the other way around. Market capitalisation is arrived at by multiplying the current market price of the share with the total shares of a company. Various other factors such as supply and demand, idiosyncratic risks, etc help determine the current share price of a company.
Why are large cap stocks less risky than small cap stocks?
Large-cap stocks are those companies that are well established and have far more resources to be able to survive an economic shock or downturn. Small-cap stocks, on the other hand, have fewer resources available to tackle a sudden economic downturn and hence are riskier compared to large-cap stocks.