Study Notes

Shares, Share Prices and Market Capitalisation

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 30 Jan 2019

The ownership of an incorporated business is determined by who owns the shares - otherwise known as the "shareholders"!

WHAT IS A SHARE?

A share is an individual part of the total issued share capital of a company.

Most shares that are issued by a company are “ordinary shares”. This means:

  • Equal voting rights based on number of shares held (shareholding)
  • The shareholding % = the number of shares held compared with the total number of shares issues
  • Shares qualify for a dividend –but, only if one is paid

HOW do SHARES AND SHARE PRICES DETERMINE THE VALUE OF A COMPANY?

The value of a company is ultimately determined by the price at which shares are bought and sold. A common term for the total value of a quoted company (i.e. whose shares are traded on a stock market) is market capitalisation.

Market capitalisation represents the total market value of the issued share capital of the company. It is calculated using this formula:

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.