Some stock indexes, including the S&P 500, use float-adjusted market cap to weigh component companies.
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What Is Float-Adjusted Market Capitalization?
Float-adjusted market cap is a measure of a company’s current worth as determined by the total market value of all of its “free-floating” shares of stock. Floating shares are those that are available for public trading—this category does not include non-transferable outstanding shares that are restricted because they are held by company insiders.
Often, companies issue stock options or grants as part of compensation plans, and while these shares may eventually become part of the float, they are usually restricted and non-transferable until they vest after some period of time.
How Is Float-Adjusted Market Cap Calculated?
To calculate a company’s float-adjusted market cap, simply multiply its current stock price by the number of floating shares it has outstanding. To find the float, subtract any restricted shares from a company’s total outstanding shares. This information can be found in the equity section of a company’s balance sheet, which is filed with the securities and exchange commission on a regular basis.
Formula
FAMC = Share Price * (Outstanding Shares – Restricted Shares)
or
FAMC = Share Price * Floating Shares Outstanding
The float includes only outstanding shares that are available for public trading and are not restricted or held by company insiders.
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Float-Adjusted vs. Traditional Market Cap: What’s the Difference?
Traditional market cap is also a measure of a company’s current value as determined by stock price, but unlike the float-adjusted version, it takes all outstanding shares—not just floating shares—into account in its calculation (MC = Share Price * Shares Outstanding). For this reason, a company’s traditional market cap is always equal to or higher than its float-adjusted market cap.
If a company has no restricted shares outstanding, its float-adjusted market cap is equal to its traditional market cap. If a company has any restricted shares outstanding, its traditional market cap is higher.
What Is Float-Adjusted Market Cap Used For?
Many stock indexes, including the S&P 500, use float-adjusted market cap instead of traditional market cap to determine how much weight each component company should have in the index’s calculation. By doing so, such indexes avoid overweighting companies that have a significant number of restricted shares outstanding that cannot currently be bought or sold on the open market.
Which Major Stock Indexes Weigh Companies by Float-Adjusted Market Cap?
S&P 500NYSE CompositeMSCI World IndexFTSE 100 Index
