The Stock Exchange Corner
Market Capitalization
by George Edwards
What is market capitalization? Market capitalization, sometimes referred to as “market cap”,
is the aggregate market value of a company’s common shares that it has issued. It is
calculated by multiplying the shares outstanding (issued to shareholders) by the current
market price.
Example:
If a company has issued 100,000 shares and the current market price is $15, then its market
capitalization is equal to 100,000 multiplied by $15 = $1,500,000.
It should be noted that the market capitalization is based on the number of shares actually
issued and not the number of shares that the company is authorized to issue, which may be a
larger figure e.g.
No. of shares authorized ………………..150,000
No. of shares issued……………………..100,000
Market capitalization will be calculated as above.
Thus it can be seen that the market capitalization of a company represents the total value of
its shares currently available on the market. This figure can be greater than its book value
capital.
One of the measures that is often used to assess the success or failure of a company is the
size and growth of its market capitalization. This may change, however, for reasons unrelated
to its performance. From the example above, we can see that if that company decided to
issue the remaining 50,000 shares, then its market capitalization would increase by $750,000
(50,000 x $15). Conversely, if it decided to buy back some of its shares, then its market
capitalization would decrease.
The total market capitalization represents the sum total of the market values of all the
companies traded on the stock exchange. Continuous growth in market capitalization may be
considered as an indicator that there is positive development in the stock market.
Growth in total market capitalization may come from:
a) Privatization of State-Owned Enterprises by selling shares to the public.
b) Private companies may decide to sell shares to the public.
c) Increase in value of shares already on the market due to investors’ confidence in
companies because of increased dividends, good management and corporate
governance and strong regulation designed to protect investors.
d) Companies whose shares are already traded may issue more shares through rights
issues and new offerings.
Below are figures and graphs of the Guyana market from its inception in July 2003 to
December 2005.
Market Capitalization
MONTH
JANUARY
2003
2004
19,662,614,163
2005
31,195,812,325
FEBRUARY
21,679,270,363
32,271,198,365
MARCH
21,144,926,563
33,631,294,025
APRIL
21,194,926,563
34,554,634,025
MAY
21,115,249,841
33,414,294,025
JUNE
21,323,046,541
33,936,634,025
JULY
17,659,406,300
21,112,874,641
33,443,034,025
AUGUST
17,210,991,300
22,456,135,631
36,136,683,645
SEPTEMBER
16,687,199,400
21,333,976,367
35,003,743,645
OCTOBER
17,665,332,755
21,650,963,569
37,389,727,045
NOVEMBER
17,068,720,255
23,308,614,711
37,197,083,645
DECEMBER
18,296,920,255
25,678,393,211
37,515,083,645
Billions
40
35
30
25
2003
2004
2005
20
15
10
5
JA N
F EB
M AR
AP R
M AY
J UN
J UL
A UG
SEP
OC T
N OV
D EC
JU
L
AU 200
G 3
SE 20
PT 03
O 20
CT 03
NO 20 0
V 3
DE 200
C 3
JA 20 0
3
N
2
FE 00
4
B
M 20
AR 0
4
AP 200
R 4
M 20
AY 04
JU 200
N 4
JU 200
L 4
AU 200
G 4
SE 20
PT 04
O 20
CT 04
NO 20 0
V 4
DE 200
C 4
JA 20 0
4
N
2
FE 00
B 5
M 20
AR 0
5
AP 200
5
R
M 20
AY 05
JU 200
N 5
JU 200
L 5
AU 200
G 5
SE 20
PT 05
O 20
CT 05
NO 20 0
V 5
DE 200
C 5
20
05
Billions
40
35
30
25
20
15
10
5
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Next week: Buying and Selling Shares
N.B. – More information may be accessed on our website: www.gasci.com