- Free-float is defined as the total number of shares, which are actually available for day-to-day trading (hence this excludes shares locked with promoters, institutional investors, government etc)
- Multiplying the number of free-float shares of a company with the current market price gives us the value of free-float market capitalization (FFMC)
- How is this used?
o Suppose in base year, FFMC of A: Rs.100,forB: Rs.200 and so on, adding up to overall FFMC for all 30 companies in the index: Rs.1000
o Base value of the index: Rs.100
o Establish a proportional relationship between base value and FFMC (termed as index divisor) by equating the overall FFMC (Rs.1000) to value of the base (100 points)
o Hence, each Rs.10 of FFMC is worth 1 point in terms of base value of the index
o In other words, if market cap rises by Rs.100, index should rise by 10 points
Free-float market capitalization defines how much money will be required if one were to buy all the shares of a company that are available for trading
- Multiplying the number of free-float shares of a company with the current market price gives us the value of free-float market capitalization (FFMC)
- How is this used?
o Suppose in base year, FFMC of A: Rs.100,forB: Rs.200 and so on, adding up to overall FFMC for all 30 companies in the index: Rs.1000
o Base value of the index: Rs.100
o Establish a proportional relationship between base value and FFMC (termed as index divisor) by equating the overall FFMC (Rs.1000) to value of the base (100 points)
o Hence, each Rs.10 of FFMC is worth 1 point in terms of base value of the index
o In other words, if market cap rises by Rs.100, index should rise by 10 points
Free-float market capitalization defines how much money will be required if one were to buy all the shares of a company that are available for trading
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