What is a free float index?

The free-float methodology is a method of calculating the market capitalization of a stock market index’s underlying companies. With the free-float methodology, market capitalization is calculated by taking the equity’s price and multiplying it by the number of shares readily available in the market.

What is a free float requirement?

Free float, also known as public float, refers to the shares of a company that can be publicly traded and are not restricted (i.e., held by insiders. In other words, the term is used to describe the number of shares that is available to the public for trading in the secondary market.

What do you mean by free float Capitalisation?

In free float market capitalisation, the value of the company is calculated by excluding shares held by the promoters. For example if a company has issued 10 lakh shares of face value Rs 10, but of these, four lakh shares is owned by the promoter, then the free float market capitalisation is Rs 60 lakh.

What is the difference between market capitalization and free float?

Market cap is based on the total value of all a company’s shares of stock. Float is the number of outstanding shares for trading by the general public. The free-float method of calculating market cap excludes locked-in shares, such as those held by company executives and governments.

Why is it important to use free float index?

The free float index represents the market sentiments more rationally and accurately as it considers only active traded shares in the market and no promoter or any shareholder holding major % can influence the market easily The method makes the index’s base broader as it reduces the concentration of the top companies in the index

How does free float methodology affect the stock market?

A free-float methodology tends to rationally reflect market trends because it only takes into consideration the shares that are available for trade and it makes the index more broad-based because it lessens the concentration of the top few companies in the index.

How to calculate the free float of a company?

Currently, as indicated on the company’s balance sheet, its total outstanding common shares number 500,000 (50,000 of which are held by the CEO and CFO of the company) while 80,000 shares are held in treasury. Determine the free float of Company A.

What does the percentage of free float mean?

The free float percentage, also known as float percentage of total shares outstanding, simply shows the percentage of shares outstanding that trade freely. In the preceding example, the free float percentage would be 90% (450,000 / 500,000). A company’s shares outstanding may decrease or increase due to management decisions.