Shares Outstanding and Market Capitalization
Stock A is 5 million KRW per share, Stock B is 50,000 KRW per share. So is A a company 100 times bigger? Looking at the price alone, you can't answer this question.
A Company's Size = Market Capitalization
You can't tell a company's size from the stock price alone. If a company at 5 million KRW per share issued only 100 shares, the whole company is worth 500 million KRW; if a company at 50,000 KRW per share issued 100 million shares, it's worth 5 trillion KRW.
So to see "how much the market values a company," you have to look at market capitalization. Market cap is a company's true size.
Market Cap = Price × Number of Shares
The formula for market cap is very simple.
Market cap = current stock price × number of shares issued (listed)
For example, if a company's stock price is 80,000 KRW and it has 6 billion listed shares, its market cap is 80,000 KRW × 6 billion = 480 trillion KRW. When the price rises or the number of shares increases, the market cap changes accordingly.
Expressions in the news like "No. 1 in market cap" or "market cap tops 500 trillion" are all results of this calculation.
Here "shares issued" and "listed shares" are used interchangeably in everyday terms, meaning the number of shares listed on the exchange and used to calculate market cap. (Source: Namuwiki — market capitalization)
Listed Shares vs. Free Float
There are two concepts for the number of shares, and they need to be distinguished.
Listed shares are the total number of shares a company has issued and put on the exchange. Market cap is usually calculated with these listed shares.
Free float is the count of only the shares among them that can actually be traded in the market. Shares that are usually locked up and not sold, like those of major shareholders or treasury stock, are excluded. When the free float is small, the stock price can swing greatly even on small trades.
Major indices such as KOSPI 200 are calculated reflecting the free-float rate, so the simple market cap and the market cap reflected in the index can differ. (Source: FnGuide — Index Logic)
Things to Watch When Looking at Market Cap
Market cap is just the price the market has set "at this very moment"; it doesn't guarantee a company's actual performance or future value. It can rise and fall greatly even within a single day depending on market sentiment.
Also, a large market cap doesn't necessarily mean safe, and a small one doesn't necessarily mean risky. There's plenty of history of large companies falling more than -50%. Remember that market cap is just a "ruler" for measuring a company's size, not the answer to an investment decision in itself.
Preguntas frecuentes
Q. When new shares are issued (a rights offering), what happens to market cap?
Since the number of shares increases, all else equal it is a factor that raises market cap. However, issuing new shares often dilutes existing shareholders' stakes, so the stock price is frequently adjusted; in reality, changes in both price and share count are reflected together. Changes in the number of shares must be checked together when looking at market cap.
Q. If a stock is cheap (a few thousand KRW per share), is it undervalued?
No. A low per-share price and a company being undervalued are entirely different matters. A company's size is measured by market cap, and whether it is expensive or cheap must be assessed separately with metrics like price relative to earnings (PER). You can't judge just by the size of the stock-price number itself.
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