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NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

In the context of equity markets, what does the term 'free float market capitalisation' of a company represent?

Free float market capitalisation is the market price multiplied by the number of shares freely available to public investors, excluding promoter and locked-in holdings. It differs from full market capitalisation, which uses all issued shares, and it is the basis for weighting most major indices.

  1. AMarket price multiplied by the shares available for trading by public shareholders, excluding promoter and other locked-in holdingsCorrect
  2. BMarket price multiplied by the total number of issued shares including promoter holdings
  3. CBook value per share multiplied by the number of public shares
  4. DTotal paid-up capital plus reserves of the company

Explanation

Free float market capitalisation counts only shares readily available for trading, so promoter holdings and locked-in shares are excluded. Option B describes full market capitalisation. Option C uses book value rather than market price, and option D is net worth.

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