The calculation of market capitalization of a company only includes publicly listed stocks. A larger market capitalization company might have issued 30% of its shares while a company having slightly lesser market capitalization (say 5% lesser) may have issued only 10% of its shares. Is market capitalization the right attribute to represent the size of companies?


1 Answer 1


It is a simple measure. The number of shares is easily available and the price as well. Calculating market capitalization is a simple multiplication and you get what the market thinks the company is worth. It is a number that is easily comparable against other companies. To my knowledge, such comparisons are typically based on the total market capitalization, not just the free float. The free float on the other hand is often used for index weighting as it is a better representation of the tradeable volume of shares.

There are some drawback to using market capitalization:

  • different sectors are valued differently. A price/earnings multiple of 40 is not uncommon for tech stocks but would be extremely high for utilities or REITs
  • many companies are not listed at all and will not show up in these rankings. The severity of this problem is strongly depending on the region. For example Germany has plenty of family owned businesses (e.g. Aldi, Würth, Bosch) estimated around a value of 5 billion that would be placed in the Top 50-100 in a market cap ranking.

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