There are many determinants when it comes to valuing the size of a company which could be in terms of revenues, profits, cash, foothold or a host of factors but the single biggest contributor happens to be Market Capitalisation or what is loosely termed as M-Cap. Presently, the most valued company in the world happens to be Apple and it's because of the market value that it has ascertained while being traded in the bourses. However it should be noted that there are closely held companies which are not listed in the stock exchanges and for these market capitalisation will not be available or be applicable.
Market Capitalisation in simple terms is the value that is derived at by multiplying the total number of shares of a company by it's present share price value. This is also one of the easiest ways to value the worth of a company in the open market.
In the stock market, weights are assigned to companies based on it's value of Market Capitalisation. Companies are assigned as Large Cap, Mid Cap, Small Cap based on the Market Capitalisation. There are even made up classifications such as Mega Cap, Micro Cap, Nano Cap based on the market size.
Market Size Definition:
The common definition of Market Size is as follows:
Mega Cap: Companies with Market Capitalisation of greater than 200 Billion Dollars (>200Billion$)
Large Cap: Companies with Market Capitalisation of greater than 10 Billion Dollars (>10Billion$ <200Billion$)
Mid Cap: Market Capitalisation of above 2 Billion and lower than 10 Billion Dollars (>2Billion$ < 10Billion$)
Small Cap: Market Capitalisation of up to 2 Billion (>300Million$ <2Billion$)
Micro Cap: Market Capitalisation between 50 Million to 300 Million Dollars (>50Million$ < 300Million$)
Nano Cap: Market Capitalisation below 50 Million Dollars (<50Million$)
From an Indian perspective, stocks are defined in Lakhs and Crores and is as follows:
Mega Cap: Companies with Market Capitalisation greater than 1 Lakh Crores (>1Lakh Crores)
Large Cap: Companies with Market Capitalisation of greater than 20,000 Crores (>20000 Crores <1 Lakh Crores)
Mid Cap: Market Capitalisation of above 5000 Crores and lower than 20,000 Crores (>5000 Crores <20000 Crores)
Small Cap: Market Capitalisation of up to 5000 Crores (>500 Crores <5000 Crores)
Micro Cap: Market Capitalisation between 100 to 500 Crores (>100 Crores <500 Crores)
Nano Cap: Market Capitalisation of less than 100 Crores (<100 Crores)
The above classifications are broadly approximations and may tend to change over a period of time. In India, the broad usage is only with respect to Large, Medium and Small. Very Large can also be equated as Mega and can include companies belonging to the Nifty 50 index such as Reliance, TCS, HDFC Bank, ITC etc. Micro Cap are also termed as Penny stocks.
Stock Type Classification:
Stocks by themselves are also classified into different types based on it's history and the opportunities it derives and provides in the market. Let's look in brief at some of the popular types which gives an idea to the shareholder as to what they are venturing into:
- Blue Chip Stocks: These are usually large cap stocks that are leaders in their particular sector and have a solid history of long term growth performance
- Dividend or Income Stocks: These are stocks with a track record of regularly paying dividends to the shareholders
- Defensive Stocks: These are stocks that tend to be less sensitive to varied market conditions. They are those that do not get swayed much by the volatility prevailing and are the safer bets in times of crisis.
- Growth Stocks: These are stocks that are expected to grow rapidly in the future horizon with respect to earnings and revenue. They are expected to grow at a faster rate compared to the broader market
- Value Stocks: These are stocks that trade at a discount to what a company's performance actually indicates. Hence these are seen as potential value un lockers as they are attractively priced
- Cyclical Stocks: These are stocks that tend to get affected by the changes in the overall market. They can be seasonal in nature and tend to perform better when market conditions are favorable to it's sector
- Penny Stocks: These are stocks with price trading at a single digit and known to be volatile
- IPO Stocks: These are stocks which get issued through an initial public offering. They can get listed either at a premium or discount and it's performance is tracked significantly once they are listed
- ESG Stocks: It is expanded as environmental, social and governance stocks and these emphasize mainly on environmental protection, social justice and ethical management practices. These are the stocks that focus on carbon emission and renewable energy measures
- Common or Ordinary Stocks: These stocks entitle shareholders to generated profits and voting rights but have rights to a company's assets in liquidation only after preferred stock shareholders
- Preferred Stocks: These stocks entitle shareholders to generated profits but do not provide voting rights, however they get first preference to a company's assets when a company is dissolved or bankrupt
Market Capitalisation by Country:
In terms of countries with highest Market Capitalisation, the United States rules the roost accounting for more than half of the global market capitalisation of all the countries put together. Let's look below at the top 10 countries ranked by Market Capitalisation.
1) United States of America - 45 Trillion $
2) China - 6.5 Trillion $
3) Japan - 4.4 Trillion $
4) India - 3.1 Trillion $
5) United Kingdom - 3 Trillion $
6) France - 2.8 Trillion $
7) Saudi Arabia - 2.6 Trillion $
8) Canada - 2.4 Trillion $
9) Germany - 2.3 Trillion $
10) Switzerland - 2.1 Trillion $
This is the approximate market size of different countries as of June 2023 and may be subject to change. US however does not look to be displaced accounting for a majority of the global M-Cap. India recently pipped the UK to 4th position due to a surge in it's markets. Saudi Arabia is there on the list purely due to just one company - the oil and gas giant Saudi Aramco which rakes in more than 90% of the country's market capitalisation. In Europe, the 3 popular indices tracked include the DAX (Germany), FTSE (UK) and France (CAC).
