Project Report on

“Difference between Total Market Capitalization and Free Float Market

Capitalization and what is Impact cost.”

Submitted to

Vicky Khandelwal

Finance Trainee

Praedico Global Research Pvt. Ltd.

By

Abhishek Patil

VBS Mumbai

PGDM 2021-23

ON

08-06-2022

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TASK01 :- Difference between Total Market Capitalization and Free Float
Market Capitalization.

1. MARKET CAPITALIZATION :-

i. 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. It is
calculated by multiplying the number of outstanding shares by the current market
value of one share.
ii. Market cap is often used to determine a company's size, then evaluate the company's
financial performance to other companies of various sizes. In investing, companies
with larger market capitalization are often safer investments as they represent more
established companies with generally longer history in business.
iii. For example, suppose that ABC Company has 20,000 outstanding shares in the
market and each share of ABC Company is priced at Rs 20. Then, the market
capitalisation of ABC Company will be calculated as follows: Outstanding shares x
price per share 20,000 x 20 = Rs 4,00,000 Therefore, the market capitalisation of
ABC Company is Rs 4,00,000.
iv. Companies are typically divided according to market capitalization: large-cap (Rs
20000 crore or more), mid-cap (Rs 5000 crore to Rs 20000 crore), and small-cap
(Less then Rs 5000 crore).

2. Free Float Market Capitalization :-

i. In free float market capitalisation, the value of the company is calculated by excluding
shares held by the promoters. These excluded shares are the free float shares.
ii. Free float market capital would exclude the following:
a) Shares that are locked in.
b) Shares that are held by the promoters.
c) Shares that have been acquired through Foreign Direct Investment route.
d) Shares that are held by the government.
iii. For example if a company has issued 10 lakh shares of face value Rs 10, but of these,
four lakh shares is owned by the promoter, then the free float market capitalisation is
Rs 60 lakh.
iv. Free float market cap is widely used by global indices as it measures the total value of
shares being actively traded in the market.

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 3. Difference between Total Market Capitalization and Free Float Market
Capitalization:-

i. Free float market capitalisation is lower than total market capitalisation as shares held
by promoters or those that are locked in are excluded.
ii. While, earlier, full market cap was often used, these days free float is being used.
When a company needs to takeover a company and delist, it might look at full market
cap. It all depends on the need and the purpose of the data that we need.
iii. For example, ACC has a free float market cap of Rs 12,683 crores, while the full
market cap is around Rs 25,000 crores. So, it is safe to say that the amount of shares
that are readily available for trading is almost half that of the full outstanding shares.

Task 02 :- What is Impact Cost ?

i. Impact cost is the cost that a buyer or seller of stocks incurs while executing a
transaction due to the prevailing liquidity condition on the counter.
ii. it represents the cost of executing a transaction of a given security, with a specific
predefined order size, at any given point in time.
iii. Impact cost is a measure of the stock or security liquidity.
iv. Impact cost occurs when an investor is executing a transaction because of the
prevalent liquidity conditions.
v. It is a realistic measure of liquidity of the stock or security and is deemed to be closer
to the true cost of execution faced by a trader in comparison to the bid-ask spread.
vi. Ideal Price = (Best Buy Price + Best Sell Price)/2
vii. Impact Cost = (Actual Buy Price – Ideal Price) * 100/ Ideal cost

References :-

i. www.investopedia.com
ii. www.goodreturns.in
iii. https://economictimes.indiatimes.com/markets/stocks/news/free-float-market-
capitalisation-determines-index-weightage/articleshow/58178327.cms?from=mdr
iv. www.tavaga.com
v. https://economictimes.indiatimes.com/definition/impact-cost