Market capitalisation

What it means

Market capitalisation is the total market value of a listed company's shares. It is calculated as the current share price on the exchange multiplied by the number of shares outstanding. It shows how the market values the company's equity at a given moment.

The figure changes every trading day with the share price on the stock exchange. Companies are often grouped by capitalisation into small, mid and large caps, which affects which indices and funds include their shares and how much investor interest they attract.

Market capitalisation differs from enterprise value, which adds net debt to the value of equity. Two companies with the same market cap can have very different enterprise values if one is heavily indebted and the other holds a lot of cash.

How it works in practice

Market cap is the starting point for valuation ratios such as the price-to-earnings ratio, which compares capitalisation with net profit, or the price-to-book ratio. Analysts use them to judge whether a company is cheap or expensive relative to its peers.

Unlisted companies, which include most Slovak businesses, have no market capitalisation. Their value must be determined through a valuation, for example by comparison with listed companies whose multiples are adjusted for differences in size, liquidity and risk.

When a company lists through an IPO, the share price is set, determining the initial market cap. After that it is driven by the company's results, earnings per share, investor expectations and overall market sentiment, which the company cannot influence.

What to watch out for

Market cap reflects market moods and expectations, which can be exaggerated in either direction in the short term. It does not necessarily match the company's intrinsic value, so investment decisions combine it with analysis of results and cash flows.

The calculation must use the correct number of shares, meaning shares outstanding excluding treasury shares the company has bought back. For companies with several share classes or a small free float, market cap alone can be misleading about real liquidity.