Market Capitalisation - Largest Company By Country:
It would also be prudent to look at the top company contributing to Market Capitalisation in each of these countries:
1) United States of America - Apple - 2.8 Trillion $
2) China - Tencent - 408 Billion $
3) Japan - Toyota - 202 Billion $
4) India - Reliance - 203 Billion $
5) United Kingdom - Astra Zeneca - 230 Billion $
6) France - Louis Vuitton Moet Hennessy - 441 Billion $
7) Saudi Arabia - Saudi Aramco - 2.1 Trillion $
8) Canada - Royal Bank of Canada - 129 Billion $
9) Germany - SAP - 155 Billion $
10) Switzerland - Nestle - 321 Billion $
Thus, if you see Apple alone based on it's Market Capitalisation is far greater than numerous countries combined Market Capitalisation. In US, there are catchy terminologies used to describe a set of tech heavy stocks such as FAANG (Facebook, Apple, Amazon, Netflix, Google), MAAMA (Meta, Apple, Amazon, Microsoft, Alphabet). In France, the top 4 companies all happen to be luxury brands viz LVMH, L'oreal, Hermes and Dior whereas in UK companies from different sectors make up the list such as Astra Zeneca, Shell, HSBC, Unilever, Diageo etc. Japan has auto companies like Toyota, Mitsubishi on its coveted list so does Germany with the likes of Porsche, Mercedes, BWM in it's list of most valued companies.
Market Capitalisation by Sector:
A sector is that section of the stock market which represents a particular industry. Through this it would be possible to know the outcome as to which company stocks happen to be market leaders within a specified environment. There are broadly 11 sectors that make up the slice of the overall stock market as per the Global Industry Classification Standard. These sectors can include many sub industries within its ambit. Lets look at the 11 different sectors and the company fighting for bragging rights as per value of Market Capitalisation within these sectors on a global scale.
1) Communication Services – Alphabet (Google) - 1.6 Trillion $
2) Consumer Discretionary – Amazon - 1.2 Trillion $
3) Consumer Staples – Walmart - 412 Billion $
4) Energy – Saudi Aramco - 2.1 Trillion $
5) Financials – Berkshire Hathaway - 733 Billion $
6) Healthcare – United Health - 459 Billion $
7) Industrials – United Parcel Services - 143 Billion $
8) Information Technology – Apple - 2.8 Trillion $
9) Materials – BHP Group - 151 Billion $
10) Real Estate – Prologis - 112 Billion $
11) Utilities – Nextera Energy - 149 Billion $
The sectors mentioned above are at the highest parent level and underneath this there are plenty of sub classifications such as for instance Industrials Sector containing Airlines, Airports, Courier Services, Construction and a host of other sub industries. Similarly Financials will include Banks, Insurances, Brokerages etc. One problem with the metric of Market Capitalisation is the fact that it fails to consider diversified businesses. For instance a company like ITC is not only in to Tobacco but also in the hotel business as well as consumer goods segment. Since M-Cap is just derived at by using the number of shares and price of share, there is no way to look at the contribution of market value of each of the sub-sectors. The only way to understand in such cases is by digging deep into the annual report to consider the businesses performed by different segments of a company.
Companies with Highest Market Capitalisation:
Listed below are the companies that possess highest value of Market Capitalisation globally
1) Apple - 2.8 Trillion $
2) Microsoft - 2.4 Trillion $
3) Saudi Aramco - 2.1 Trillion $
4) Alphabet (Google) - 1.6 Trillion $
5) Amazon - 1.2 Trillion $
6) Nvidia - 0.95 Trillion $
7) Tesla - 0.77 Trillion $
8) Berkshire Hathway - 0.73 Trillion $
9) Meta (Facebook) - 0.69 Trillion $
10) TSMC (Taiwan Semiconductor Manufacturing Company) - 0.53 Trillion $
Out of this above list, 8 of the 10 belong to USA with Saudi Aramco and TSMC owned by Saudi Arabia and Taiwan respectively making up the remaining. This list however keeps undergoing a change and can alter often based on the Market Capitalisation value going upwards or dropping. Companies like Visa, United Health, J&J which were earlier part of the top 10 most valued have slipped. Facebook has made a re-entry and at one time slipped even below 20 in the rankings.
There have however been only 8 companies ever to reach the monumental mark of 1 Trillion Dollar Market Capitalisation at anytime during their journey and it includes Apple, Microsoft, Saudi Aramco, Alphabet, Amazon, Facebook, Tesla, Nvidia. Nvidia was the latest entrant to this landmark before falling off a bit. Facebook and Tesla are still a far cry from their highest point reached. Apple is the only company to have touched a value of 3 Trillion Dollars although it has receded from it's peak but however it holds bragging rights in being the first corporation ever to summit the scale of 1Trillion$, 2Trillion$ and 3Trillion$ Market Capitalisation respectively.
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