To determine market capitalization, which type of shares should be excluded from the calculation?

To determine market capitalization, which type of shares should be excluded from the calculation?

• A. Preference shares
• B. Authorized shares
• C. Outstanding shares
• D. Treasury shares

Answer: (C)

Market capitalization is calculated by multiplying the current share price by the number of shares that are currently outstanding and owned by investors. Shares that are not outstanding—specifically, treasury stock that the company has repurchased and holds in its own treasury—should be excluded from this calculation because they are not in the hands of public investors or traded in the market. Authorized shares are merely a potential pool and are not issued yet, so they aren’t part of market cap either. Therefore, the shares to exclude are the treasury shares.

Market capitalization is calculated by multiplying the current share price by the number of shares that are currently outstanding and owned by investors. Shares that are not outstanding—specifically, treasury stock that the company has repurchased and holds in its own treasury—should be excluded from this calculation because they are not in the hands of public investors or traded in the market. Authorized shares are merely a potential pool and are not issued yet, so they aren’t part of market cap either. Therefore, the shares to exclude are the treasury shares.