World Of Investment term that you must know and understand if you want to dive into the world of investment. Why? Because this is a very important consideration before you make a very important financial decision.
Well, by understanding the market cap, you can take more certain steps and also minimize the risk when you want to invest. For that, read this article about market cap until the end.
Definition of World Of Investment
Market capitalization or cap is the aggregate market value of a business or company. According to Investopedia , market capitalization can be calculated by multiplying the total number of outstanding shares or shares in circulation in a company by the current market price of one share of its stock.
This term is used by investors to find the size of a company. According to the official website of The Balance , by knowing the market cap of a company, you will know how much money you have to spend to buy all the shares of the desired company.
Factors Affecting World Of Investment
There are at least two factors that affect market cap. First, the number of shares outstanding in the market and the price per share. These conditions certainly make the market capitalization value increasingly dynamic. This fluctuation is also in accordance with the movement of stock prices.
Well, stock prices are also greatly influenced by market sentiment. For example, several pharmaceutical companies whose stock prices had increased in 2020.
Company Scale Based on Cap
The size of a company can be seen based on the market cap value. In the world stock exchange, the market cap level will be considered large if its value is above US$10 billion. Then, the market cap will be considered medium if its value is between US$2 billion and US$10 billion. While if its value is less than US$2 billion it will be considered small.
However, if the market cap value above is applied in Indonesia, then almost all companies in Indonesia are in the medium to small market cap. For that, the capital market in Indonesia has its own measurement value in dividing companies based on their market cap value.
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1. Large Capitalization Stocks (Blue Chip)
A company’s stock will be called Blue Chip if its market cap value is Rp10 trillion or more. This value is considered very large for a domestic company.
Companies that are included in Blue Chip companies are known to have financial performance that tends to be more stable. Some examples of Blue Chip companies in Indonesia are Bank Central Asia, Tbk, (BBCA), Unilever Tbk. (UNVR), Astra International Tbk, (ASII), and many more.
These blue chip stocks are generally the choice of investors in investing because they have a more conservative risk profile. Moreover, most investors generally choose blue chip stocks because they diligently provide dividends.
2. Medium Capitalization Stocks (Second Liner)
The second order below blue chips is middle cap stocks. Generally, this row of stocks is also more often referred to as second liners, in accordance with its condition which is one level below blue chips.
Middle cap stocks have a market cap value ranging from IDR 1 trillion to IDR 10 trillion. Based on this scale, those included in this category are indeed not as big as Blue Chips companies. However, these stocks are very good to be included in an investment portfolio because they are able to provide promising profits.
Various stocks that fall into the second liner category are generally filled by various companies that are developing. If blue chip companies are classified as more stable with a more conservative profit level, then second liner companies are at a more aggressive potential.
How to Calculate Market Cap
As we have explained before, to calculate a company’s market cap we only need to multiply the number of shares owned by the company by the share price per share. Well, the formula for calculating the cap is as follows.
Investment Strategy Based on Market Cap Size
1. Small cap
Companies with small market capitalization generally have a value of less than US$250 million to 2 billion. Companies that fall into this category are generally new companies that have a higher level of development potential.
You can expect to make a solid profit from a company that has the potential to grow rapidly like this. However, there is always the possibility of loss that you should also consider.
Usually, companies that are classified as small market cap are companies that are very vulnerable to the impact of economic fluctuations. For that reason, their company’s stock prices are more easily fluctuated and also do not have as good liquidity as large companies that are more stable.
2. Mid-cap
Mid-cap is a company that has a medium market cap value. Those who fall into this category generally have quite rapid development and updated 2024 mobile phone number powder still have the opportunity to grow bigger. However, there are also very drastic business losses in it.
The risk of investing in mid-cap companies tends to be lower than small caps. In addition, the opportunity for growth is also relatively greater than other well-known companies that have a larger market cap.
Closing
Thus is our complete explanation of market cap. So, or cap is the aggregate market value of a business or company that can be calculated phone number list by multiplying the total number of outstanding shares or shares in circulation in a company by the current market price of each share.
There are three types of market caps, namely small-cap, mid-cap, and large cap. To minimize the risk in investing in stocks, you can diversify your portfolio in several companies with different market cap categories.
In order to do it right, you need to have a good risk tolerance, financial goals, investment time horizon, and business financial reports.
