Know How The Nigerian Stock Exchange Works (1) : What Market Capitalization Is (With Real Life Scenarios)

Market capitalization refers to the total dollar market value of a company’s outstanding shares of stock. Commonly referred to as “market cap,” it is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.

Also known as market value, it can also be said to be the share price times the number of shares outstanding. Listed domestic companies are the domestically incorporated companies listed on the country’s stock exchanges at the end of the year. Listed companies do not include investment companies, mutual funds, or other collective investment vehicles.

As an example, a company with 10 million shares selling for N1000 each would have a market cap of N10 billion(10 million multiplied by 1000). The investment community uses this figure to determine a company’s size, as opposed to using sales or total asset figures. In an acquisition, the market cap is used to determine whether a takeover candidate represents a good value or not to the acquirer.

Key Points To Note

Market capitalization refers to how much a company is worth as determined by the stock market. It is defined as the total market value of all outstanding shares.
To calculate a company’s market cap, multiply the number of outstanding shares by the current market value of one share.
Companies are typically divided according to market capitalization: large-cap (Trillions of Naira or more), mid-cap (Multiples of billions of Naira), and small-cap (few billions of Naira).

How It Actually works in Nigeria

In Nigeria, companies have to register the number of authorized shares with the Corporate Affairs Commission while the outstanding shares are those that have been issued to the public for subscription either by way of rights, subscription or private placement. Companies can seek approval to convert debts, upon maturity, to ordinary shares (in the case where a convertible bond is issued). When done, this forms part of the outstanding shares.

The market capitalization of companies on an exchange is the product of all companies listed on the exchange multiplied by their respective current market prices. An increase in market capitalization (is also called market value) indicates that either new shares have been added and/or prices of companies are on the increase or that there has been a debt conversion to equity and/or the prices of companies have increased. An increase in market capitalization is a good sign for the capital market.

In 2019, market capitalization for Nigeria was 43,921 million US dollars. Though Nigeria market capitalization fluctuated substantially in recent years, it tended to increase through 1997 – 2019 period ending at 43,921 million US dollars in 2019.

Below is a grid showing performances by Market Capitalization of companies(top performers) on the floor of the Nigerian Stock Exchange for Wednesday, 24th of February, 2021(INFOGRAPHIC via Niarametrics)