The FTSE 100 (The Footsie) is a list of the 100 largest companies listed on the London Stock Exchange.
The FTSE 100 list is used as the basis of a share index (a mathematically constructed measurement of the UK stock markets‘ value) to gauge the financial health of the UK stock market as a whole.
There are obvious flaws with this methodology such the UK stock markets’ value is heavily weighted in favour of the 100 largest companies when there are as of today’s date circa 3,000 companies listed on the London Stock Exchange including the AIM.
Nevertheless when pundits, news readers, financial advisors and bloggers refer to the value of the UK stock market – especially ‘blue chip’ stocks – they are usually referring to the FTSE 100.
The size of a company for it’s inclusion in the FTSE 100 index is measured by it’s market capitalisation.
Quick tip: The name FTSE is shorthand for Financial Times Stock Exchange and is derived from a time when the FT and the London Stock Exchange collated and maintained the index in a joint venture. This has since been taken over by the FTSE Group, a wholly owned subsidiary of The London Stock Exchange Group.
What Is Market Capitalisation
The market capitalisation (or market cap for short) for an individually listed company is computed as follows:
Share price x number of shares outstanding
Today’s share price information from ADVFN for Royal Dutch Shell (LSE: RDSA) – one of the UK’s largest listed companies as of today’s date – is £16.95:
You can see from the graphic above that Royal Dutch Shell has 3,894,580,000 shares in issue
Share price £16.95p x number of shares outstanding 3,894,580,000 = £66,013,131,000
That’s sixty six billion pounds.
The market capitalisation of a stock is simply it’s stock market value.
To put it another way, if you wanted to buy all the shares of Royal Dutch Shell to become a 100% shareholder as of today’s price then it would cost you £66 billion because that is what the stock market values Royal Dutch Shell at.
Here are a few points to note:
- As share prices rise and fall daily so will the market cap.
- Listed companies can either issue more shares or buy back shares from the market which would again have an impact on the calculation of their stock market value.
- The constituents of the FTSE 100 are periodically updated to throw out companies that have lost market value and include those that have gained market value
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