The Definition of Market Capitalization

Market capitalization is a business term that refers to the overall price of a company that is the price a person pays if he wants to buy 100% of the company's holdings. Market capitalization is calculated by multiplying the number of outstanding shares of the company with the current stock price of the company.

The Function of Market Capitalization


The term market capitalization is quite commonly used in financial topics. In the world of stock investing, this term is called to describe the value of a company, but how important is the market capitalization data to be attached to a stock review? Does the market capitalization have a major influence on investors' decision-making processes by investors? Let's talk together.

Market capitalization is actually the value of the company's shares circulating in the market. Please understand that the value of the firm is different from the value of the company's assets, so the market capitalization of a company does not reflect the value of the company's assets. Market capitalization is highly likely to be greater or less than the value of a company's assets.

For a public company, of course, this market capitalization value is very important because it reflects the total value of the company. The magnitude and growth of a company's market capitalization is often an important measure of the success or failure of an open company. The bigger the market capitalization, the more expensive the company is appreciated by the market.

If you as the owner of a particular company and hold the shares of the company, of course, the amount of market capitalization of the company whose shares you hold will affect the value of your wealth personally.

Calculating A Stock Market Capitalization

How to calculate market capitalization? The way is quite simple, that is by multiplying the number of shares outstanding with the stock price in the market. Therefore, if you want to calculate the market capitalization of a public company, you can take the following steps.



# 1 Find Information About Stock Prices

The price per share of a public company is usually published for free and transparent on various financial sites, such as Bloomberg, Yahoo! Finance, Financial Times, Reuter, and other sites.

You can type in the stock code, or type the word shares and the corresponding company's name on the Google search engine page to find stock quotes, or if you already have securities accounts in securities that provide online trading services, you can check the stock price from the online application the.



# 2 Find Outstanding Number of Shares

Next, you can find how many numbers of shares of the company's outstanding shares. This value reflects the number of shares owned by shareholders, both communities, and people within the company. Information on the number of shares may be found on financial sites, or on the official website of the Indonesia Stock Exchange, or on the company's official website.

By law, all companies whose shares are listed on the Indonesia Stock Exchange are required to publicly publish their financial statements. You simply search on a search engine like Google to get information about it.

# 3 Multiply Number of Shares Circulated with Stock Price

After finding the stock price and the number of shares, you can now multiply the number of outstanding shares with the current share price to determine the current market capitalization value. The multiplication result reflects the total value of the company, as well as the total value of the ownership of all of the company's investors.

For example, for example, Bank BCA, PT Bank Central Asia Tbk has listed its shares on the stock exchange and is a Bank widely known by the people of Indonesia. Bank BCA has a total number of shares of 24,655,010,000 shares. From the closing price
Thursday, 5 November 2017, BBCA shares closed the trade at $14,6 per share, then the calculation of market capitalization value is:

Number of Outstanding Sheets x Stock Price = Market Capitalization

Factors Affecting Market Capitalization

From the above calculation, it can be concluded that the market capitalization value is determined by two things, namely the number of shares outstanding and the price in the market. From this, it can be seen that the market capitalization of the company will always change from time to time, up or down. If the stock price rises, it means that the value of the firm goes up and vice versa if the price drops mean the value of the company is down.

In the Indonesia Stock Exchange itself, there are more than 500 listed shares that have different capitalization value from each other. Of the listed companies, the stocks are often divided based on the size of the capitalization to facilitate the analysis.



Shares Based on Market Capitalization

There is no specific provision or criteria to divide the stock group by market capitalization, but in various stock exchanges, a company is considered to have large capitalization if its value is above $ 10 billion, is considered medium-sized capitalization when between $ 2 -  $ 10 billion, and is considered to be small when it is smaller than $ 2 billion.

Actually, the division cannot be applied in Bursa Indonesia, because if it is applied in Indonesian Stock Exchange, most of the listed companies will be classified as small capitalized companies. In Indonesia Stock Exchange too, the distribution of small size using a different number of benchmarks. In general, stocks in Indonesia Stock Exchange based on market capitalization can also be divided into 3 categories:

# 1 Big Cap Share (Big Caps / Blue Chip)

These first type stocks are known as blue chips. The stock of this category has a large market capitalization for stock size in Indonesia, which is above Rp10 trillion.

Companies whose shares are classified as blue chips is a large company that is widely known by the community and has a stable income. Examples of this company are Honda, Bank Of America, Unilever, and Telkom.

Blue chip stocks become the preferred stock of long-term investors who have a conservative risk profile and prioritize the benefits of dividends distributed on a regular basis. This blue-chip company usually has strong fundamentals and big profits, and its products are needed by many people.

# 2 Stock Capitalization Medium (Middle Caps / Second Liner)

Shares of the second type are stocks that have medium capitalization, between Rp1 trillion to Rp10 trillion. Companies in this category do not have the strength of a blue chip company, but the two-tier stock is also interesting to invest because the profit earned is usually no less promising.

Usually, the second tier stock (Second Liner) is filled by shares of the company that is in the developing phase. The performance growth of the two-tier companies is usually more aggressive than the blue-chip issues. Its stock price is usually cheaper than big caps and is often the target of investors who have a mediocre capital and expect profit from its performance growth.



# 3 Small-Cap suit Shares (Small Caps / Third Liner)

This third type of stock is a stock that has a small market capitalization, usually below Rp1 trillion. Although the price is quite cheap, the third-tier stock is usually quite risky to be collected because the movement of the price can be played easily by the city that has a large capital. Another term of this third tier stock is fried stock because the price is often fried by the stock.



The Influence of Market Capitalization On Investment Decisions

In portfolio investment, the value of market capitalization has an important meaning for investors. This capitalization data has the power that can influence investor interest to make it as a portfolio instrument. For example, as mentioned above, that conservative investors are more inclined to choose blue-chip stock because it feels safer.

In general, the greater the market capitalization of a stock, the greater the appeal of shares to investors. Vice versa, the smaller the capitalization value the less attractive for investors. Fund managers or fund managers, always consider the size of the market capitalization value for each stock to be included in its investment portfolio.

This tendency is not only directed to stock instruments, but also in the market as a whole. The market that has a larger capitalization is also usually always enlivened by fund managers.