Market capitalisation

The calculation is one multiplication, and its usefulness comes from what it makes comparable. A share price on its own says nothing about the size of a company, because the price depends on how many pieces the company has been divided into: a company can halve its share price with a split and be worth exactly what it was worth the moment before. Capitalisation removes that arbitrariness, which is why companies are sorted into large, mid and small capitalisation bands by this figure and never by price.

Index construction uses a modified version of it. Most published indices weight their constituents by free float capitalisation, counting only the shares actually available to trade and excluding blocks held by founders, governments or cross holdings. A company with a small free float therefore carries less weight in an index than its headline capitalisation suggests, and the two figures are routinely quoted side by side without being labelled as different measurements.

The figure is also not what a company would cost to buy. It values the equity alone, so a company carrying substantial debt is worth more to an acquirer than its capitalisation, which is why enterprise value, capitalisation plus net debt, is the measure used in acquisitions. And it is a price multiplied by a count, so it moves every second the market is open without anything having changed at the company.