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Glossary

Market Capitalisation

Market capitalisation is the stock market value of a company's shares. It is the current share price multiplied by the number of shares outstanding. Because the price changes continuously during trading, market capitalisation also fluctuates from day to day. It shows how the market values a company's equity at a given point in time. Index providers use it to select and weight stocks.

Market capitalisation measures only the market value of equity. In its simplest form, enterprise value adds net debt to it, that is, financial debt minus cash and cash equivalents. It values the whole company, not just its equity. Book value, in turn, is the equity shown on the balance sheet and often differs considerably from market value.

At a glance

  • 200 million shares at CHF 50 each give a market capitalisation of CHF 10 billion.
  • Free-float-adjusted market capitalisation counts only the freely tradable shares. Larger stakes held over the long term, for example by founding families or anchor shareholders, are left out.
  • The Swiss Market Index (SMI) contains the 20 largest stocks from the SPI. SIX selects them by free-float-adjusted market capitalisation and by turnover on the exchange. SIX caps the weight of each stock at 18 percent every quarter (source: SIX).
  • There are no uniform thresholds for large, mid and small caps. Index providers set the boundaries according to their own methodology.
  • Market capitalisation alone does not show whether a share is cheap or expensive. For that, the market value is set against earnings, revenue or book value.

Frequently asked questions

Multiply the current share price by the number of shares outstanding. If a company has several listed share classes, such as registered and bearer shares, calculate each class at its own price and add up the results.
In a market-cap-weighted index, each stock is weighted in proportion to its market value. Large companies therefore move the index more than small ones. If the price of a few heavyweights rises sharply, their weight grows with it, and the index can become concentrated in a few stocks. For the SMI, SIX caps the weight of individual stocks. With equal weighting, by contrast, every stock receives the same share.
Market capitalisation counts all shares outstanding. Free float, called Streubesitz in German, covers only the part that is freely tradable on the exchange. Index providers such as SIX rely on free-float-adjusted market capitalisation. A stock with a large family stake therefore carries weight in the index only with its tradable portion.

Part of the topic

Saving & Investing

Sources: SIX, Swiss Market Index (SMI)

This entry is for general information purposes only and does not constitute investment, legal or tax advice. It is a simplified summary of the legal position and tax treatment.