Difference between Market Capitalization and Free Float Market Capitalization

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1200x375 Difference between Market Cap and Free Float Market Cap Fintrovert

Market Capitalization

Market Capitalization of a company is the value of that company derived by multiplying its market share price and total no. of outstanding shares.
Outstanding shares are the shares held by all investors (including shares held by company’s employees).

Formula of Market Capitalization

Market Capitalization of a Company= (Current Market Stock Price of the Company) x (Total No. of Outstanding Shares)

Example

If the current Market Price of the share of the company is Rs.150 and the total no. of its outstanding shares in the market is say 10 Million (i.e 1 Crore), then
Market Capitalization of that company = 150 x 1 Crore = Rs. 150 Crore

Free Float Market Capitalization

The free-float market capitalization of a company is the market cap of the company derived after excluding government’s, promoters’, employees’ holdings, associate group cross-holdings, etc.

Formula of Free Float Market Capitalization

The free-float market capitalization of a Company =  (Current Market Stock price of the company) x (Total no. of shares of the company readily available for trading in the market (excluding Government’s, Cross-holdings, Promoters’ holdings, etc.))

Example

Company
1		Company
2
Total no. of shares in Market3,750 Million500 Million
Shares with Government50 Million100 Million
Shares in Promoters’ Holdings2,700 Million50
Million
Free-float Market Shares
= Total Shares - (Government Shares + Promoters’ Shares)		1,000 Million
= 3,750 Million-
(50 Million +2,700 Million)		350 Million
Current Share Price2,6005,000
Free-float Market Capitalization
= Free-float Market Shares x Current Share Price
2.6 Trillion
= 1,000 Million x 2600
1.75 Trillion

So the major differences between market cap. and free-float market cap. are:

  • Shares held by company employees, executives are considered while calculating market capitalization but not while calculating free float market capitalization
  • Indices such as Sensex, Nifty, Bank Nifty, S&P 500, etc. are derived from Free-float Market Capitalization and not from normal (full) market capitalization