Index Workout
- 02:10
Calculate the market cap and float-adjusted market cap of index constituents.
Glossary
Market Capitalization s&p 500Transcript
This workout gives us data for two companies. For company A, we have the outstanding number of shares, the price per share, and the percentage of the outstanding shares that are part of the free float. We are given the same information for company B, the number of outstanding shares, the share price, and the free float. And the question is, if both of these companies were members of the S&P 500, which company would have the higher weighting in the index? Now we know that the S&P 500 uses the float adjusted methodology, so it's not enough to simply take the number of outstanding shares in the share price. We also need to incorporate the percentage of those shares that are part of the free float. So for company A, let's calculate the market cap, market cap being the number of shares outstanding times the price per share. And then we need to float adjust this by multiplying it by the percentage of those shares that are free float. And in this case, it's 100%, so there is no change. So we get this float adjusted market cap of 20.5 billion, doing the same thing for company B, company B's market cap, where we use the total number of shares outstanding. And the price per share gives us 31.2 billion. However, the free float is only 70% of the total number of shares, and that results in a lower float adjusted market cap of 21.87 billion. So in terms of which of these two companies would have the higher weighting in the index, that would be company B, because even on a float adjusted basis, it has the higher market cap.