Editing Market capitalization (section)

== Calculation ==
Market cap is given by the formula <math display="inline"> \text{MC} = N \times P </math>, where ''MC'' is the market capitalization, ''N'' is the number of common shares outstanding, and ''P'' is the market price per common share.<ref name=":1"/>

For example, if a company has 4 million common shares outstanding and the closing price per share is $20, its market capitalization is then $80 million. If the closing price per share rises to $21, the market cap becomes $84 million. If it drops to $19 per share, the market cap falls to $76 million. This is in contrast to mercantile pricing where purchase price, average price and sale price may differ due to transaction costs.

Not all of the outstanding shares trade on the open market.  The number of shares trading on the open market is called the float.  It is equal to or less than ''N'' because ''N'' includes shares that are restricted from trading.  The [[Capitalization-weighted index#Free-float_weighting|free-float market cap]] uses just the floating number of shares in the calculation, generally resulting in a smaller number.