Understand market cap, book value, and smart investment strategies
Calculate a company's market capitalization and understand its category
Market Capitalization = Current Share Price × Total Outstanding Shares
Price-to-Book Ratio = Market Price per Share / Book Value per Share
Market Capitalization (or market cap) is the total market value of a company's outstanding shares. It represents the total worth of a company as determined by the stock market.
Market Cap Formula:
Market Capitalization = Current Share Price × Total Number of Outstanding Shares
Example: If a company has 10 million outstanding shares and each share is trading at ₹150, the market cap would be:
10,000,000 × ₹150 = ₹1,500,000,000 (₹1,500 crore)
Key Points:
Book Value is the net asset value of a company calculated as total assets minus intangible assets and liabilities. Book Value per Share is this value divided by the number of outstanding shares.
Book Value Formula:
Book Value per Share = (Total Assets - Intangible Assets - Liabilities) / Number of Shares
Example: If a company has assets worth ₹500 crore, liabilities of ₹200 crore, and 10 million shares:
Book Value per Share = (500 - 200) / 10 = ₹30 per share
If the market price is ₹150, the Price-to-Book ratio is 5 (150/30)
| Aspect | Book Value | Market Price |
|---|---|---|
| Basis | Accounting value based on historical costs | Market perception of future potential |
| Volatility | Relatively stable, changes quarterly | Changes constantly during trading |
| What it represents | Net worth if company liquidated | Current worth as going concern |
| Influenced by | Accounting policies, asset values | Market sentiment, earnings, growth |
SEBI and stock exchanges (NSE/BSE) have defined market cap categories to help investors understand company sizes and associated risks.
| Category | Market Cap Range | Characteristics | Examples |
|---|---|---|---|
| Large Cap | Top 100 companies Typically ₹20,000+ crore |
Established, stable, lower risk | Reliance, TCS, HDFC Bank |
| Mid Cap | 101st to 250th company ₹5,000 - ₹20,000 crore |
Growing companies, moderate risk | Tata Chemicals, Berger Paints |
| Small Cap | 251st company onwards ₹500 - ₹5,000 crore |
Higher growth potential, higher risk | Responsive Industries, Tanla Platforms |
| Micro Cap | Below ₹500 crore | Very high risk, volatile | Various small listed companies |
Note: These ranges are approximate and change over time with market movements. SEBI reviews the categorization periodically.
Different market cap categories suit different investment objectives and risk appetites:
Best for: Conservative investors, retirement funds
Strategy: Buy and hold, dividend income
Risk: Lower
Best for: Growth investors with medium risk appetite
Strategy: Balanced growth and stability
Risk: Moderate
Best for: Aggressive investors seeking high returns
Strategy: High growth potential, higher volatility
Risk: High
Best for: Speculative investors, experts
Strategy: High risk, potential for multibaggers
Risk: Very High
Market cap categories come with different risk profiles that every investor should understand:
Diversification is key: Consider building a portfolio with allocation across different market caps based on your risk profile:
Always do thorough research and consider consulting a financial advisor before investing.