What is market capitalisation?

A single share price is almost meaningless on its own. A company with a £500 share price isn’t necessarily "bigger" or "more expensive" than one with a £5 share price — it just depends on how many shares each has carved itself into. To compare companies, you need to price the whole business. That’s what market capitalisation does.

The formula

Market cap is straightforward:

• Market cap = shares outstanding × share price

So a company with 100 million shares trading at £20 each has a market cap of £2 billion. Because you multiply by the share count, two companies with an identical share price can have wildly different market caps — which is exactly why the price per share tells you so little by itself.

Large cap, mid cap, small cap

Investors loosely group companies by their market cap. The exact thresholds vary between index providers, but the language is universal:

• Large cap — roughly above $10 billion.
• Mid cap — roughly $2–10 billion.
• Small cap — roughly $300 million to $2 billion (and "micro cap" below that).

These buckets are shorthand for a company’s size, maturity, and often its risk. Large caps tend to be established and widely followed; smaller caps can grow faster but are usually more volatile.

Market cap vs book value

Market cap is a forward-looking number. It reflects what investors are willing to pay today, driven by their expectations of future profits and by sentiment. That’s very different from a company’s book value — the accounting value of its equity (assets minus liabilities) taken from the balance sheet, based on historical figures.

The two rarely match. A profitable, fast-growing company usually trades well above its book value, because the market is paying for the profits it expects in the future, not just the assets on the books today.

Free float: the shares that actually trade

One subtlety: market cap is based on all shares outstanding, but not all of those shares are actually available to buy. The free float is the portion available for public trading — it excludes big blocks locked up by founders, insiders, or strategic investors. Stock market indices often weight companies by free float rather than total market cap, so the index reflects shares that can genuinely be traded.